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 June 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 or 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
requiring to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of Registrant's shares outstanding on August 3, 1998 was 6,545,367
shares of Common Stock, $.01 per value, and 1,004,025 shares of Class A Common
Stock, $.01 par value.
Page 1 of 187 Pages
Exhibit Index on Page 34
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
----
PART 1 - CONSOLIDATED FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
Three Months and Six Months Ended
June 30, 1998 and 1997 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 199 6
Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 1998 8
Notes to Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 29
Item 2 Changes in Securities 30
Item 3 Defaults Upon Senior Securities 30
Item 4 Submission of Matters to a
Vote of Security Holders 30
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 32
Signatures 33
Index to Exhibits 34
2
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 2,460 $ 3,368
Short-term investments -
available for sale 103 103
Accounts receivable (net
of allowance for doubtful
accounts of $2,695 in 1998
and $2,422 in 1997) 8,889 6,802
Notes receivable (net of
allowance for doubtful
accounts of $6,205 in 1998
and $5,441 in 1997) 864 679
Advances to participating providers 1,690 2,860
Other receivables (net of allowances
for doubtful accounts of $1,548 in
1998 and $1,137 in 1997) 1,702 4,873
Taxes receivable 284 284
Deferred tax asset 3,927 3,927
Prepaid expenses and other
current assets 570 522
------- -------
TOTAL CURRENT ASSETS 20,489 23,418
------- -------
PROPERTY AND EQUIPMENT (net of
accumulated depreciation and
amortization of $7,185 in 1998
and $6,528 in 1997) 10,947 11,094
OTHER ASSETS:
Restricted cash 5,771 5,771
Notes receivable (net of allowance
for doubtful accounts of $1,938
in 1998 and $2,655 in 1997) 28 122
Preoperational costs (net of
accumulated amortization of
$3,182 in 1998 and $2,562 in 1997) 819 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 $1,058 in 1998 and $869 in 1997) 3,385 3,302
Goodwill (net of accumulated
amortization of $2,661 in 1998
and $2,339 in 1997) 7,068 7,391
------- -------
TOTAL $48,507 $52,538
======= =======
3
<PAGE>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(unaudited)
LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,311 $ 618
Medical costs payable 17,212 16,199
New York State demographic pool 150 1,122
Accounts payable 876 1,188
Accrued expenses 2,549 3,722
Unearned income 7,119 5,684
------ -------
TOTAL CURRENT LIABILITIES 29,217 28,533
LONG-TERM LIABILITIES:
Long-term debt 19,841 25,856
------- -------
TOTAL LIABILITIES 49,058 54,389
------- -------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY/(DEFICIENCY
IN ASSETS)
Class A Common Stock ($.01 par
value; 1,119,015 and 1,199,015
shares authorized; 1,004,025 and
1,084,025 shares issued and outstanding
at June 30, 1998 and December 31, 1997,
respectively) 10 11
Common Stock ($.01 par value;
20,000,000 shares authorized,
6,558,217 and 5,228,217 shares
issued at June 30, 1998 and
December 31, 1997, respectively) 65 52
Additional paid-in capital 31,612 26,624
Accumulated deficit (38,687) (34,987)
Statutory reserve 6,656 6,656
------- -------
(344) (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
June 30, 1998 and December 31,
1997, respectively) 202 202
------- -------
TOTAL SHAREHOLDERS' EQUITY/(DEFICIENCY
IN ASSETS) (551) (1,851)
------- -------
TOTAL $48,507 $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)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE:
<S> <C> <C> <C> <C>
Premiums earned $38,006 $36,614 $73,025 $ 70,444
Interest and investment income 320 229 589 555
Other income - net 151 133 427 255
------- ------- ------- --------
TOTAL REVENUE 38,477 36,976 74,041 71,254
------- ------- ------- --------
EXPENSES:
Medical expense 32,626 28,193 61,135 64,717
General and administrative
expenses 7,008 7,357 13,937 16,731
Depreciation and amortization
expense 877 933 1,789 1,879
Interest expense 448 388 880 824
------- ------- ------- --------
TOTAL EXPENSES 40,959 36,871 77,741 84,151
------- ------- ------- --------
(LOSS)/INCOME BEFORE INCOME TAXES (2,482) 105 (3,700) (12,897)
BENEFIT FOR INCOME TAXES -- -- -- --
------- ------- ------- --------
NET (LOSS)/INCOME $(2,482) $ 105 $(3,700) $(12,897)
======= ======= ======= ========
NET (LOSS)/INCOME PER SHARE - BASIC $ (0.36) $ 0.02 $ (0.56) $ (2.05)
======= ======= ======= ========
Weighted average shares of
Common Stock outstanding 6,924 6,298 6,612 6,298
======= ======= ======= ========
NET (LOSS)/INCOME PER SHARE -
DILUTED $ (0.36) $ 0.01 $ (0.56) $ (2.05)
======= ======= ======= ========
Weighted average shares of
Common Stock and Common
Stock equivalents
outstanding 6,924 8,227 6,612 6,298
======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (3,700) $(12,897)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,789 1,879
Loss on sale of assets and others -- 100
Changes in assets and liabilities:
(Increase)/decrease in accounts
receivable - net (2,087) 587
Decrease in advances to
participating providers 1,170 141
Decrease in other receivables 2,983 1,304
Increase/(decrease) in medical costs
payable 1,013 (3,576)
(Decrease)/increase in New York State
demographic pool (972) 2,360
Decrease in accounts payable,
accrued expenses and other
current liabilities (1,486) (789)
Increase in unearned income 1,435 1,415
(Increase)/decrease in prepaid
expenses and other (48) 114
Decrease in other non-current
assets - excluding preoperational
costs and account and other
receivables 96 90
Decrease in accounts receivable -
non-current - net 9 454
Decrease in taxes receivable -- 6,256
Other - net (186) (134)
-------- --------
NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES $ 16 $ (2,696)
-------- --------
6
<PAGE>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1997
---- ----
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment $ (509) $ (150)
Increase in notes receivable (90) (2)
Sale of investments -- 486
Other investing activities -- 16
------- -------
NET CASH (USED IN)/PROVIDED BY
INVESTING ACTIVITIES: (599) 350
------- -------
CASH FLOW FROM FINANCING
FINANCE 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 long-term debt (325) (363)
------- -------
NET CASH USED IN
FINANCING ACTIVITIES (325) (363)
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS (908) (2,709)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 3,368 7,869
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 2,460 $ 5,160
======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid $ -- $ --
Interest paid 774 547
See accompanying notes to consolidated financial statements.
7
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 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,
DEC 31, 1997 $ 11 $ 52 $26,624 $(34,987) $ 6,656
Net change of
valuation allowance
of short-term
investments
Conversion of Class
A Common to Common
Shares 1 1
Net loss $ (1,218)
BALANCE,
MARCH 31, 1998 $ 10 $ 53 $26,624 $(36,205) $ 6,656
Net change of
valuation allowance
of short-term
investments
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
</TABLE>
8
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 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,
DEC 31, 1997 $ -- $ (5) $ (202) $(1,851)
Net change of
valuation allowance
on short-term
investments -- --
Conversion of Class
A Common to Common
Shares --
Net loss (1,218)
BALANCE,
MARCH 31, 1998 $ -- $ (5) $ (202) $ (3,069)
Net change of
valuation allowance
on short-term
investments -- --
Conversion of Subordinated
Convertible Note into
Common Shares 5,000
Net loss (2,482)
BALANCE,
JUNE 30, 1998 $ - $ (5) $ (202) $ (551)
</TABLE>
See accompanying notes to consolidated financial statements.
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. In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments necessary to present fairly the financial position at June 30, 1998,
and the results of operations and cash flows for the interim periods presented.
Operating results for the interim period are not necessarily indicative of
results that may be expected for the year ended 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 second quarter of 1998, the Company recorded approximately $1.4
million of retroactive Medicaid premium revenue attributable to the first
quarter of 1998 ($.2 million), fiscal 1997 ($.8 million) and fiscal 1996 ($.4
million). Approximately $.7 million is for cumulative rate adjustments for a
specific county; the additional approximately $.7 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 second quarter of 1997, approximately $1.3 million of legislated
Medicaid rate adjustments were recorded, which relate to the first quarter of
1997 and the fourth quarter of 1996.
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.
10
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the second quarter of 1998, the Company increased medical expense of
approximately $2.3 million for medical expenses of prior periods in excess of
the IBNR estimates previously recorded. These expenses resulted primarily from
the payment of medical claims which had previously been denied. If these
expenses had been recorded in the period to which they apply, medical expense
for the first quarter of 1998 would have been approximately $.4 million higher,
and medical expense for 1997 and 1996 would have been approximately $1.9 million
higher.
The increase in medical expense by quarter for 1997 would be as follows:
Q1 $0.1 million
Q2 0.3 million
Q3 0.4 million
Q4 0.9 million
During the first six months of 1997, the Company recorded medical expense
approximately $2.4 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
stablization 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.
Based on verbal notification from NYSID, WellCare New York, Inc. ("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 limited 1998 individual
and small group rate increases to less than ten percent (10%). As of August 14,
1998, WCNY has collected approximately $735,000 of this amount. The Company
anticipates the balance will be collected during the second half of 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
11
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 six months of 1997. The remaining principal
balance, which is in default, is approximately $116,000 at August 14, 1998. 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
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
12
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 second half of 1998.
As of June 30, 1998, WCNY has unpaid notes receivable from these medical
practices of approximately $1,420,000, less a reserve of approximately $675,000.
Management anticipates that the proceeds from the sale of these practices will
be applied toward the payment of these notes, and any additional reserve
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 June
30, 1998), with interest payable monthly through July 31, 2000. The Buyer has
paid only interest through January 1996.
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
June 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 June 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
13
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 $0.4 million for 1998 accrued interest not paid.
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
14
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
rights or remedies. The Company is reviewing the Bank's calculations and will be
meeting 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.
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.
15
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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. This right is exercisable after filing the
relevant Form 10-Q's, and prior to December 31, 1998.
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 six months of 1998 and for the year
1997, resulted in additional deferred tax benefits of approximately $1.5 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 the second
half of 1998, 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.
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 June 30, 1998, upon
exercise of options granted or to be granted.
Options to purchase 684,279 shares of Common Stock at exercise prices ranging
from $3.01 to $24.50 per share were outstanding under the Plan on June 30, 1998.
Of the total options outstanding at June 30, 1998, options to purchase 467,367
shares were exercisable.
The Company has adopted the disclosure-only provisions of the FASB's SFAS No.
123, "Accounting for Stock Based Compensation"
16
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(SPAS 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 June 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 within the 50% to 100% discretionary contingent reserve. 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
$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 quarter ended June 30, 1998, WCNY is
below the 50% minimum by approximately $ 1,778,000. Management has had and will
continue to have ongoing discussions and meetings with NYSID 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, 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 1998 projected return to profitability. 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,
in the next twelve (12) months, within the 50% to 100% discretionary
requirement.
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 June 30, 1998.
17
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. OTHER
In March 1998, the Company engaged Bear, Stearns and 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
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
18
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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
after June 30, 1998, either the Company or the respective IPA can thereafter
exercise its option to terminate the contract. 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 the
parties are currently actively engaged in the discovery process of the
litigation.
19
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 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 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. 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, if any, would not have a material effect on the
Company's consolidated financial statements.
f. On July 21, 1998, Nasdaq informed the Company that its securities would be
delisted from the Nasdaq SmallCap Market, effective July 28, 1998, because the
Company did not meet the net tangible assets, the market capital or the net
income requirements, pursuant to Marketplace Rule 4310 (c)(02). The Company has
appealed Nasdaq's determination, and a hearing has been scheduled for September
10, 1998. Continued listing on the Nasdaq SmallCap Market is dependent on the
Company satisfying Nasdaq's requirements. There can be no assurance that the
Company's Common Stock will continue to be listed on the Nasdaq SmallCap Market.
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.
20
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
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.
21
<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. The auditors' report on the Company's 1997
financial statements states that "the Company's recurring losses from
operations, cash used in operations, deficiency in assets at December 31, 1997
and failure to maintain 100% of the contingent reserve requirement for the New
York State Department of Insurance ("NYSID") at December 31, 1997 raise
substantial doubt about its ability to continue as a going concern."
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
governmental programs or increasing the Company's medical costs. Specifically,
pending federal budgetary action
22
<PAGE>
could reduce the premiums payable to the Company under the Medicare program as
compared to previously announced 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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Revenue:
Premiums earned 98.8% 99.0% 98.6% 98.9%
Interest and other income 1.2 1.0 1.4 1.1
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Expenses:
Hospital services 26.3 19.5 26.1 24.1
Physician services 55.7 56.7 55.2 59.4
Other medical services 2.8 -- 1.3 7.3
----- ----- ----- -----
Total medical expenses 84.8 76.2 82.6 90.8
General and administrative 18.2 19.9 18.8 23.5
Depreciation and amortization 2.3 2.5 2.4 2.6
Interest and other expenses 1.2 1.1 1.2 1.2
----- ----- ----- -----
Total expenses 106.5 99.7 105.0 118.1
(Loss)/income before income taxes (6.5) 0.3 (5.0) (18.1)
Benefit for income taxes -- -- -- --
----- ----- ----- -----
Net (loss)/income (6.5)% 0.3% (5.0)% (18.1)%
----- ----- ----- -----
STATISTICAL DATA:
HMO member months enrollment 215,401 226,234 423,622 460,025
Medical loss ratio (1) 85.8% 77.0% 83.7% 91.9%
General and administrative
ratio (2) 18.2% 19.9% 18.8% 23.5%
- ------------------------
(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.
23
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998
COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Premiums earned in the second quarter of 1998 increased by 3.8%, or $1.4
million, to $38.0 million from $36.6 million in the second quarter of 1997.
Included in 1998 premiums earned is $1.4 million of Medicaid rate increases
attributable to 1997 and 1996. The second quarter 1997 premiums earned include
$1.3 million attributable to legislative Medicaid rate increase effected in the
second quarter of 1997 and attributable to the fourth quarter of 1996 and the
first quarter of 1997. Before giving effect to the net impact of the above
items, premium revenue would have been $36.6 million in 1998 and $35.6 million
in 1997.
Medicaid premium revenue increased $24.1%, or $2.0 million because of a 13.4%,
or $1.2 million increase, in rates and a 9.4%, or $0.8 million increase in
member months. Medicaid premium revenue, before giving net effect to the above
rate increases, would have been $8.9 million in 1998 and $7.4 million in 1997.
The increase of 20.3%, or $1.5 million is attributable to an increase in the
average member rates ($0.8 million) and increased member months ($0.7 million).
Medicare premium revenue increased 52.5%, or $3.7 million, as a result of a
50.0% increase in member months, accompanied by an increase in average per
member rates of 1.7%, or $0.2 million. Commercial premium revenue decreased
20.0%, or $4.3 million, as a result of an 18.0%, or $3.8 million, decrease in
member months and a 2.4% decrease in average rates. The decline in Commercial
membership is attributable to competition and to continuing adverse reaction to
the negative publicity received by the Company related to the restatement of its
1994 financial results in 1996. Total member months in the quarter ended June
30, 1998 decreased 4.8% to 215,401 as compared to 226,234 for the quarter ended
June 30, 1997.
Interest and other income increased 40.5%, or $0.1 million, to $0.5 million in
the second quarter of 1998, primarily due to an increase in interest income.
Medical expense increased 15.7% or $4.4 million, to $32.6 million in the second
quarter of 1998, from $28.2 million in 1997. There was a 21.5% increase on a per
member per month ("PMPM") basis and an increase as a percentage of premiums
earned (the "medical loss ratio") from 77.0% in 1997 to 85.8% 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 second quarter 1998 medical expense includes a $2.3 million charge for
adverse development relating to medical claims for 1997 ($1.7 million), 1996
($0.2 million), and the first quarter of 1998 ($0.4 million). The 1997 second
quarter medical expense includes a reduction of $1.1 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. It does not reflect $2.4 million of
adverse development expense recorded in subsequent periods, including the second
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 $30.3
million and the medical loss ratio would have been approximately 82.8%. The 1997
medical expense would have been $31.5 million and the medical loss ratio would
have been approximately 88.4%.
24
<PAGE>
General and administrative (G&A) expenses decreased 4.8%, or $0.4 million, to
$7.0 million in the second quarter of 1998 and decreased as a percentage of
total revenue (the "G&A ratio") to 18.2% in the second quarter of 1998 from
19.9% in the second quarter of 1997. The decrease in G&A expenses resulted
primarily from a decrease in administrative fees paid and a reduction in bad
debt expense.
Depreciation and amortization remained constant at $0.9 million, as there were
no significant acquisitions or dispositions of capital assets in 1997 and 1998.
Interest expense remained flat at $0.4 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.
SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Premiums earned in the first six months of 1998 increased by 3.7%, or $2.6
million, to $73.0 million from $70.4 million in the first six months of 1997.
Commercial premium revenue decreased 26.0% or $11.7 million, because of a 24.4%,
or $11.0 million, decrease in membership and a 2.1% decrease in average rates.
Medicaid premium revenue increased 37.8%, or $5.1 million because of a 22.3%, or
3.4 million, increase in rates, and a 12.7%, or $1.7 million increase in member
months. The 1998 Medicaid premium revenue includes $1.1 million of retroactive
rate increases attributable to 1997 and 1996; the six months in 1997 includes
approximately $0.2 of such increases related to 1996. Medicare premium revenue
increased 77.2% or $9.2 million, because of a 71.1% increase in member months
and an increase in average member rates of 3.5%, or $.7 million.
Interest and other income increased by 25.2%, or $0.2 million, to $1.1 million
in the first six months of 1998, primarily due to an increase in third party
reimbursements.
Medical expense decreased 5.5%, or $3.6 million, to $61.1 million in the first
six months of 1998, increased 2.6% on a per member per month basis, and
decreased as a percentage of premiums earned from 91.9% in the first six months
of 1997 to 83.7% in the first six months of 1998. The 1998 medical expense
includes a $2.3 million charge for adverse development relating to 1997 and 1996
medical claims, including $0.5 attributable to the first six months in 1997; an
$0.8 million credit relating to the unaudited pools fund distribution announced
by NYSID in the first quarter of 1998; and a $0.2 million credit to adjust the
1997 New York demographic pool liability downward to the actual liability. In
the absence of these items and the premium item above, the 1998 medical expense
would have been $59.7 million, and the medical loss ratio would have been 83.1%.
Medical expense for the six months in 1997 included a $3.2 million charge for
the estimated liability related to NYSID's audit of the demographic pool
payments and assessments for the years 1993-1996 and the first quarter of 1997;
and does not include $1.4 million of adverse development expenses and $1.0
million of miscellaneous favorable adjustments which were recorded in subsequent
periods. Before giving effect to the above items, including the premium revenue
item above, 1997 medical expense would have been $61.9 million, and the medical
loss ratio would have been 88.3%.
25
<PAGE>
General and administrative ("G&A") expenses decreased 16.7% or $2.8 million, to
$13.9 million from $16.7 million in the first six months of 1997, and decreased
as a percentage of total revenue (the "G&A" ratio) to 18.8% in the six months of
1998 from 21.4% in the six months of 1997. The decrease in G&A expenses resulted
primarily from a decrease in bad debt expense ($1.6 million), a decrease in
consulting and administrative fees ($.8 million), and a reduction in payroll and
payroll-related expenses resulting from staff reductions in January 1998 ($.3
million).
Depreciation and amortization decreased $0.1 million as there were no new
significant acquisitions or dispositions in 1998 and 1997. 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. This right is exercisable after filing the relevant Form 10-Q,
and prior to December 31, 1998.
The Company's requirements for working capital are principally to meet current
obligations, fund geographic, marketing and product expansion for HMO
operations, and maintain necessary regulatory reserves. As of June 30, 1998 the
Company had negative working capital of $8.7 million, excluding cash reserves,
and in order to eliminate this deficit the Company is dependent upon achieving
its projected return to profitability in the last half of 1998, 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.
No net cash was used by operating activities during the first six months of 1998
as compared to $2.7 million used for the first six months of 1997. The 1998 cash
operating loss of $1.9 million was funded principally by a net reduction in
receivables of $2.1 million and a $1.4 million increase in unearned income, less
a reduction in payables of $1.4 million. Cash used for capital expenditures was
approximately $0.5 million during the first six months of 1998 as compared to
$0.2 million for the same period in 1997.
26
<PAGE>
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 June 30, 1998, WellCare had required cash reserves
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 within the
50% to 100% discretionary contingent reserve requirement during 1997 and 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 quarter
ended June 30, 1998, WCNY is below the 50% minimum by approximately $1,778,000.
Management has had and will continue to have ongoing discussions and meetings
with NYSID 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, 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 1998 projected
return to profitability. 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, in the next twelve (12) months, within the 50%
to 100% discretionary requirement.
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 June 30,
1998, WCCT was in compliance with the statutory net worth requirement.
At June 30, 1998, the Company had a working capital deficit of $8.7 million,
excluding the $5.8 million cash reserve required by New York State which is
classified as a non-current asset, compared to a working capital deficiency of
$5.1 million at December 31, 1997. The increased deficiency is attributable
27
<PAGE>
primarily to the cash operating loss for the first six (6) 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 the second half of 1998
via increased membership, rate increases and further improvements in medical and
general and administrative expenses. The Company is also continuing to
aggressively pursue balances due for premium revenues, closely match the
collection of premium with the payment of provider capitation fees and fees for
other services. Approximately $6.1 million of the premiums receivable at June
30, 1998 is due from governmental agencies relating to the Medicaid program,
with approximately $3.9 million attributable to 1997 and 1996. 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 assurances that the Company will be successful in consummating a
strategic transaction.
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 will be meeting 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.
At June 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. 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 have a material adverse effect on
the Company's operations. Further,
28
<PAGE>
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 June 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 1998 and 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.
Part II - OTHER INFORMATION
Item 1 Legal Proceedings
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 are currently actively engaged in 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
29
<PAGE>
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 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.
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
On May 15, 1998, the 1818 Fund II, L.P. holder of the Company's Subordinated
Convertible Note, converted $5 million of the Note into 1,250,000 shares of the
Company's Common Stock. Shares were issued pursuant to 4(2) exemption under the
Securities Act; certificates for shares were duly legended.
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 will be meeting 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
On June 8, 1998, the shareholders of the Company held their Annual Meeting of
Shareholders in Kingston, New York. Holders of a majority of the aggregate
6,299,392 share of Common Stock and Class A Common Stock entitled to vote at the
meeting were present or represented by proxy and, accordingly, a quorum was
present. Each share of Common Stock has one (1) vote and each share of Class A
Common Stock has ten (10) votes; the classes voted together as one class on all
matters acted upon at the meeting as follows (with the total number of votes
eligible to be cast by the shareholders of record at such meeting being
15,355,617 votes):
1. To elect seven (7) Directors to serve until the 1999 Annual Meeting of
Shareholders.
30
<PAGE>
VOTES VOTES
FOR ABSTAINED
------- ---------
Charles E. Crew, Jr. 12,208,309 138,113
Mark D. Dean, D.D.S. 12,208,309 138,113
Walter W. Grist 12,208,309 138,113
Robert W. Morey, Jr. 12,130,224 216,198
John E. Ott, M.D. 12,208,309 138,113
Joseph R. Papa 12,129,982 216,440
Lawrence C. Tucker 12,130,224 216,198
2. To ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1998.
VOTES VOTES VOTES BROKER
FOR AGAINST ABSTAINED NON-VOTES
----- ------- --------- ---------
12,002,797 319,716 23,909 0
Item 5 Other Information
On July 21, 1998, Nasdaq informed the Company that its securities would be
delisted from the Nasdaq SmallCap Market, effective July 28, 1998, because the
Company did not meet the net tangible assets, the market capital or the net
income requirements, pursuant to Marketplace Rule 4310 (c)(02). The Company has
appealed Nasdaq's determination, and a hearing has been scheduled for September
10, 1998. Continued listing on the NASDAQ SmallCap Market is dependent on the
Company satisfying Nasdaq's requirements. There can be no assurance that the
Company's Common Stock will continue to be listed on the Nasdaq SmallCap Market.
31
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
Exhibit 10.40c Copy of Amended and Restated 8% Subordinated
Convertible Note, between Registrant and The
1818 Fund II, L.P.
Exhibit 10.51a Copy of Amendment to Employment Agreement
dated June 1, 1998, between Registrant and
John E. Ott, M.D.
Exhibit 10.64 Copy of Severance Agreement dated April 3,
1998 between Registrant and Jack Sizer, M.D.
Exhibit 10.65 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Columbia-Greene Health Care Alliance IPA, Inc.
Exhibit 10.66 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Dutchess Health Care Alliance IPA, Inc.
Exhibit 10.67 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Orange-Sullivan Health Care Alliance IPA, Inc.
Exhibit 10.68 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Ulster Health Care Alliance IPA, Inc.
Exhibit 11 Computation of Net Income Per Share of Common
Stock
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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: August 14, 1998
33
<PAGE>
INDEX TO EXHIBITS
All exhibits below are filed with this Quarterly Report of Form 10-Q:
EXHIBIT NUMBER
- --------------
10.40c Copy of Amended and Restated 8% Subordinated
Convertible Note, between Registrant and The
1818 Fund II, L.P.
10.51a Copy of Amendment to Employment Agreement
dated June 1, 1998, between Registrant and
John E. Ott, M.D.
10.64 Copy of Severance Agreement dated April 3,
1998 between Registrant and Jack Sizer, M.D.
10.65 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Columbia-Greene Health Care Alliance IPA, Inc.
10.66 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Dutchess Health Care Alliance IPA, Inc.
10.67 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Orange-Sullivan Health Care Alliance IPA, Inc.
10.68 Copy of IPA Service Agreement dated April 21,
1998, between WellCare of New York, Inc. and
Ulster Health Care Alliance IPA, Inc.
Exhibit 11 Computation of Net Income Per Share of Common
Stock
Exhibit 27 Financial Data Schedule
34
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
(Loss)/income before income taxes $(2,482) $ 105 $(3,700) $(12,897)
Benefit for income taxes -- -- -- --
------- ------- ------- --------
NET (LOSS)/INCOME $(2,482) $ 105 $(3,700) $(12,897)
======= ======= ======= ========
(LOSS)/INCOME PER SHARE - BASIC $ (0.36) $ 0.02 $ (0.56) $ (2.05)
======= ======= ======= ========
Weighted average shares of
Common Stock outstanding 6,924 6,298 6,612 6,298
======= ======= ======= ========
(LOSS)/INCOME PER SHARE - DILUTED $ (0.36) $ 0.01 $ (0.56) $ (2.05)
======= ======= ======= ========
Weighted average shares of
Common Stock and Common
Stock equivalents
outstanding 6,924 8,227 6,612 6,298
======= ======= ======= ========
35
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN
APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THE TRANSFER OF THIS NOTE IS RESTRICTED BY A NOTE
PURCHASE AGREEMENT BY AND BETWEEN THE 1818 FUND
II, L.P. AND THE ISSUER OF THIS NOTE, A COPY OF
WHICH IS ON FILE AT THE OFFICE OF THE ISSUER OF
THIS NOTE.
THE WELLCARE MANAGEMENT GROUP, INC.
8.0% SUBORDINATED CONVERTIBLE NOTE
DUE DECEMBER 31, 2002
New York, New York
January 19, 1996
FOR VALUE RECEIVED, the undersigned, The WellCare Management Group,
Inc., a New York corporation (the "Company"), hereby promises to pay to The 1818
Fund II, L.P. or registered assigns, at such place as the holder of this Note
shall from time to time designate to the Company in writing, on December 31,
2002, or, if such date is not a Business Day, on the next day that is a Business
Day, a total of Fifteen Million Dollars ($15,000,000) with daily interest from
the date hereof to and including the maturity hereof at the rate set forth in
Section 2 hereof, said interest being payable in quarterly installments in
arrears on the Business Day immediately preceding the last Business Day of
March, June, September and December in each year, com mencing March 31, 1996, to
the Person in whose name this Note is registered at the close of business on the
fifteenth day of the month in which the payment date occurs, and at the stated
or any accelerated maturity hereof or, if the date of any such stated or
accelerated maturity is not a Business Day, on the next day that is a Business
Day. In case an Event of Default (as defined in Section 11) shall occur and be
continuing, the entire principal amount of this Note may become or be declared
to be due and payable in the manner and
<PAGE>
2
with the effect provided herein. Certain capitalized terms used herein are
defined in Section 12. Capitalized terms not defined herein have the meanings
ascribed to them in the Note Purchase Agreement, dated as of the date hereof, by
and between the Company and The 1818 Fund II, L.P. (the "Fund"), as amended by
amendment No.1 contained in a letter agreement, dated February 28, 1997 between
the Company and the Fund ("Amendment No. 1"), and as further amended by
amendment No.2 contained in a letter agreement, dated January 14, 1998 between
the Company and the Fund ("Amendment No. 2"), and as further amended,
supplemented or modified in accordance with the terms thereof, the "Note
Purchase Agreement". This Note was originally issued on January 19, 1996 (the
"Original Note") and has been amended and restated to reflect the changes set
forth in Amendment No. 1 and Amendment No. 2 and to reflect the conversion of
$5,000,000 principal amount of the Original Note on May 15, 1998 pursuant to
Amendment No. 2.
Section 1. The Notes.
This 8.0% Subordinated Convertible Note is issued pursuant to the Note
Purchase Agreement and the holder of this Note is entitled to the benefits of
this Note, the Note Purchase Agreement and the Registration Rights Agreement and
may enforce the agreements of the Company contained herein and therein and
exercise the remedies provided for hereby and thereby or otherwise available in
respect hereto and thereto. All of the 8.0% Subordinated Convertible Notes
issued pursuant to the Note Purchase Agreement are referred to herein as the
"Notes."
Section 2. Interest.
The Company will pay interest on the principal amount hereof, until the
principal amount hereof is paid in full, at a rate of 8.0% per annum. Interest
on this Note will accrue from and including the most recent date to which
interest has been paid (or, if no interest has been paid, from and including the
date of issuance of this Note) to but excluding the date of payment. Interest
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. The Company shall pay interest on overdue principal and on overdue
interest (including without limitation, Special Interest (as defined in Section
4)) to the full extent permitted by law at a rate equal to 10.0% per annum.
Section 3. Method of Payment.
The registered holder of this Note at the close of business on the
fifteenth day of the month in which the interest payment date occurs, or, if
such date is not a Business Day, on the next succeeding Business Day shall be
entitled to receive interest on this Note, even if this Note is converted or
cancelled after the record date and on or before the interest payment date. The
holder of this Note must surrender it to the Company to collect the principal
payment; provided, however, that, if upon surrender of this Note the holder does
not receive the full principal amount of this Note plus accrued but unpaid
interest thereon (including without
<PAGE>
3
limitation, Special Interest), then the holder shall be issued a new Note equal
in principal amount to the outstanding principal balance on this Note. The
Company will pay principal and interest in money of the United States of America
that at the time of payment is legal tender for payment of public and private
debts. The Company shall pay principal, interest and all other amounts due
hereunder in immediately available funds.
Section 4. Special Interest.
In the event that the Company shall declare a dividend or make any
other distribution (including, without limitation, in capital stock (which shall
include, without limitation, any options, warrants or other rights to acquire
capital stock) of the Company, whether or not pursuant to a shareholder rights
plan, "poison pill" or similar arrangement, or other property or assets) on or
with respect to the Common Stock other than (x) a Regular Distribution (as
defined in Section 7.4(f)) or (y) a dividend or distribution paid solely in
shares of Common Stock, then the Board of Directors of the Company shall
declare, and the holder of this Note shall be entitled to receive, interest
("Special Interest") in an amount equal to the amount of such dividend or
distribution received by a holder of the number of shares of Common Stock for
which this Note is convertible on the record date for such dividend or
distribution. Any such amount shall be paid to the holder of this Note at the
same time such dividend or distribution is made to holders of shares of Common
Stock.
Section 5. Mandatory Redemption at the Option of the Holder.
5.1 Change of Control. If one or more events constituting a Change of
Control shall occur, the holder of this Note shall have the right, on the date
specified in Section 5.2 (the "Mandatory Redemption Date"), to require the
Company to redeem (a "Mandatory Redemption") all (but not less than all) of the
Notes then held by such holder at a price (the "Mandatory Redemption Price")
equal to (i) 150% of the principal amount of such Notes plus (ii) an amount
equal to all accrued and unpaid interest thereon (including, without limitation,
Special Interest), whether or not currently payable, to the applicable Mandatory
Redemption Date, in immediately available funds.
5.2 Notice. Notice of a Change of Control (the "Change of Control
Notice") shall be mailed no more than 15 Business Days after the occurrence of a
Change of Control to each holder of Notes, at such holder's address as it
appears on the transfer books of the Company. The date fixed for each Mandatory
Redemption shall be fixed by the Company and shall be no less than 20 days or
more than 40 days after the date of the Change of Control Notice.
Notwithstanding the foregoing and Section 5.1 hereof, in the event of the
occurrence of a Change of Control of the types set forth in any of clauses
(iii), (iv) or (vi) of the definition of "Change of Control," the Change of
Control Notice shall be mailed to each holder of Notes no later than 10 Business
Days prior to the consummation of the transaction contemplated by such clause
(iii), (iv) or (vi), as the case may be, and the Company shall not be required
to
<PAGE>
4
purchase any Notes unless such transaction shall be consummated, in which case
the Company shall be required to purchase such Notes immediately prior to the
consummation of such transaction.
5.3 Provisions of Notice. The right of the holders of Notes to require
the Company to effect a Mandatory Redemption shall remain in effect from the
time of the mailing of, until the redemption date set forth in, the Change of
Control Notice. The Change of Control Notice shall be accompanied by a copy of
the information most recently required to be supplied under Sections 8.1(a) and
8.1(b) of the Note Purchase Agreement. The Change of Control Notice shall
contain all instruments and materials necessary to enable the holder of this
Note to tender this Note pursuant to the Change of Control Offer. The Change of
Control Notice, which shall govern the terms of the Mandatory Redemption, shall
state:
(i) that a Change of Control has occurred, that each holder of
Notes has the right to require the Company to effect a Mandatory
Redemption pursuant to this Section 5 and that tendered Notes will be
redeemed;
(ii) the redemption price and the date for redemption;
(iii) that each holder of Notes may require the Company to redeem
all (but not less than all) Notes held thereby;
(iv) that the Notes redeemed pursuant to the Mandatory Redemption
shall cease to accrue interest after the designated date for purchase
(unless the Company shall default in the payment of the Mandatory
Redemption Price, in which case the Notes shall not cease to accrue
interest after such date;
(v) such other information respecting the procedures for
effecting the Mandatory Redemption as the Company shall include and
such other information as may be required by law; and
(vi) that (unless otherwise required by law) any holder of Notes
will be entitled to withdraw his or her election if the Company
receives, not later than the close of business on the third Business
Day next preceding the date scheduled for redemption, facsimile
transmission or letter setting forth the name of such holder, the
principal amount of Notes such holder delivered for redemption and a
statement that such holder is withdrawing election to have such Notes
redeemed.
5.4 Redemption Procedure. The holder of this Note may elect to require
the Company to redeem all (but not less than all) of the Notes held by such
holder pursuant to a Mandatory Redemption by delivery of written notice thereof
to
<PAGE>
5
the Company prior to the date fixed for such Mandatory Redemption. If the holder
of this Note so elects, on the date fixed for any Mandatory Redemption, such
holder shall surrender all of the Notes held thereby to the Company at the place
designated in the Change of Control Notice. From and after the Mandatory
Redemption Date (i) such Notes shall no longer be deemed outstanding, (ii) the
right to receive interest thereon shall cease to accrue and (iii) all rights of
the holders of such Notes shall cease and terminate, excepting only the right to
receive the Mandatory Redemption Price therefor; provided, however, that if the
Company shall default in the payment of the Mandatory Redemption Price, the
Notes shall thereafter be deemed to be outstanding and the holders thereof shall
have all of the rights of a holder of Notes until such time as such default
shall no longer be continuing or shall have been waived by holders of at least
66-2/3% of the then outstanding principal amount of the Notes.
Section 6. Optional Redemption.
6.1 Redemption by Company. Except as otherwise provided herein, the
Company shall not have any right to prepay or redeem this Note. On and after
January 19, 2000 the Company shall have the right, at any time and from time to
time at its sole option and election, to redeem (the "Optional Redemption") the
Notes, in whole but not in part, on not less than 30 days notice of the date of
redemption, which must be a Business Day (any such date an "Optional Redemption
Date") at a price (the "Optional Redemption Price") equal to (i) 100% of the
outstanding principal amount of the Notes plus (ii) an amount equal to all
accrued and unpaid interest thereon (including without limitation, Special
Interest), whether or not currently payable, to the Optional Redemption Date, in
cash or other immediately available funds. Notwithstanding the forgoing, the
Company may redeem the Notes only if the approval of the Commissioner of Health
of the State of New York (the "Approval") has been obtained and has not been
withdrawn (in each case, in the reasonable judgment of the holder), and if the
Approval has not been obtained or if obtained and has been withdrawn (in each
case, in the reasonable judgment of the holder) then the Company shall have no
right to redeem the Notes until Approval has been obtained and has not been
withdrawn (in each case, in the reasonable judgment of the holder). Both parties
will seek to obtain the Approval as soon as practicable after February 28, 1997.
If the Company shall commence a voluntary case under any Bankruptcy Law or
consent to the entry of an order for relief in an involuntary case under any
Bankruptcy Law or to the appointment of a Custodian of the corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, the Company shall be deemed to have elected to redeem the Notes as
provided in this Section 6.1 and shall so redeem the Notes as provided in this
Section 6.
6.2 Change of Control. Notwithstanding the foregoing, any Notes
redeemed pursuant to this Section 6 at a time when the Corporation would be
required to deliver a Change of Control Notice in accordance with Section 5 in
anticipation of, in connection with or as a result of a potential Change of
Control shall be redeemed
<PAGE>
6
at a price equal to the Mandatory Redemption Price. In the event a Change of
Control occurs within 24 months after the redemption of any Notes pursuant to
this Section 6 and the funds utilized to effect such redemption were derived in
whole or part from sources other than (i) cash generated from operations of the
business or (ii) borrowings of the Company not guaranteed by third parties, the
Company shall pay to the Persons from whom such Notes were redeemed, on the date
of such Change of Control, an amount equal to 50% of the principal amount of the
Notes so redeemed from such Person.
6.3 Notice. Notice of the Optional Redemption (the "Optional Redemption
Notice") shall be mailed at least 30, but not more than 60, days prior to the
date fixed for redemption to each holder of the Notes, at such holder's address
as it appears on the transfer books of the Company. In order to facilitate the
redemption of the Notes, the Board of Directors of the Company may fix a record
date for the determination of the Notes to be redeemed, or may cause the
transfer books of the Company for the Notes to be closed, not more than 60 days
or less than 30 days prior to the date fixed for such redemption.
6.4 Deposit of Funds. On the Optional Redemption Date, the Company
shall, and at any time after the Optional Redemption Notice shall have been
mailed and before the date of Optional Redemption the Company may, deposit for
the benefit of the holders of the Notes the funds necessary for the Optional
Redemption with a bank or trust company in the Borough of Manhattan, The City of
New York, having a capital and surplus of at least $100,000,000. Any moneys so
deposited by the Company and unclaimed at the end of two years from the date
designated for the Optional Redemption shall revert to the general funds of the
Company or as otherwise required by law. After such reversion, any such bank or
trust company shall, upon demand, pay over to the Company such unclaimed amounts
and thereupon such bank or trust company shall be relieved of all responsibility
in respect thereof and any holder of Notes shall look only to the Company for
the payment of the Optional Redemption Price. In the event that moneys are
deposited pursuant to this Section 6.4 in respect of Notes that are converted in
accordance with the provisions of Section 7, such moneys shall, upon such
conversion, revert to the general funds of the Company and, upon demand, such
bank or trust company shall pay over to the Company such moneys and shall be
relieved of all responsibilities to the holders of such converted Notes in
respect thereof. Any interest accrued on funds deposited pursuant to this
Section 6.4 shall be paid from time to time to the Company for its own account.
6.5 Termination of Rights. The Optional Redemption Notice having been
given as aforesaid, upon the deposit of funds pursuant to Section 6.4 in respect
of the Notes to be redeemed pursuant to Section 6.1, notwithstanding that any
such Notes themselves shall not have been surrendered for cancellation, from and
after the Optional Redemption Date (i) the Notes shall no longer be deemed
outstanding, (ii) the rights to receive interest thereon shall cease to accrue
and (iii) all rights of the holders of the Notes shall cease and terminate,
excepting only the right to receive the
<PAGE>
7
Optional Redemption Price therefor and the right to convert such Notes into
shares of Common Stock until the close of business on the Optional Redemption
Date, in accordance with Section 7; provided, however, that if the Company shall
default in the payment of the Optional Redemption Price, the Notes shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder of Notes until such time as such default shall no longer
be continuing or shall have been waived by holders of at least 66-2/3% of the
then outstanding principal amount of the Notes.
Section 7. Conversion.
7.1 Right to Convert. Following the expiration or termination of
applicable waiting periods under the HSR Act, including any extensions thereof,
the holder of this Note shall have the right, at its option, at any time and
from time to time, to convert, subject to the terms and provisions of this
Section 7, all or any integral multiple of $100,000 of the then outstanding
principal amount of this Note into such number of fully paid and non-assessable
shares of Common Stock as is equal, subject to Section 7.7, to the quotient of
the principal of this Note being so converted divided by the Conversion Price
then in effect. Notwithstanding the foregoing, if the holder of this Note shall
have purchased this Note in a public offering or subsequent to such a public
offering thereof, then the holder of this Note may convert all or any integral
multiple of $1,000 of the outstanding principal amount of this Note. Such
conversion right shall be exercised by the surrender of this Note to the Company
at any time during usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects to
convert this Note (or a specified portion of the outstanding principal amount
thereof) and specifying the name or names (with address) in which a certificate
or certificates for shares of Common Stock are to be issued and (if so required
by the Company) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company duly executed by the holder or its duly
authorized legal representative and transfer tax stamps or funds therefor, if
required pursuant to Section 7.11. If less than all of the then outstanding
principal amount of this Note is to be converted, the Company will promptly
issue and deliver to the holder a new Note in the principal amount of the
unconverted portion of the Note submitted for conversion; provided, however,
that the principal amount of such Note shall not be less than $1,000.00;
provided further, that if the principal amount of the unconverted portion of
this Note is less than $1,000.00, then such amount shall be paid to the holder
of this Note in cash or other immediately available funds upon such conversion.
7.2 Issuance of Common Stock. As promptly as practicable after the
surrender, as herein provided, of this Note for conversion pursuant to Section
7.1, the Company shall deliver to or upon the written order of the holder of
this Note so surrendered a certificate or certificates representing the number
of fully paid and nonassessable shares of Common Stock into which this Note may
be or has been converted in accordance with the provisions of this Section 7.
Subject to the
<PAGE>
8
following provisions of this paragraph and of Section 7.4, such conversion shall
be deemed to have been made immediately prior to the close of business on the
date that this Note shall have been surrendered in satisfactory form for
conversion, and the Person or Persons entitled to receive the shares of Common
Stock deliverable upon conversion of this Note shall be treated for all purposes
as having become the record holder or holders of such shares of Common Stock at
such appropriate time, and such conversion shall be at the Conversion Price in
effect at such time; provided, however, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of Common Stock
deliverable upon such conversion as the record holder or holders of such shares
of Common Stock while the transfer books of the Company for shares of Common
Stock shall be closed (but not for any period in excess of five days), but such
surrender shall be effective to constitute the Person or Persons entitled to
receive such shares of Common Stock as the record holder or holders thereof for
all purposes immediately prior to the close of business on the next succeeding
day on which such transfer books are open, and such conversion shall be deemed
to have been made at, and shall be made at the Conversion Price in effect at,
such time on such next succeeding day. In case of the redemption of this Note
pursuant to Section 6, the right of conversion shall cease and terminate at the
close of business on the date fixed for redemption, unless the Company shall
default in the payment of the applicable redemption price for this Note. If the
last day for the exercise of the conversion right shall not be a Business Day,
then such conversion right may be exercised on the next succeeding Business Day.
7.3 Payment of Interest. When this Note is converted, all interest
(including, without limitation, Special Interest) accrued and unpaid (whether or
not cur rently payable) on this Note to the date of conversion shall be
immediately due and payable, in cash or other immediately available funds, and
must accompany the shares of Common Stock issued upon such conversion.
7.4 Adjustment of Conversion Price. The Conversion Price shall be
subject to adjustment as follows:
(a) In case the Company shall at any time or from time to time (i)
pay a dividend or make a distribution (other than a dividend or distribution
paid or made to the holder of this Note in the manner provided in Section 4) on
the outstanding shares of Common Stock in shares of Common Stock or other equity
interests (which, for purposes of this Section 7.4 shall include, without
limitation, any dividends or distributions in the form of options, warrants or
other rights to acquire shares of Common Stock or other equity interests) of the
Company, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares of Common Stock, (iii) combine the outstanding shares of Common
Stock into a smaller number of shares of Common Stock, (iv) issue any equity
interest in a reclassification of the shares of Common Stock or (v) pay a
dividend or make a distribution on the outstanding shares of Common Stock in
shares of Common Stock or other equity interests pursuant to a rights plan,
"poison pill" or similar arrangement, then, and in each such case, the
Conversion Price in effect immediately prior to such event shall
<PAGE>
9
be adjusted (and any other appropriate actions shall be taken by the Company) so
that the holder of this Note thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Company that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had this Note
been converted immediately prior to the occurrence of such event. An adjustment
made pursuant to this Section 7.4(a) shall become effective retroactively (i) in
the case of any such dividend or distribution, to a date immediately following
the close of business on the record date for the determination of holders of
shares of Common Stock entitled to receive such dividend or distribution or (ii)
in the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes effective.
(b) In case the Company shall at any time or from time to time
issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock) (other than (i) options to acquire
shares of Common Stock granted on or prior to January 14, 1998 to any officer,
director, employee or consultant of the Company or any Subsidiary of the Company
or (ii) up to 100,000 shares of Common Stock (subject to adjustment) issued upon
the exercise of those certain Stock Purchase Warrants issued by the Company to
J.J. Farrell Associates, Inc. on July 7, 1994), at a price per share less than
either the Current Market Price per share or the Conversion Price per share then
in effect at the record date referred to in the following sentence (treating (A)
the price per share of any security convertible or exchangeable or exercisable
into shares of Common Stock as equal to (i) the sum of the price for such
security convertible, exchangeable or exercisable into shares of Common Stock
plus any additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security into
shares of Common Stock divided by (ii) the number of shares of Common Stock
initially underlying such convertible, exchangeable or exercisable security and
(B) the price per share of any security issued in connection with the settlement
or compromise any claim, action, suit, proceeding or dispute or in connection
with the satisfaction of any judgment relating to the foregoing as equal to
$.01), then, and in each such case, the Conversion Price then in effect shall be
adjusted by dividing the Conversion Price in effect on the day immediately prior
to such record date by a fraction (x) the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock issued or to be issued (or the
maximum number into which such convertible or exchangeable securities initially
may convert or exchange or for which such options, warrants or other rights
initially may be exercised) and (y) the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date plus the
number of shares of Common Stock that the aggregate consideration for the total
number of such additional shares of Common Stock so issued (or into which such
convertible or exchangeable securities may convert or exchange or for which such
options, warrants or other rights may be exercised, plus the aggregate amount of
any additional
<PAGE>
10
consideration initially payable upon conversion, exchange or exercise of such
security) would purchase at the greater of the Current Market Price per share or
the Conversion Price per share on such record date. Such adjustment shall be
made whenever such shares of Common Stock, securities, options, warrants or
other rights are issued, and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
shares of Common Stock, securities, options, warrants or other rights; provided,
however, that the determination as to whether an adjustment is required to be
made pursuant to this Section 7.4(b) shall only be made upon the issuance of
such shares of Common Stock or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the issuance of the security
into which such convertible or exchangeable security converts or exchanges, or
the security underlying such option, warrants or other right; provided further,
that if any convertible or exchangeable securities, options, warrants or other
rights (or any portions thereof) that shall have given rise to an adjustment
pursuant to this Section 7.4(b) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such convertible or
exchangeable securities, options, warrants or other rights there shall have been
an increase or increases, with the passage of time or otherwise, in the price
payable upon the exercise or conversion thereof, then the Conversion Price
hereunder shall be readjusted (but to no greater extent than originally adjusted
with respect to the related event) on the basis of (x) eliminating from the
computation any additional shares of Common Stock corresponding to such
convertible or exchangeable securities, options, warrants or other rights as
shall have expired or terminated, (y) treating the additional shares of Common
Stock, if any, actually issued or issuable pursuant to the previous exercise of
such convertible or exchangeable securities, options, warrants or other rights
as having been issued for the consideration actually received and receivable
therefor and (z) treating any of such convertible or exchangeable securities,
options, warrants or other rights that remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at the time.
(c) In case the Company shall at any time or from time to time distribute on or
with respect to the shares of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
resulting or surviving corporation and the shares of Common Stock are not
changed or exchanged) cash, evidences of indebtedness of the Company or another
issuer, securities of the Company or another issuer or other assets (excluding
(i) Regular Distributions, (ii) dividends and distributions paid or made to the
holder of this Note in the manner provided in Section 4 and (iii) dividends
payable in shares of Common Stock for which adjustment is made under Section
7.4(a)) or rights or warrants to subscribe for or purchase securities of the
Company (excluding those referred to in Section 7.4(b)) then, and in each such
case, the Conversion Price then in effect shall be adjusted by dividing the
Conversion Price in effect immediately prior to the date of such distribution by
a fraction (x) the numerator of which shall be the Current Market Price of the
shares of Common Stock on the record date referred to below and (y) the
denominator of which shall be such Current Market Price of the
<PAGE>
11
shares of Common Stock less the amount that a willing buyer would pay a willing
seller in an arm's-length transaction at such time (as determined in good faith
by the Board of Directors of the Company) for the portion of the cash, evidences
of indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one Unit (but such denominator not
to be less than one); provided, however, that no adjustment shall be made with
respect to any distribution of rights to purchase securities of the Company if
the holder of this Note would otherwise be entitled to receive such rights upon
conversion at any time of this Note into shares of Common Stock unless such
rights are subsequently redeemed by the Company, in which case such redemption
shall be treated for purposes of this Section 7.4(c) as a distribution on the
shares of Common Stock. Such adjustment shall be made whenever any such
distribution is made; provided, however, that in the case of a Cash Distribution
(as defined in Section 7.4(f)) such adjustment shall be calculated not later
than 45 days following the last day of the Calculation Period (as defined in
Section 7.4(f)). The adjustment shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
distribution.
(d) In case the Company at any time or from time to time shall
take any action affecting the shares of Common Stock or its other equity
interests, if any, other than an action described in any of Section 7.4(a)
through Section 7.4(c), inclusive, or Section 7.8, then, and in each such case,
the Conversion Price shall be adjusted in such manner and at such time as the
Board of Directors of the Company in good faith determines to be equitable in
the circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holders of the Notes).
(e) Notwithstanding anything herein to the contrary, no adjustment
under this Section 7.4 need be made to the Conversion Price unless such
adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and not
theretofore made shall be made immediately prior to the conversion of this Note
pursuant hereto.
(f) For purposes of Section 7.4(c), a "Regular Distribution" shall
mean a distribution of cash or cash equivalents on or with respect to the Common
Stock (a "Cash Distribution") in an amount that, when added to the amount of all
other Cash Distributions made during the 12-month period ending on the last day
of the fiscal quarter of the Company in which such Cash Distribution is made
(or, if this Note has been outstanding for a period shorter than 12 months, the
period from the first day of the fiscal quarter in which this Note was issued to
the last day of such fiscal quarter) (the "Calculation Period"), does not
exceed, on the Business Day
<PAGE>
12
immediately preceding the date of such distribution, either (i) 1% of the
Current Market Price of the Common Stock or (ii) 12.5% of the net income of the
Company (calculated in accordance with generally accepted accounting principles
consistently applied) for the 12-month period ending on the last day of the
immediately preceding fiscal quarter of the Company.
7.5 No Adjustment for Taking Record Only. If the Company shall take a
record of the holders of shares of Common Stock for the purpose of entitling
them to receive a dividend or other distribution, and shall thereafter and
before the distribution to holders thereof legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the
Conversion Price then in effect shall be required by reason of the taking of
such record.
7.6 Officers' Certificate. Upon any increase or decrease in the
Conversion Price, then, and in each such case, the Company promptly shall
deliver to the registered holder of this Note at least 10 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased
Conversion Price then in effect following such adjustment. Within 10 days after
the end of each fiscal quarter of the Company, the Company will provide the
holder with a certificate signed by one of the aforesaid officers, setting forth
the Conversion Price as of the end of such quarter and any increases or
decreases in the Conversion Price (and the events giving rise thereto) during
such quarter, which certificate shall be accompanied by a certification from
Deloitte & Touche LLP (or any successor thereto or another nationally recognized
independent accounting firm) of the information set forth in the Company's
certificate.
7.7 No Fractional Shares Issued. No fractional Shares or scrip
representing fractional shares of Common Stock shall be issued upon the
conversion of this Note. If more than one Note shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate outstanding principal amount of the Notes so surrendered. If the
conversion of any Note or Notes results in a fraction, an amount equal to such
fraction multiplied by the Current Market Price of the Common Stock on the
Business Day preceding the day of conversion shall be paid to such holder in
cash by the Company.
7.8 Subsequent Transactions. In case of any capital reorganization or
reclassification or other change of outstanding shares of Common Stock or other
equity interests, if any, or in case of any consolidation or merger of the
Company with or into another Person (other than a consolidation or merger in
which the Company is the resulting or surviving Person and which does not result
in any reclassification or change of shares of Common Stock or other outstanding
equity interests, if any), or in case of any sale or other disposition to
another Person of all or
<PAGE>
13
substantially all of the assets of the Company (any of the foregoing, a
"Transaction"), the Company, or such successor or purchasing Person, as the case
may be, shall execute and deliver to each holder of Notes at least 10 Business
Days prior to effecting any of the foregoing Transactions a certificate stating
that the holder of each Note then outstanding shall have the right thereafter to
convert such Note into the kind and amount (estimating such amount to the extent
necessary) of equity securities or other securities (of the Company or another
issuer) or property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which such Note could have been converted
immediately prior to such Transaction. Such certificate shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. If, in the case of any such
Transaction, the equity securities, other securities, cash or property
receivable thereupon by a holder of shares of Common Stock includes equity or
other securities of a Person other the successor or purchasing Person and other
than the Company, that controls or is controlled by the successor or purchasing
Person or which, in connection with such Transaction, issues equity securities,
other securities, other property or cash to holders of shares of Common Stock,
then such certificate also shall be executed by such Person, and such Person
shall, in such certificate, specifically acknowledge the obligations of such
successor or purchasing Person and acknowledge its obligations to issue such
equity securities, other securities, other property or cash to the holders of
Notes upon conversion of the Notes as provided above. The provisions of this
Section 7.8 and any equivalent thereof in any such certificate similarly shall
apply to successive Transactions. The provisions of this Section 7.8 and any
equivalent thereof in any such certificate are and shall be in addition to, and
not in lieu of, the requirements of the Note Purchase Agreement with respect to
a Change of Control Offer.
7.9 Notice of Certain Events. In case at any time or from time to time:
(a) the Company shall declare a dividend (or any other
distribution) on the shares of Common Stock or other equity interests, if any,
of the Company;
(b) the Company shall authorize the granting to the holders of the
shares of Common Stock or other equity interests, if any, of the Company of
rights or warrants to subscribe for or purchase any equity interests of any
class or of any other rights or warrants;
(c) there shall be any reclassification of the shares of Common
Stock or other equity interests, if any, of the Company, or any consolidation or
merger to which the Company is a party and for which approval of any holders of
shares of Common Stock of the Company is required, or any sale or other
disposition of all or substantially all of the assets of the Company; or
<PAGE>
14
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall mail to each holder of Notes at such holder's address as
it appears on the transfer books of the Company, as promptly as possible but in
any event at least ten days prior to the applicable date hereinafter specified,
a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution or rights or warrants or, if a record is not to
be taken, the date as of which the holders of shares of Common Stock of record
to be entitled to such dividend, distribution or rights are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up is expected to become
effective; provided, however, that in the case of any event to which Section 7.8
applies, the Company shall give at least 10 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which it is expected
that holders of shares of Common Stock of record shall be entitled to exchange
their shares of Common Stock for equity securities or other securities or
property or cash deliverable upon such reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up.
7.10 Reservation of Shares. The Company shall at all times reserve and
keep available for issuance upon the conversion of the Notes, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all the then outstanding principal amount
of the Notes and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all the then outstanding principal amount of the Notes.
7.11 Issue Taxes. The issuance or delivery of certificates for shares
of Common Stock upon the conversion of Notes shall be made without charge to the
converting holder of Notes for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or in such names as may be directed by, the holders of the Notes
converted; provided, however, that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
Notes, and the Company shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Company the amount of such tax or shall
have established to the reasonable satisfaction of the Company that such tax has
been paid.
Section 8. Board Representation.
8.1 Designation of Directors. If on any date (i) the Company shall have
defaulted in the payment of interest (including, without limitation, Special
<PAGE>
15
Interest) on the Notes when the same becomes due and payable and such default
continues for a period of 180 days, whether or not such payment shall be
prohibited by Section 9 hereof, or (ii) a breach of any of the Company's
agreements contained in the Notes, the Note Purchase Agreement or the
Registration Rights Agreement shall have occurred and such breach shall have
continued unremedied for 180 days, then the Company shall cause the number of
members of its Board of Directors to be increased by one and shall cause one
person designated by the holders of a majority of the out standing principal
amount of the Notes to be elected to its Board of Directors as a member of such
class of the Board of Directors the term of which shall have the longest
unexpired portion. Such designee shall serve until the next annual meeting of
stockholders of the Company following the election of such person to the Board
of Directors at which directors of such class are to be elected.
8.2 Election at Annual Meetings. Commencing with the next annual
meeting of stockholders of the Company following the election of such person to
the Board of Directors at which directors of such class are to be elected, and
at each annual meeting of stockholders thereafter at which directors of such
class are to be elected, until such time as (i) all interest (including, without
limitation, Special Interest) shall have been paid in full and (ii) there shall
exist no breach of any of the Company's agreements contained in the Notes, the
Note Purchase Agreement or the Registration Rights Agreement, the holders of a
majority of the outstanding principal amount of the Notes shall be entitled to
nominate one director to the Company's Board of Directors. The Company shall
cause such nominee to be included in the slate of nominees recommended by the
Board to the Company's stockholders for election as directors, and the Company
shall use its best efforts to cause the election of such nominee, including
voting all shares for which the Company holds proxies (unless otherwise directed
by the stockholder submitting such proxy) or is otherwise entitled to vote, in
favor of the election of such person.
8.3 Vacancies. In the event any such nominee of the holders of a
majority of the outstanding principal amount of the Notes shall cease to serve
as a director for any reason, other than by reason of the holders of a majority
of the outstanding principal amount to the Notes not being entitled to nominate
a nominee as provided in Section 8.2, the Company shall use its best efforts to
cause the vacancy resulting thereby to be filled by a nominee of the holders of
a majority of the outstanding principal amount of the Notes.
8.4 Resignation of Director. If at any time (i) all interest
(including, without limitation, Special Interest) shall have been paid in full
and (ii) there shall exist no breach of any of the Company's agreements
contained in the Notes, the Note Purchase Agreement or the Registration Rights
Agreement, the right of the holders of a majority of the outstanding principal
amount of the Notes to designate one director shall cease (subject to revesting
in the event of each and every subsequent event of the character giving rise to
such right) and such director shall promptly tender his resignation.
<PAGE>
16
Section 9. Subordination.
9.1 Agreement of Subordination. The Company covenants and agrees, and
the holder of this Note (whether upon original issue or upon transfer,
assignment or exchange thereof), by his acceptance hereof, likewise covenants
and agrees, that the payment of the principal of, premium, if any, and interest
on this Note, together with any other payments payable in respect of this Note,
including, without limitation, any amount payable in connection with the
redemption or repurchase of this Note ("Subordinated Amounts") shall, to the
extent and in the manner hereinafter set forth, be subordinated and subject in
right of payment to the prior payment in full of all Senior Indebtedness,
whether outstanding at the date of this Note or hereafter incurred.
The term "Senior Indebtedness" shall mean the principal of, premium, if
any, and interest on, and any other payment due pursuant to any of the
following, whether outstanding at the date hereof or hereafter incurred or
created:
(a) all indebtedness of the Company for money borrowed arising
under or in connection with the Loan Agreement, as it may be further amended or
modified from time to time, and all renewals, extensions, refundings or
refinancings of such indebtedness incurred with financial institutions,
insurance companies or other institutional lenders (any such indebtedness and
renewals, extensions, refundings or refinancings thereof, "Senior Institutional
Indebtedness");
(b) all indebtedness of the Company for money borrowed other than
Senior Institutional Indebtedness (including, without limitation, any
indebtedness secured by a mortgage, conditional sales contract or other Lien
which is (i) given to secure all or part of the purchase price of property
subject thereto, whether given to the vendor of such property or to another, or
(ii) existing on property at the time of acquisition thereof);
(c) all indebtedness of the Company evidenced by notes,
debentures, bonds or other securities sold by the Company for money;
(d) all lease obligations of the Company which are capitalized on
the books of the Company in accordance with generally accepted accounting
principles;
(e) all indebtedness of others of the kinds described in either of
the preceding clauses (b) or (c) and all lease obligations of others of the kind
described in the preceding clause (d) assumed by or guaranteed in any manner by
the Company or in effect guaranteed by the Company through an agreement to
purchase, contingent or otherwise.
(f) all indebtedness of any Subsidiary of the Company for which
the Company is liable as a guarantor;
<PAGE>
17
(g) all renewals, extensions, refundings or refinancings of
indebtedness of the kinds described in any of the preceding clauses (b), (c),
(e) and (f) and all renewals or extensions of lease obligations of the kinds
described in either of the preceding clauses (d) and (e);
(h) interest accruing subsequent to the filing of a petition
initiating any bankruptcy, insolvency or similar proceeding with respect to any
indebtedness or lease obligation of the Company;
(i) all obligations of the Company in respect of any interest rate
or currency swap or similar agreements entered into with any holder of any
Senior Indebtedness; and
(j) all fees, expenses, reimbursements and other amounts payable
to holders of Senior Indebtedness under the terms of the instrument or lease
creating or evidencing the same,
unless, in the case of any particular indebtedness, lease, renewal, extension,
refunding or refinancing, the instrument or lease creating or evidencing the
same or the assumption or guarantee of the same expressly provides that such
indebtedness, lease, renewal, extension, refunding or refinancing is not senior
in right of payment to the Notes or is expressly subordinate by its terms in
right of payment to all other indebtedness of the Company.
This Section 9 shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions in accordance with the
provisions of this Note.
No provision of this Section 9 shall prevent the occurrence of any
default or Event of Default hereunder.
9.2 Payments to Note Holders. No payment shall be made by the Company
of any Subordinated Amounts: (a) in the event and during the continuation of any
default in the payment (a "Payment Default") of principal, premium, if any,
interest or any other payment due on any Senior Indebtedness under or in
connection with the instrument, agreement or lease evidencing such Senior
Indebtedness and the holders of the requisite principal amounts of such Senior
Indebtedness or their agents shall not have delivered to the holder of this Note
a notice of waiver of the benefits of this clause (a) and a consent to the
making of scheduled payments on or on account of this Note or taking any other
prohibited action until further notice from such holders or such agents; or (b)
in the event of receipt of written notice by the holder of this Note from the
holders of any Senior Institutional Indebtedness or their representatives of a
default (other than a Payment Default) permitting acceleration of any Senior
Institutional Indebtedness for a period (the "Blockage Period") terminating on
the
<PAGE>
18
earlier to occur of (i) the cure, waiver or cessation of such default or
(ii) 180 days from the date of receipt of written notice thereof by the holder
of this Note. At the expiration of such Blockage Period, and so long as there
does not exist a Payment Default, the Company shall promptly pay to the holder
of this Note all sums not paid during such Blockage Period as a result of this
paragraph. For all purposes of this paragraph, no event of default that existed
or was continuing with respect to the Senior Institutional Indebtedness to which
the Blockage Period relates on the date such Blockage Period commenced shall be
or be made the basis for the commencement of any subsequent Blockage Period by
the holder or holders of such Senior Institutional Indebtedness (or their
respective agents) unless such event of default is cured or waived for a period
of not less than 90 consecutive days. There shall be no more than one Blockage
Period initiated in any 360-day period.
Upon any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full, or payment thereof provided for
in money in accordance with its terms, before any payment (other than equity
securities or other securities of the Company or any other entity, the payment
of which is subordinated at least to the extent provided in this Section 9 to
the payment of all Senior Indebtedness that may at the time be outstanding) is
made on account of the principal, premium, if any, or interest on, or other
amounts payable in respect of, this Note including, without limitation, any
amount payable in connection with the redemption of this Note; and upon any such
dissolution, winding-up or liquidation or reorganization any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holder of this Note would
be entitled, except for the provisions of this Section 9, shall be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other Person making such payment or distribution, or by the holder of this Note
if received by them or it, directly to the holders of Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full, in money or money's worth, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the holder of this Note.
In the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received by
the holder of this Note before all Senior Indebtedness is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be
<PAGE>
19
held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instrument
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in money in accordance with its terms, after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
9.3 Subrogation of Note. Subject to the payment in full of all Senior
Indebtedness, the rights of the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Senior Indebtedness until the principal of (and premium, if any) and interest on
this Note (including, without limitation, Special Interest) shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the holders of the Senior Indebtedness of any cash, property or securities to
which the holder of this Note would be entitled except for the provisions of
this Section 9, and no payment over pursuant to the provi sions of this Section
9, to or for the benefit of the holders of Senior Indebtedness by the holder of
this Note, shall, as between the Company, its creditors other than holders of
Senior Indebtedness, and the holder of this Note, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness. It is understood that
the provi sions of this Section 9 are and are intended solely for the purpose of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
If any payment or distribution to which the holder of this Note would
otherwise have been entitled but for the provisions of this Section 9 shall have
been applied, pursuant to the provisions of this Section 9 to the payment of
amounts payable under Senior Indebtedness of the Company, then, and in such
case, the holder of this Note shall be entitled to receive from the holders of
Senior Indebtedness the full amount of any such payments or distributions
received by holders of Senior Indebtedness in excess of the amount sufficient to
pay in full all amounts payable under, or in respect of, the Senior Indebtedness
of the Company.
Nothing contained in this Section 9 or elsewhere in this Note is
intended to or shall impair or affect, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the holder of this Note, the
obligation of the Company, which is absolute and unconditional, to pay to the
holder of this Note the principal of (and premium, if any) and interest
(including without limitation, Special Interest) on this Note as and when the
same shall become due and payable in accordance with its terms, or is intended
to or shall affect the relative rights of the holder of this Note and creditors
of the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law upon default under this Note,
subject to the rights, if any, under this Section 9 of the holders of Senior
<PAGE>
20
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Section 9, the holder of this Note shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Persons making such payment or distribution, delivered to the
holder of this Note, for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto and to this Section 9.
9.4 Notice to Note Holders. The Company shall give prompt written
notice to the holder of this Note of any fact known to the Company that would
prohibit the making of any payment to the holder of this Note.
9.5 Note Holder's Relation to Senior Indebtedness. The holder of this
Note shall be entitled to all the rights set forth in this Section 9 in respect
of any Senior Indebtedness at any time held by it, to the extent as any other
holder of Senior Indebtedness, and nothing in this Note shall deprive the holder
of this Note of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the holder of this
Note undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Note, and no implied covenants
or obligations with respect to the holders of Senior Indebtedness shall be read
into this Note against the holder of this Note. The holder of this Note shall
not be deemed to owe any fiduciary duty to the holders of Senior Indebt edness
and the holder of this Note shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly pay over or deliver to the Company or any
other Person money or assets to which any holder of Senior Indebtedness shall be
entitled by virtue of this Section 9 or otherwise.
Section 10. Covenants.
10.1 Notice of Defaults. The Company will give notice in writing to the
holder of this Note immediately upon becoming aware of the occurrence of any
Default or Event of Default under this Note.
10.2 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), except that the Company may consolidate
or merge with or into, or sell all or substantially all of its assets to, any
Person if:
<PAGE>
21
(a) the corporation formed by such consolidation or surviving such
merger or the Person that acquires all or substantially all of the assets of the
Company shall be (after giving effect to such transaction) a Solvent corporation
organized and existing under, the laws of the United States, any state thereof,
or the District of Columbia and, in the case of the acquisition of all or
substantially all of the assets of the Corporation, shall expressly assume in
writing all of the obligations of the Company under the Note Purchase Agreement,
this Note (including, without limitation, the obligation to issue shares of
common stock upon the conversion of any portion of this Note) and the
Registration Rights Agreement;
(b) immediately after giving effect to such transaction, no
default under, or breach of, the provisions of this Note, exists;
(c) the corporation formed by or surviving any such transaction or
the Person that acquires all or substantially all of the assets of the Com pany
shall have a Consolidated Net Worth at least equal to the Consolidated Net Worth
of the Company immediately prior to such transaction; and
(d) the Company shall have furnished to the holder of this Note
(i) an opinion of counsel satisfactory to the holders of a majority of the
outstanding principal amount of the Notes, addressing the matters (other than
solvency) set forth in clause (a) above and (ii) the certificate of the Chief
Financial Officer of the Company to the effect that such transaction has been
consummated in compliance with the foregoing requirements; provided, however,
that nothing in this Section 10.2 shall affect the rights of the holder of this
Note under the Note Purchase Agreement, this Note or the Registration Rights
Agreement.
10.3 Limitation on Transactions with Affiliates. Neither the Borrower
nor any Subsidiary of the Borrower will enter into or permit to exist any
transactions with (a) any Person who is a holder of 5% or more of any class of
equity or debt securities of the Borrower or an Affiliate of any such holder, or
(b) a director or officer of the Borrower or a Subsidiary of the Borrower, (the
Persons referred to in clauses (a) and (b) being referred to herein as
"Affiliated Persons") other than on terms and conditions as favorable to the
Borrower or such Subsidiary as would be obtainable at the time in a comparable
arm's length transaction with any Person who is not such an Affiliated Person.
10.4 CUSIP Numbers; PORTAL and DTC. The Borrower will use commercially
reasonable efforts to obtain CUSIP numbers for the Notes and, if requested by
the holder of this Note, to arrange for the Notes to be eligible for transfer
through the Depositary Trust Company and through the PortalSM Market of the
National Association of Securities Dealers, Inc.
10.5 [Intentionally left blank]
<PAGE>
22
10.6 Quarterly Calculation of Conversion Price. For each quarterly
period of the Company, beginning with the quarterly period ending December 31,
1996, the Company shall prepare and deliver a written statement to the holder of
this Note within ten (10) days following the end of such quarterly period that
sets forth a calculation of the Conversion Price of this Note then in effect;
provided, further, that such written statement shall be accompanied by a
statement of the Company's independent accountants indicating that they have
reviewed and are in agreement with the calculation set forth in the
aforementioned statement.
10.7 [Intentionally left blank]
10.8 [Intentionally left blank]
10.9 [Intentionally left blank]
10.10 Additional Information. The Company will deliver to the holder of
this Note, as soon as available but no later than the 15th day of each month, a
notice specifying or attaching the following information as to the Company, all
certified by the Company's Chief Financial Officer:
(a) statement of cash receipts and disbursements for the preceding
month;
(b) statement of cash balances at preceding month end for the Company
and each of its Subsidiaries;
(c) itemized statement of selling, general and administrative
expenses of the Company and its Subsidiaries for the preceding
month;
(d) enrollment changes by category and region for the preceding
month;
(e) updated month-by-month projection of sources and uses of cash for
the next six months;
(f) copies of all correspondence with regulators in the preceding
month; and
(g) schedule of in-patient days per thousand by category of business
and region for the preceding month.
<PAGE>
23
Section 11. Defaults and Remedies.
11.1 Event of Default. An "Event of Default" shall occur if:
(a) the Company defaults in the payment of interest (including,
without limitation, Special Interest) on this Note when the same becomes due and
payable and such default continues for a period of 15 Business Days, whether or
not such payment shall be prohibited by the provisions of Section 9 hereof;
(b) the Company defaults in the payment of principal of this Note
when the same becomes due and payable at maturity, upon redemption or otherwise,
whether or not such payment shall be prohibited by the provisions of Section 9
hereof;
(c) the Company fails to comply with any provision of Section 10
hereof or Article 9 of the Note Purchase Agreement;
(d) the Company fails to comply with any agreements (other than
those referred to in clauses (a), (b) or (c) above) in the Note Purchase
Agreement, this Note or the Registration Rights Agreement and, if such failure
is capable of being remedied, such failure continues unremedied for 30 days
after notice thereof by the holders of a majority of the then outstanding
principal amount of the Notes;
(e) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or other similar
official (a "Custodian") of it or for all or substantially all of
its property, or
(iv) makes a general assignment for the benefit of its
creditors;
(f) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Subsidiaries in an involuntary case,
<PAGE>
24
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or
(iii) orders the winding up or liquidation of the Company or
any of its Subsidiaries and the order or decree remains unstayed
and in effect for 60 days;
(g) the Company or any of its Subsidiaries defaults in the payment
of Indebtedness aggregating in excess of $1,000,000 when due, after any grace
periods with respect thereto shall have expired and upon non-waiver by the
holders of any such Indebtedness and such default continues unremedied for 30
days, or there has been an acceleration of in excess of $1,000,000 aggregate
principal amount of Indebtedness of the Company by the holder thereof following
an event of default as defined in any mortgage, indenture, agreement or
instrument under which there may be issued or by which there may be secured or
evidenced such Indebtedness of the Company, whether such Indebtedness now exists
or shall hereafter be created;
(h) a judgment for the payment of money the uninsured portion of
which exceeds $10,000,000 shall be rendered against the Company or any of its
Subsidiaries and shall remain undischarged for a period (during which execution
shall not be effectively stayed) of 60 days after the date on which the judgment
has been rendered, unless (i) no proceeding for execution of such judgment has
been commenced or (ii) any such proceeding has been stayed;
(i) the Company or any Subsidiary of the Company shall default in
the payment of any indebtedness for money borrowed having an aggregate principal
amount of $250,000 or more, or any lease obligation having aggregate rental
payments of $250,000 or more beyond any grace period provided with respect
thereto or any other event or condition shall exist under any agreement or
instrument under which such indebtedness for money borrowed or lease obligation
is created or evidenced beyond any applicable grace period, if the effect of
such event or condition is to cause the holder of such indebtedness for money
borrowed or lessor (or a trustee on behalf of any such holder or lessor) to (i)
cause such indebtedness for money borrowed or lease obligation to become due
prior to its date of maturity or (ii) require the borrower or any Person that is
a subsidiary of the borrower to purchase such indebtedness for money borrowed or
assume such lease obligation; or
(j) any action is taken by a federal, state or local regulatory
authority with respect to the Company and results in (i) the revocation of any
license necessary for the Company to conduct its business, (ii) the Company
being put into rehabilitation or receivership or (iii) the appointment of a
Custodian for the Company or for all or substantially all of its business or the
taking of similar action.
11.2 Acceleration. If an Event of Default occurs under clauses (e) or
(f) of Section 11.1, then the principal of and the accrued interest on all Notes
shall
<PAGE>
25
become due and payable immediately, whether or not notice of such Event of
Default shall have been given by any holder of Notes. If any Event of Default
occurs and is continuing for a period of fifteen (15) days, holders holding a
majority of the then outstanding principal amount of the Notes by notice to the
Company may declare the principal of and accrued interest on all the Notes to be
due and payable immediately. Upon such declaration such principal and interest
shall be due and payable immediately. The holders of a majority of the then
outstanding principal amount of the Notes may rescind an acceleration and its
consequences if all existing Events of Default (other than nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived and if the rescission would not conflict with any
judgment or decree. Nothing in this Section 11.2 shall limit or modify the
provisions of Section 9.
11.3 Other Remedies. If an Event of Default occurs and is continuing,
the holder of this Note may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on this Note or to
enforce the performance of any provision of this Note, the Note Purchase
Agreement or the Registration Rights Agreement.
The holder of this Note may maintain a proceeding even if it does not
possess the Note or does not produce it in the proceeding. Except as otherwise
provided by law, a delay or omission by the holder of this Note in exercising
any right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default. No
remedy is exclusive of any other remedy. All available remedies are cumulative.
11.4 Waiver of Defaults. Holders of a majority of the then outstanding
principal amount of the Notes may waive in writing a default and its
consequences (other than a default in the payment of principal of or interest on
this Note). When a default is waived, it is deemed cured, but no such waiver
shall extend to any subsequent or other default or Event of Default or impair
any consequent right.
11.5 Control by Majority. Holders of a majority in outstanding
principal amount of the Notes may direct the time, method and place of
conducting any proceeding for any legal remedy available to the holders;
provided, however, that if an "Event of Default" occurs under clause (a) or (b)
of Section 11.1, the holder of this Note, if it exercises its right to
accelerate the maturity of this Note, may proceed, subject to the penultimate
sentence of Section 11.2, to enforce its remedies with or without the holders of
any other Notes at the time and place and in the manner determined by such
holder in its sole discretion.
Section 12. Definitions.
For the purposes of this Note, the following terms shall have the
meanings indicated:
<PAGE>
26
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law to close.
"Change of Control" of the Company shall mean such time as:
(i) Any Person or "group" (within the meaning of Section
13(d)(3) of the Exchange Act) other than the Principal
Shareholders or the Purchaser is or becomes the beneficial owner,
directly or indirectly, of outstanding shares of capital stock of
the Company, entitling such Person or Persons to exercise 50% or
more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent, of shareholders
of the Company (the term "beneficial owner" shall be determined
in accordance with Rule 13d-3, promulgated by the Commission
under the Exchange Act);
(ii) A majority of the Board of Directors of the Company
shall consist of Persons other than Continuing Directors. The
term "Continuing Director" shall mean any member of the Board of
Directors of the Company on the Closing Date and any other member
of the Board of Directors who shall be recommended or elected to
succeed or become a Continuing Director by a majority of
Continuing Directors who are then members of the Board of
Directors of the Company;
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or
similar transaction, in each case, with respect to which all or
substantially all the Persons who were the respective beneficial
owners of the outstanding shares of capital stock of the Company
immediately prior to such recapitalization, reorganization,
merger or consolidation, beneficially own, directly or
indirectly, less than 50% of the combined voting power of the
then outstanding shares of capital stock of the Company resulting
from such recapitalization, reorganization, merger, consolidation
or similar transaction;
(iv) The shareholders of the Company shall have approved of
the sale or other disposition of all or substantially all the
assets of the Company in one transaction or in a series of
related transactions;
<PAGE>
27
(v) Immediately after any merger, consolidation,
recapitalization or similar transaction, the Principal
Shareholders (A) shall have increased the aggregate percentage of
the outstanding shares of capital stock of the Company they
beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity
surviving such transaction is a corporation, the Principal
Shareholders' ownership in the new entity shall have increased by
10% or more of their aggregate percentage of ownership of the
Company immediately prior to the transaction) and (B) shall be
the beneficial owners directly or indirectly, of outstanding
shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or more
of the total voting power of shares of capital stock of the
Company (or the surviving Person in such transaction) and, in
anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have
incurred or issued additional Indebtedness such that the total
Indebtedness so incurred or issued equals at least 50% of the
consideration payable in such transaction; provided, however,
that any such transaction shall not be considered a Change of
Control if the holders of Notes shall have participated therein
on no less than a pari passu basis (assuming conversion of all
such holders' Notes into Conversion Shares) with the Principal
Shareholders; or
(vi) The shareholders of the Company approve any transaction
(or if no such approval is required, upon the occurrence of any
transaction) the result of which is that the Common Shares shall
no longer be required to be registered under Section 12 of the
Exchange Act and that the holders of shares of Common Stock do
not receive common stock of the Person surviving such transaction
that is required to be registered under Section 12 of the
Exchange Act.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$.01 per share, of the Company.
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
"Conversion Price" shall mean (i) $4.00 with respect to $5,000,000
aggregate principal amount of the Notes and (ii) $8.00 with respect to the
remainder of the Notes, in each case subject to adjustment (after the date of
Amendment No. 2) as set forth in Section 7.4(b).
"Current Market Price" per share of Common Stock shall mean, on any
date specified herein for the determination thereof, (a) the average daily
Market Price of the Common Stock for the twenty trading days immediately
preceding such date (if no Market Price is available for any given day, such
trading day shall not be
<PAGE>
28
included in the determination of the Current Market Price), and (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, a market price per
share determined in good faith by the Board of Directors of the Company or, if
the holders of a majority of the Notes so elect within twenty business days
after notice of the necessity of such calculation shall have been delivered by
the Company to the holders of the Notes, then at the Company's expense by an
appraiser chosen by the holders of a majority of the Notes with the consent of
the Company, which consent shall not be unreasonably withheld.
"Loan Agreement" shall mean the Loan Agreement among the Company,
WellCare of New York, Inc, WellCare Development, Inc., WellCare Administration,
Inc., Wellcare Medical Management, Inc. and Key Bank of New York, dated June 28,
1995.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) the closing price per share of the Common Stock on such
date published in the Wall Street Journal or, if no such closing price on such
date is published in the Wall Street Journal, the closing price on such date, as
officially reported on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading; or (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the National
Association of Securities Dealers, Inc., the last trading price (the closing
sale price) of the Common Stock on such date; or (c) if there shall have been no
trading on such date or if the Common Stock is not so designated, the average of
the reported closing bid and asked prices of the Units, on such date as shown by
the National Market System of the Nasdaq Stock Market and reported by any member
firm of the New York Stock Exchange selected by the Company.
"Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Subsidiary" shall mean, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 13. Miscellaneous.
13.1 GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
<PAGE>
29
13.2 Waiver of Notice. The Company, to the extent permitted by law,
hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with delivery, acceptance, performance and enforcement of
this Note, except as specifically otherwise provided herein or in the Note
Purchase Agreement.
13.3 Amendment. The terms of this Note other than the principal amount,
the maturity date and the interest rate, may be amended only by the written
agreement of the holders of the majority of the then outstanding principal
amount of the Notes, and then only if identical amendments are made
simultaneously to all other then outstanding Notes. The principal amount,
maturity date and interest rate of this Note may be amended only by the written
agreement of the holder of this Note.
13.4 Reacquired Notes. Any Note converted, redeemed, purchased or
otherwise acquired by the Company or any of its Subsidiaries in full in any
manner whatsoever, shall be deemed canceled immediately upon such conversion,
redemption, purchase or other acquisition. None of the outstanding principal
amounts of any Notes held by the Company or any of its Subsidiaries or
Affiliates shall be deemed at any time to be outstanding for purposes of
determining whether the holders of any percentage of the outstanding principal
amount of the Notes have taken or desire to take any action as holders of the
Notes.
13.5 Exchange of Notes. At the option of the holder of this Note, this
Note may be exchanged for other Notes of like tenor and of a like aggregate
principal amount, upon surrender of this Note at the principal office of the
Company; provided, however, that the minimum denomination of any Note to be
issued in exchange for this Note shall be at least $100,000, unless the holder
of this Note shall have purchased this Note in a public offering or subsequent
to a public offering thereof, in which case the minimum denomination of any Note
to be issued in exchange for this Note shall be at least $1,000.
THE WELLCARE MANAGEMENT GROUP,
INC.
By: /s/ Joseph R. Rapa
---------------------------
Name: Joseph R. Papa
Title: President/CEO
Amendment to Employment Agreement
Between the WellCare Management Group, Inc. (Company)
And John E. Ott (Employee) Dated June 1, 1996 (Employment Agreement)
WHEREAS this Amendment to said Employment Agreement is hereby made this 1st day
of June 1998;
WHEREAS all paragraphs of said Employment Agreement not amended herein are
hereby reaffirmed;
WHEREAS as of June 1, 1998 said Employment Agreement is hereby amended as
follows:
Replace paragraph 2.1 of the Employment Agreement in its entirety with the
following:
2.1 During the Employment Period, the Employee shall serve in the capacity of
and hold the title of Executive Vice President of WellCare Management Group,
Inc., and shall be subject to the supervision of, and shall have such authority
as is delegated to him by the Chairman of the Board of Directors of the Company
(the "Board") or the Chief Executive Officer of the Company (the "CEO")
consistent with such position; provided, however, that WellCare reserves the
right to change the Employee's title at any time if WellCare, in its sole
discretion, deems it appropriate based upon the nature of services provided by
the Employee to WellCare. The Employee hereby accepts such employment and agrees
to undertake the duties and responsibilities normally inherent in such position
and such other duties and responsibilities as the Board or the CEO shall from
time to time reasonably assign to him consistent with such position. Employee
agrees to serve on the Board during the Employment Period, provided that he is
proposed and elected. Employee is not required to be based in New York during
the Employment Period.
Replace paragraph 2.2 of the Employment Agreement in its entirety with the
following:
2.2 Employee agrees to be available to the Chairman of the Board and the CEO and
to devote his business time and attention to the discharge of his duties and
responsibilities hereunder for 75% of the normal work time for the period from
June 1, 1998 through May 31, 1999; 50% of the normal work time for the period
from June 1, 1999 through May 31, 2000; and 25% of the normal work time for the
period from June 1, 2000 through May 31, 2001. The Employee agrees to abide by
the reasonable rules, regulations, instructions, personnel practices and
policies of the Company, and any reasonable changes therein which may be adopted
from time to time by the Company, as such rules, regulations, instructions,
personnel practices and policies may reasonably be applied to employees of the
Company.
Replace paragraph 3.1 of the Employment Agreement in its entirety with the
following:
3.1(a) Salary. The Company shall pay the Employee, in installments consistent
with the Company's usual payroll practices, an annual salary of $220,000, less
applicable deductions, for the period from June 1, 1998 through May 31, 1999; an
annual salary of $200,000, less applicable deductions, for the period from June
1, 1999 through May 31, 2000; and an annual
<PAGE>
salary of $197,723, less applicable deductions, for the period from June 1, 2000
through May 31, 2001.
Insert the following paragraph in its entirety as paragraph 3.1(b) of the
Employment Agreement:
3.1(b) Pursuant to the Release Agreement prepared by the Company and attached
hereto as Exhibit A, the Employee will receive a single lump sum payment of
$75,000, less applicable deductions, on or about the fifteenth business day
after the Employee executes this Amendment and executes and does not revoke the
Release Agreement as provided for therein.
Delete paragraph 3.3 of the Employment Agreement in its entirety.
Replace paragraph 3.4 (a) of the Employment Agreement in its entirety with the
following:
3.4 (a) Except as set forth below, as of the Effective Date and during
the Employment Period, the Employee shall be entitled to participate in the
benefit programs available to employees in senior management positions at the
Company (the "Executive Benefit Plans") from time to time in a manner and amount
consistent with the Company's employment policies in effect from time to time.
Such Executive Benefit Plans are listed on Schedule 3.4. The Employee shall be
entitled to participate in, and receive the benefits of, any Executive Benefit
Plan as of the Effective Date, and shall not be subject to any eligibility or
waiting periods with respect thereto unless otherwise indicated on Schedule 3.4.
If the Employee resides outside the service area of the health insurance plan
described on Schedule 3.4, the Company shall reimburse the Employee the cost of
alternative health insurance coverage that the Employee obtains, up to the cost
of the health insurance set forth on Schedule 3.4. Notwithstanding anything to
the contrary in this Employment Agreement, effective June 1, 1998, the Employee
shall not be eligible for a Company car beyond the current car lease which
expires on September 27, 1998, a car allowance or the use of a Company
apartment.
Replace paragraph 3.5 of the Employment Agreement in its entirety with the
following:
3.5 Reimbursement of Expenses. The Company shall reimburse the Employee
for all reasonable travel expenses, including travel by Employee to Company
facilities to perform services under this Employment Agreement, and other
expenses incurred or paid by the Employee in connection with, or related to, the
business of the Company and the performance of his duties, responsibilities or
services under this Employment Agreement, in accordance with Company policy and
upon presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may reasonably request.
Replace paragraph 5.1 (a) of the Employment Agreement in its entirety with the
following:
(a) the Options granted pursuant to Section 3.2 shall terminate on the date of
termination of employment; and
2
<PAGE>
Replace paragraph 5.2(a) of the Employment Agreement in its entirety with the
following:
(a) the Options granted pursuant to Section 3.2 shall become immediately
exercisable in full on the date of notice of such termination, providing the
Employee the opportunity to exercise such Options in full on or prior to the
date of termination of employment;
Delete paragraph 5.2(b) of the Employment Agreement in its entirety.
Replace paragraph 5.2(c) of the Employment Agreement with the following:
(c) the Company shall pay to the Employee the salary otherwise payable to him
under Section 3 through the Expiration Date, subject, however to the following:
Replace paragraph 5.2(c)(i) of the Employment Agreement in its entirety with the
following:
(i) If a "Change in Control" as defined in Schedule 3.3(c), occurs within
three (3) months after said termination without cause, in lieu of any other
payments under this Section 5.2(c), the Company shall pay to the Employee,
within sixty (60) days thereafter, an amount equal to his salary for the number
of months remaining in this Agreement; and
Replace paragraph 5.2(c)(ii) of the Employment Agreement in its entirety with
the following:
(ii) In the event the Employee secures Alternative Employment, as defined
below, said payments shall cease as of the date the Alternative Employment
commences. For purposes of this Agreement, "Alternative Employment" shall mean
any provision of services to a health maintenance organization that is in
competition with WellCare in the States of Connecticut or New York.
Insert the following paragraph in its entirety as paragraph 5.2(e) of the
Employment Agreement:
(e) In order to receive any compensation or benefits under this Section 5.2,
Employee must sign a release agreement prepared by the Company at that time,
which release shall be substantially in the form annexed hereto as Exhibit B.
Replace paragraph 5.3(a) of the Employment Agreement in its entirety with the
following:
(a) the Options granted pursuant to Section 3.2 shall terminate on the date of
termination of employment; and
Replace paragraph 5.4 of the Employment Agreement in its entirety with the
following:
5.4 Termination for Death or Disability. In the event that the Employee's
employment is terminated by the Company pursuant to Section 4.4 by reason of
death or disability of the Employee:
3
<PAGE>
(a) the Employee or his legal representatives, in the case of the
Employee's disability, or his legal representatives, in the case of the
Employee's death, shall be entitled to exercise the options granted pursuant to
Section 3.2 within six (6) months of the date of termination, but only to the
extent exercisable at the date of termination and in no event after the
expiration date of these options;
(b) the Company shall pay, in the case of the Employee's death, to the
estate or designated beneficiaries of the Employee, or, in the case of the
Employee's disability, to his legal representatives, the salary and benefits to
which the employee would otherwise be entitled under Section 3 through the last
day of his actual employment; and
(c) in the event of Employee's death during the period from June 1,
1998 through May 31, 1999, the Company shall pay to Employee's estate or
designated beneficiaries a lump sum payment of $142,000, less applicable
deductions. In the event of Employee's death during the period from June 1, 1999
through May 31, 2000, the Company shall pay to Employee's estate or designated
beneficiaries a lump sum payment of $79,000, less applicable deductions. In the
event of Employee's death during the period from June 1, 2000 through May 31,
2001, the Company shall pay to Employee's estate or designated beneficiaries a
lump sum payment of $26,000, less applicable deductions; provided, however, that
in order to receive a payment pursuant to this Section 5.4(c) the Employee's
estate or designated beneficiaries must sign a release agreement prepared by the
Company at that time, which release shall be substantially in the form annexed
hereto as Exhibit B.
Delete paragraph 6.1(a) of the Employment Agreement in its entirety.
Insert the following paragraph in its entirety as paragraph 6.3 of the
Employment Agreement:
6.3 If the Employee violates this Section 6 or Section 7, as of the date of such
violation, any and all payments of compensation and benefits pursuant to Section
3 of this Agreement shall cease immediately and Company shall have no further
obligation hereunder, including but not limited to the Change of Control
provisions in Section 5 of this Agreement.
Replace paragraph 10(a) of the Employment Agreement in its entirety with the
following:
(a) if to the Company:
The WellCare Management Group, Inc.
ParkWest/Hurley Avenue Extension
Kingston, NY 12401
Attention: Joseph R. Papa, President/Chief Executive Officer
Telecopier Number : (914) 338-0566
Replace paragraph 15.4 of the Employment Agreement in its entirety with the
following:
15.4 Binding Effect. Subject to the provisions of Section 15.1, all the terms
and provisions of this Employment Agreement shall be binding upon and inure to
the benefit of and be enforced by the Company and the Employee and the legal
representatives of the Employee and the respective
4
<PAGE>
successors and assigns of the parties hereto. This Employment Agreement shall
not run to the benefit of or be enforceable by any person other than a party to
this Employment Agreement and, subject to the provisions of Section 15.1, the
successors, assigns and legal representatives.
Replace paragraph 15.5 of the Employment Agreement in its entirety with the
following:
15.5 Entire Agreement. This Employment Agreement, as amended by the Amendment
dated June 1, 1998, constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Employment Agreement, including that
certain letter from Employee to Bob Morey and Ed Ullmann dated June 7, 1996.
-----------------------------------------
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Joseph R. Papa
-----------------------------------
Joseph R. Papa, President/CEO
/s/ Robert W. Morey, Jr.
------------------------------------
Robert W. Morey, Jr., Chairman
EMPLOYEE
/s/ John E. Ott, M.D.
---------------------------
John E.Ott, M.D.
<PAGE>
Exhibit A
RELEASE AGREEMENT
This memorandum sets forth the terms and conditions of the Release
Agreement ("Agreement") between John E. Ott, on his own behalf and on behalf of
his heirs, executors, administrators, attorneys, successors and assigns
(hereinafter collectively referred to as the "Employee"), and The WellCare
Management Group, Inc., and its parent(s), branches, agencies, subsidiaries,
affiliates, related companies and divisions and their respective successors,
assigns, representatives, agents, officers, directors, shareholders, attorneys,
and employees, whether current or former (hereinafter collectively referred to
as "WellCare").
WHEREAS, the Employee and WellCare have agreed that the Employee's
employment with WellCare will continue according to the terms of the Amendment
to Employment Agreement between The WellCare Management Group, Inc. and John E.
Ott dated June 1, 1996 (the "Amended Employment Agreement");
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and undertakings set forth herein, the Employee and WellCare agree as
follows:
1. The Amended Employment Agreement and all rights and obligations
of the Employee and WellCare thereunder shall be effective at 5:00 p.m. on the
seventh day after Employee executes this Agreement, provided that Employee does
not revoke this Agreement pursuant to paragraph 12 in which event the Amended
Employment Agreement shall be of no force or effect on either WellCare or
Employee.
2. As consideration for the Employee's release of any and all
claims against WellCare as set forth in paragraph 3 herein, WellCare agrees:
(a) to provide the Employee with a lump-sum payment of $75,000
less applicable deductions, on or about the fifteenth business day after the
Employee executes this Agreement and the Amended Employment Agreement and does
not revoke this Agreement pursuant to paragraph 12; and
(b) to execute the Amended Employment Agreement.
3. In exchange for the payment set forth in paragraph 2 above and
for other good and valuable consideration, the Employee hereby releases WellCare
from any and all liability for any claims against WellCare as of the date of his
execution of this Agreement, whether known or unknown to him, that may arise
under express or implied contract, federal, state or local statute, executive
order, law, ordinance, tort or other obligations arising out of public policy.
This release includes but is not limited to any claims for discrimination on the
basis of race, color, sex, national origin, religion, disability, age, marital
status and veteran status, including but not limited to any claims arising under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the
Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act
of 1993, the Americans with Disabilities Act of 1990, the Fair Labor Standards
Act of 1938, the New York State Human Rights Law, and all claims for wages,
bonuses, monetary or equitable relief, or attorneys' fees. This Agreement does
not constitute any
<PAGE>
admission by WellCare that it has violated any such law or legal obligation with
respect to any aspect of the Employee's employment.
4. The Employee represents, warrants and acknowledges that
WellCare owes him no wages, commissions, bonuses, sick pay, personal leave pay,
holiday pay, severance pay, vacation pay, tuition reimbursement, stock options,
auto allowance, 401(k) Plan benefits or other compensation or benefits or
payments or forms of remuneration of any kind or nature, other than that
specifically provided for in this Agreement and the Amended Employment
Agreement.
5. The Employee represents and agrees that: (a) he has not filed
or caused to be filed any lawsuits against WellCare in any court whatsoever; (b)
he has not filed or caused to be filed any charges or complaints against
WellCare with any municipal, state or federal agency charged with the
enforcement of any law; and (c) pursuant to and as a part of the Employee's
complete, total and irrevocable release and discharge of WellCare, the Employee
agrees, to the fullest extent permitted by law, not to file or cause to be filed
a charge, complaint, grievance or demand for arbitration in any forum, which
relates to any matter that involves WellCare and that occurred on or before the
date of the Employee's execution of this Agreement.
6. The Employee agrees not to disclose the terms, contents or
execution of this Agreement, the claims that have been or could have been raised
against WellCare as of the date of execution of this Agreement, and the facts
and circumstances underlying any such claims except in the following
circumstances:
a. The Employee may disclose the terms of this Agreement to his
immediate family, so long as such family member agrees to be bound by the
confidential nature of this Agreement;
b. The Employee may disclose the terms of this Agreement to (i)
his counsel, tax advisors, auditors or accountants, so long as such persons
agree in writing to be bound by the confidential nature of this Agreement, or
(ii) taxing authorities, if requested by such authorities and so long as they
are advised in writing of the confidential nature of this Agreement; and
c. Pursuant to the order of a court or governmental agency of
competent jurisdiction, or otherwise as may be required by law, or for purposes
of securing enforcement of the terms and conditions of this Agreement.
7. The terms, contents or execution of this Agreement, any claims
that have been or could have been raised against WellCare as of the date of
execution of this Agreement, and the facts and circumstances underlying any such
claims shall not be admissible in any litigation, arbitration or proceeding in
any forum for any purpose other than to secure enforcement of the terms and
conditions of this Agreement, except as required by law.
8. Employee agrees not to issue any communication, written or
otherwise, that disparages, criticizes or otherwise reflects adversely or
encourages any adverse action against WellCare, except if testifying truthfully
under oath pursuant to any lawful court order or subpoena or otherwise
responding to or providing disclosures required by law.
2
<PAGE>
9. Upon service on the Employee, or anyone acting on his behalf,
of any subpoena, order, directive or other legal process requiring the Employee
to engage in conduct encompassed within paragraphs 6 or 8 of this Agreement, the
Employee or his attorney shall immediately notify Seth I. Truwit, Esq., Epstein
Becker & Green, P.C., 250 Park Avenue, New York, New York 10177 and Joseph R.
Papa, Chief Executive Officer of WellCare in writing within two business days of
such service.
10. Employee agrees that he will assist and cooperate with
WellCare in connection with the defense or prosecution of any claim that may be
made against or by WellCare, or in connection with any ongoing or future
investigation or dispute or claim of any kind involving WellCare, including any
proceeding before any arbitral, administrative, judicial, legislative, or other
body or agency, including testifying in any proceeding to the extent such
claims, investigations or proceedings relate to services performed or required
to be performed by Employee, pertinent knowledge possessed by Employee, or any
act or omission by Employee. Employee further agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this paragraph.
11. WellCare shall, to the maximum extent permitted, indemnify
Employee pursuant to the Certificate of Incorporation and the Bylaws of The
WellCare Management Group, Inc. and WellCare of New York, Inc.
12. The failure of the Employee or WellCare to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof, or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
13. The Employee acknowledges that he has been offered twenty-one
(21) days from the date he received this Agreement within which to consider its
terms, and that he has been advised that during such period he should consult an
attorney regarding the terms of this Agreement. The Employee further
acknowledges that his signature below indicates that he is entering into this
Agreement freely, knowingly and voluntarily with a full understanding of its
terms. The terms of this Agreement shall not become effective or enforceable
until seven (7) days following the date of the Employee's execution of this
Agreement, during which time the Employee may revoke this Agreement by notifying
WellCare in writing, by registered letter delivered to the attention of the
undersigned representative of WellCare. Any such revocation must be received by
5:00 p.m. on or before the seventh day.
14. This Agreement together with the Amended Employment Agreement
constitute the entire agreement between the Employee and WellCare, and supersede
and cancel all prior oral and written agreements, if any, between the Employee
and WellCare. Employee affirms that, in entering into this Agreement, Employee
is not relying upon any oral or written promise or statement made by anyone at
any time on behalf of WellCare.
3
<PAGE>
15. If any of the provisions, terms or clauses of this Agreement
are declared illegal, unenforceable or ineffective in a legal forum, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Agreement shall remain valid and binding
upon both parties; provided, however, if the Employee's release of WellCare as
contained in paragraph 3 of this Agreement is declared by a court of competent
jurisdiction to be illegal, unenforceable or ineffective, WellCare shall rewrite
paragraph 3 to cure the defect and the Employee shall re-execute the release
upon request and the Employee shall not be entitled to any additional monies,
benefits and/or compensation therefor.
16. The Employee agrees that in the event he breaches the terms of
this Agreement, WellCare may immediately cease all payments pursuant to this
Agreement and the Amended Employment Agreement, and WellCare shall be entitled
to recover from the Employee all amounts paid to the Employee pursuant to this
Agreement and the Amended Employment Agreement, as well as all costs and
reasonable attorneys' fees incurred as a result of WellCare's attempt to redress
such breach or to enforce WellCare's rights and protect WellCare's legitimate
interests.
17. The law of the State of New York will control any questions
concerning the validity and interpretation of this Agreement, without regard to
principles of conflicts of law. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof, shall be settled by arbitration
in accordance with the applicable rules then obtaining of the American
Arbitration Association and judgment on the award rendered may be entered in any
court having jurisdiction thereof. The prevailing party in any such proceeding
shall be entitled to reimbursement of its costs and expenses (including
reasonable attorneys' fees) in connection with such proceedings.
18. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors, assigns, heirs, executors and
legal representatives.
4
<PAGE>
19. This Agreement may not be changed or altered, except by a
writing signed by the Employee and an authorized officer of WellCare.
/s/ John E. Ott
------------------------------
John E. Ott
STATE OF DISTRICT OF COLUMBIA )
) ss.:
CITY OF WASHINGTON, D.C. )
On this 11 day of July, 1998, before me personally came John E.
Ott, to me known to be the individual described in the foregoing instrument, who
executed the foregoing instrument in my presence, and who duly acknowledged to
me that he executed the same.
/s/ Linda J. Siou
------------------------------
Notary Public
LINDA J. SIOU
NOTARY PUBLIC
DISTRICT OF COLUMBIA
MY COMMISSION EXPIRES OCTOBER 31, 1998
THE WELLCARE MANAGEMENT
GROUP, INC.
By: /s/ Joseph R. Papa
----------------------------------
Joseph R. Papa, President/CEO
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 15th day of July, 1998, before me personally came Joseph
R. Papa, to me known, who being by me duly sworn, did depose and say that he is
President/CEO of The WellCare Management Group, Inc., the corporation described
in and which executed the foregoing instrument; that he is duly authorized to
execute said instrument on behalf of said corporation, and that he executed said
instrument pursuant to that authority.
/s/ Jeannine G. Earl
------------------------------
Notary Public
JEANNINE G. EARL
Notary Public, State of New York
No. 4937485
Qualified in Ulster County
Commission Expires July 25, 1998
5
<PAGE>
Exhibit A
RELEASE AGREEMENT
This memorandum sets forth the terms and conditions of the Release
Agreement ("Agreement") between John E. Ott, on his own behalf and on behalf of
his heirs, executors, administrators, attorneys, successors and assigns
(hereinafter collectively referred to as the "Employee"), and The WellCare
Management Group, Inc., and its parent(s), branches, agencies, subsidiaries,
affiliates, related companies and divisions and their respective successors,
assigns, representatives, agents, officers, directors, shareholders, attorneys,
and employees, whether current or former (hereinafter collectively referred to
as "WellCare").
WHEREAS, the Employee and WellCare have agreed that the Employee's
employment with WellCare will continue according to the terms of the Amendment
to Employment Agreement between The WellCare Management Group, Inc. and John E.
Ott dated June 1, 1996 (the "Amended Employment Agreement");
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and undertakings set forth herein, the Employee and WellCare agree as
follows:
1. The Amended Employment Agreement and all rights and obligations
of the Employee and WellCare thereunder shall be effective at 5:00 p.m. on the
seventh day after Employee executes this Agreement, provided that Employee does
not revoke this Agreement pursuant to paragraph 12 in which event the Amended
Employment Agreement shall be of no force or effect on either WellCare or
Employee.
2. As consideration for the Employee's release of any and all
claims against WellCare as set forth in paragraph 3 herein, WellCare agrees:
(a) to provide the Employee with a lump-sum payment of $75,000
less applicable deductions, on or about the fifteenth business day after the
Employee executes this Agreement and the Amended Employment Agreement and does
not revoke this Agreement pursuant to paragraph 12; and
(b) to execute the Amended Employment Agreement.
3. In exchange for the payment set forth in paragraph 2 above and
for other good and valuable consideration, the Employee hereby releases WellCare
from any and all liability for any claims against WellCare as of the date of his
execution of this Agreement, whether known or unknown to him, that may arise
under express or implied contract, federal, state or local statute, executive
order, law, ordinance, tort or other obligations arising out of public policy.
This release includes but is not limited to any claims for discrimination on the
basis of race, color, sex, national origin, religion, disability, age, marital
status and veteran status, including but not limited to any claims arising under
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the
Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
Older Workers Benefit Protection Act of 1990, the Family and Medical Leave Act
of 1993, the Americans with Disabilities Act of 1990, the Fair Labor Standards
Act of 1938, the New York State Human Rights Law, and all claims for wages,
bonuses, monetary or equitable relief, or attorneys' fees. This Agreement does
not constitute any
<PAGE>
admission by WellCare that it has violated any such law or legal obligation with
respect to any aspect of the Employee's employment.
4. The Employee represents, warrants and acknowledges that
WellCare owes him no wages, commissions, bonuses, sick pay, personal leave pay,
holiday pay, severance pay, vacation pay, tuition reimbursement, stock options,
auto allowance, 401(k) Plan benefits or other compensation or benefits or
payments or forms of remuneration of any kind or nature, other than that
specifically provided for in this Agreement and the Amended Employment
Agreement.
5. The Employee represents and agrees that: (a) he has not filed
or caused to be filed any lawsuits against WellCare in any court whatsoever; (b)
he has not filed or caused to be filed any charges or complaints against
WellCare with any municipal, state or federal agency charged with the
enforcement of any law; and (c) pursuant to and as a part of the Employee's
complete, total and irrevocable release and discharge of WellCare, the Employee
agrees, to the fullest extent permitted by law, not to file or cause to be filed
a charge, complaint, grievance or demand for arbitration in any forum, which
relates to any matter that involves WellCare and that occurred on or before the
date of the Employee's execution of this Agreement.
6. The Employee agrees not to disclose the terms, contents or
execution of this Agreement, the claims that have been or could have been raised
against WellCare as of the date of execution of this Agreement, and the facts
and circumstances underlying any such claims except in the following
circumstances:
a. The Employee may disclose the terms of this Agreement to his
immediate family, so long as such family member agrees to be bound by the
confidential nature of this Agreement;
b. The Employee may disclose the terms of this Agreement to (i)
his counsel, tax advisors, auditors or accountants, so long as such persons
agree in writing to be bound by the confidential nature of this Agreement, or
(ii) taxing authorities, if requested by such authorities and so long as they
are advised in writing of the confidential nature of this Agreement; and
c. Pursuant to the order of a court or governmental agency of
competent jurisdiction, or otherwise as may be required by law, or for purposes
of securing enforcement of the terms and conditions of this Agreement.
7. The terms, contents or execution of this Agreement, any claims
that have been or could have been raised against WellCare as of the date of
execution of this Agreement, and the facts and circumstances underlying any such
claims shall not be admissible in any litigation, arbitration or proceeding in
any forum for any purpose other than to secure enforcement of the terms and
conditions of this Agreement, except as required by law.
8. Employee agrees not to issue any communication, written or
otherwise, that disparages, criticizes or otherwise reflects adversely or
encourages any adverse action against WellCare, except if testifying truthfully
under oath pursuant to any lawful court order or subpoena or otherwise
responding to or providing disclosures required by law.
2
<PAGE>
9. Upon service on the Employee, or anyone acting on his behalf,
of any subpoena, order, directive or other legal process requiring the Employee
to engage in conduct encompassed within paragraphs 6 or 8 of this Agreement, the
Employee or his attorney shall immediately notify Seth I. Truwit, Esq., Epstein
Becker & Green, P.C., 250 Park Avenue, New York, New York 10177 and Joseph R.
Papa, Chief Executive Officer of WellCare in writing within two business days of
such service.
10. Employee agrees that he will assist and cooperate with
WellCare in connection with the defense or prosecution of any claim that may be
made against or by WellCare, or in connection with any ongoing or future
investigation or dispute or claim of any kind involving WellCare, including any
proceeding before any arbitral, administrative, judicial, legislative, or other
body or agency, including testifying in any proceeding to the extent such
claims, investigations or proceedings relate to services performed or required
to be performed by Employee, pertinent knowledge possessed by Employee, or any
act or omission by Employee. Employee further agrees to perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this paragraph.
11. WellCare shall, to the maximum extent permitted, indemnify
Employee pursuant to the Certificate of Incorporation and the Bylaws of The
WellCare Management Group, Inc. and WellCare of New York, Inc.
12. The failure of the Employee or WellCare to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver thereof, or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
13. The Employee acknowledges that he has been offered twenty-one
(21) days from the date he received this Agreement within which to consider its
terms, and that he has been advised that during such period he should consult an
attorney regarding the terms of this Agreement. The Employee further
acknowledges that his signature below indicates that he is entering into this
Agreement freely, knowingly and voluntarily with a full understanding of its
terms. The terms of this Agreement shall not become effective or enforceable
until seven (7) days following the date of the Employee's execution of this
Agreement, during which time the Employee may revoke this Agreement by notifying
WellCare in writing, by registered letter delivered to the attention of the
undersigned representative of WellCare. Any such revocation must be received by
5:00 p.m. on or before the seventh day.
14. This Agreement together with the Amended Employment Agreement
constitute the entire agreement between the Employee and WellCare, and supersede
and cancel all prior oral and written agreements, if any, between the Employee
and WellCare. Employee affirms that, in entering into this Agreement, Employee
is not relying upon any oral or written promise or statement made by anyone at
any time on behalf of WellCare.
3
<PAGE>
15. If any of the provisions, terms or clauses of this Agreement
are declared illegal, unenforceable or ineffective in a legal forum, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Agreement shall remain valid and binding
upon both parties; provided, however, if the Employee's release of WellCare as
contained in paragraph 3 of this Agreement is declared by a court of competent
jurisdiction to be illegal, unenforceable or ineffective, WellCare shall rewrite
paragraph 3 to cure the defect and the Employee shall re-execute the release
upon request and the Employee shall not be entitled to any additional monies,
benefits and/or compensation therefor.
16. The Employee agrees that in the event he breaches the terms of
this Agreement, WellCare may immediately cease all payments pursuant to this
Agreement and the Amended Employment Agreement, and WellCare shall be entitled
to recover from the Employee all amounts paid to the Employee pursuant to this
Agreement and the Amended Employment Agreement, as well as all costs and
reasonable attorneys' fees incurred as a result of WellCare's attempt to redress
such breach or to enforce WellCare's rights and protect WellCare's legitimate
interests.
17. The law of the State of New York will control any questions
concerning the validity and interpretation of this Agreement, without regard to
principles of conflicts of law. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof, shall be settled by arbitration
in accordance with the applicable rules then obtaining of the American
Arbitration Association and judgment on the award rendered may be entered in any
court having jurisdiction thereof. The prevailing party in any such proceeding
shall be entitled to reimbursement of its costs and expenses (including
reasonable attorneys' fees) in connection with such proceedings.
18. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors, assigns, heirs, executors and
legal representatives.
4
<PAGE>
19. This Agreement may not be changed or altered, except by a
writing signed by the Employee and an authorized officer of WellCare.
/s/ John E. Ott
------------------------------
John E. Ott
STATE OF DISTRICT OF COLUMBIA )
) ss.:
CITY OF WASHINGTON, D.C. )
On this 11 day of July, 1998, before me personally came John E.
Ott, to me known to be the individual described in the foregoing instrument, who
executed the foregoing instrument in my presence, and who duly acknowledged to
me that he executed the same.
/s/ Linda J. Siou
------------------------------
Notary Public
LINDA J. SIOU
NOTARY PUBLIC
DISTRICT OF COLUMBIA
MY COMMISSION EXPIRES OCTOBER 31, 1998
THE WELLCARE MANAGEMENT
GROUP, INC.
By: /s/ Joseph R. Papa
----------------------------------
Joseph R. Papa, President/CEO
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 15th day of July, 1998, before me personally came Joseph
R. Papa, to me known, who being by me duly sworn, did depose and say that he is
President/CEO of The WellCare Management Group, Inc., the corporation described
in and which executed the foregoing instrument; that he is duly authorized to
execute said instrument on behalf of said corporation, and that he executed said
instrument pursuant to that authority.
/s/ Jeannine G. Earl
------------------------------
Notary Public
JEANNINE G. EARL
Notary Public, State of New York
No. 4937485
Qualified in Ulster County
Commission Expires July 25, 1998
5
VOLUNTARY SEPARATION AGREEMENT AND RELEASE
This memorandum sets forth the terms and conditions of the Voluntary
Separation Agreement and Release ("Agreement") between Jack Sizer, on his own
behalf and on behalf of his estate, heirs, executors, administrators, attorneys,
successors and assigns (hereinafter collectively referred to as the "Employee"),
and The WellCare Management Group, Inc., and its parent(s), branches, agencies,
subsidiaries, affiliates, related companies and divisions and their respective
successors, assigns, representatives, agents, officers, directors, shareholders,
and employees, whether current or former (hereinafter collectively referred to
as "WellCare").
WHEREAS, the Employee and WellCare have agreed that the Employee's
employment with WellCare will be terminated effective April 3, 1998 (the
"Termination Date");
WHEREAS, the Employee will receive his base salary, less applicable
deductions, through April 3, 1998, and shall be paid for all unused accrued
vacation in the amount of $13,527.26, less applicable deductions;
WHEREAS, the Employee shall voluntarily resign as an officer of WellCare,
effective April 3, 1998. Notwithstanding anything to the contrary in this
Agreement, April 3, 1998, shall be his final date of employment with WellCare in
any capacity.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and undertakings set forth herein, the Employee and WellCare agree as follows:
1. The employment agreement dated May 29, 1996, by and between the Employee
and WellCare, as amended by the Addendum dated April 21, 1997 ("Employment
Agreement"), and all rights and obligations of the Employee and WellCare
thereunder shall terminate effective at 5:00 p.m. on the seventh day after
Employee executes this Agreement, provided, however, that Employee does not
revoke this Agreement within seven (7) days after signing it pursuant to
paragraph 15 of this Agreement.
2. As consideration for the Employee's release of any and all claims
against WellCare as set forth in paragraph 3 herein, WellCare agrees:
(a) to provide the Employee with bi-weekly payments of $6,730.77, less
applicable deductions, for the period from April 4, 1998 through May 30, 1999;
provided, however, that in the event the Employee secures Alternative
Employment, as defined below, said payments shall cease as of the date the
Alternative Employment commences. For purposes of this Agreement, "Alternative
Employment" shall mean any provision of services to a health maintenance
organization that is in competition with
<PAGE>
WellCare in the States of Connecticut or New York. During the period in which
the Employee is receiving payments pursuant to this paragraph 2(a), the Employee
shall be reasonably available via telephone or in person to answer questions
from Joseph R. Papa, Chief Executive Officer of WellCare, or his designee,
relating to those services the Employee performed prior to the termination of
his employment. In the event that a "Change in Control," as defined in Schedule
3.3(c) annexed to the Employment Agreement, occurs prior to May 30, 1999, at the
Employee's option the remaining bi-weekly payments due under the paragraph 2(a)
shall be accelerated and shall be paid to Employee in a single lump sum within
sixty (60) days of receipt of the Employee's request; provided, however,
WellCare shall be entitled to recover from the Employee a ratable portion of
such lump sum payment if the Employee commences Alternative Employment prior to
May 30, 1999. The Employee will notify WellCare in writing within five business
days of his procuring Alternative Employment;
(b) to pay for the continuation of the Employee's group health and dental
insurance coverage, pursuant to COBRA, if eligible, for a period ending upon the
earlier of (i) May 30, 1999, or (ii) the date upon which the Employee procures
Alternative Employment. After that date, WellCare will allow the Employee to
continue such coverage at the Employee's own expense for the remainder of any
COBRA continuation period, pursuant to applicable law; and
(c) to waive, as of the date of its execution of this Agreement, all rights
it may have pursuant to paragraph 6 of the Employment Agreement.
3. In exchange for the payments and benefits set forth in paragraph 2 above
and for other good and valuable consideration, the Employee hereby releases
WellCare from any and all liability for any claims against WellCare as of the
date of his execution of this Agreement, whether known or unknown to him, that
may arise under express or implied contract, federal, state or local statute,
executive order, law, ordinance, tort or other obligations arising out of public
policy. This release includes but is not limited to any claims for
discrimination on the basis of race, color, sex, national origin, religion,
disability, age, marital status and veteran status, including but not limited to
any claims arising under Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1866, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the
Family and Medical Leave Act of 1993, the Employee Retirement Income Security
Act, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act
of 1938, the New York State Human Rights Law, and all claims for wages, monetary
or equitable relief, vacation, other employee fringe benefits, benefit plans,
medical plans, 401(k) plans, stock options plans or attorneys' fees. This
Agreement does not constitute any admission by WellCare that it
2
<PAGE>
has violated any such law or legal obligation with respect to any aspect of the
Employee's employment or termination therefrom.
4. The Employee represents, warrants and acknowledges that WellCare owes
him no wages, commissions, bonuses, sick pay, personal leave pay, holiday pay,
severance pay, vacation pay, tuition reimbursement, stock options, auto
allowance, 401(k) Plan benefits or other compensation or benefits or payments or
forms of remuneration of any kind or nature, other than that specifically
provided for in this Agreement. Reference is made to Section 3.2 of the
Employment Agreement and to the Option Agreements dated May 29, 1996
(collectively, the "1996 Option Agreement"), and the Option Agreement dated June
27, 1997 (the "1997 Option Agreement" and together with the 1996 Option
Agreements, collectively the "Option Agreements"). Employee and WellCare hereby
acknowledge that: (i) 50% of the options issued under the 1996 Option Agreement
(or options to purchase an aggregate of 10,000 shares) are currently
exercisable; (ii) none of the options granted under the 1997 Option Agreement
are currently exercisable; (iii) as a result of his termination of employment,
no further options granted under the Option Agreements or otherwise shall become
exercisable; and that (iv) under the 1996 Option Agreement, the Employee has
three months from the date of termination of employment in which to exercise the
10,000 options that are currently exercisable as of the date hereof. Employee
further acknowledges and agrees that WellCare has no further obligation to issue
any options to the Employee under the Employment Agreement or otherwise.
5. The Employee confirms that he has delivered to WellCare any and all
property and equipment of WellCare, including his beeper, phone, keys, laptop or
other computers, and any other WellCare items he may have had in his possession.
6. The Employee represents and agrees that: (a) he has not filed or caused
to be filed any lawsuits against WellCare in any court whatsoever; (b) he has
not filed or caused to be filed any charges or complaints against WellCare with
any municipal, state or federal agency charged with the enforcement of any law;
and (c) pursuant to and as a part of the Employee's complete, total and
irrevocable release and discharge of WellCare, the Employee agrees, to the
fullest extent permitted by law, not to file or cause to be filed a charge,
complaint, grievance or demand for arbitration in any forum, which relates to
any matter that involves WellCare and that occurred on or before the date of the
Employee's execution of this Agreement.
7. The Employee agrees not to disclose the terms, contents or execution of
this Agreement, the claims that have been or could have been raised against
WellCare as of the date of execution of this Agreement, and the facts and
circumstances underlying any such claims except in the following circumstances:
3
<PAGE>
a. The Employee may disclose the terms of this Agreement to his
immediate family, so long as such family member agrees to be bound by the
confidential nature of this Agreement;
b. The Employee may disclose the terms of this Agreement to (i) his
counsel, tax advisors, auditors or accountants, so long as such persons agree in
writing to be bound by the confidential nature of this Agreement, or (ii) taxing
authorities, if requested by such authorities and so long as they are advised in
writing of the confidential nature of this Agreement; and
c. Pursuant to the order of a court or governmental agency of competent
jurisdiction, or otherwise as may be required by law, or for purposes of
securing enforcement of the terms and conditions of this Agreement.
8. In the event the Employee is asked about the circumstances of his
termination by a prospective employer he may state only that WellCare and the
Employee mutually agreed to terminate his employment so that Employee could seek
other opportunities.
9. The terms, contents or execution of this Agreement, any claims that have
been or could have been raised against WellCare as of the date of execution of
this Agreement, and the facts and circumstances underlying any such claims shall
not be admissible in any litigation, arbitration or proceeding in any forum for
any purpose other than to secure enforcement of the terms and conditions of this
Agreement, except as required by law.
10. Employee agrees not to issue any communication, written or otherwise,
that disparages, criticizes or otherwise reflects adversely or encourages any
adverse action against WellCare, except if testifying truthfully under oath
pursuant to any lawful court order or subpoena or otherwise responding to or
providing disclosures required by law.
11. Except as required by law, Employee specifically agrees that he will
not at any time, in any fashion, form, or manner, either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation, in any
manner whatsoever any information of any kind, nature, or description concerning
any matters affecting or relating to the business of WellCare, including,
without limiting the generality of the foregoing, the names of any of its
customers, the prices it obtains or has obtained, or at which it sells or has
sold its products or services, or any other information of, about, or concerning
the business of WellCare, its manner of operation, its plans, processes, or
other data of any kind, nature, or description, without regard to whether any or
all of the foregoing matters would be deemed confidential, material, or
important, the parties hereto stipulating that as between them,
4
<PAGE>
the same are important, material, and confidential, and gravely affect the
successful conduct of the business of WellCare and its goodwill, and that any
breach of the terms of this paragraph is a material breach of this Agreement.
Employee further confirms that he has delivered to WellCare any and all
documents and other tangible items containing information as described in this
paragraph.
12. Upon service on the Employee, or anyone acting on his behalf, of any
subpoena, order, directive or other legal process requiring the Employee to
engage in conduct encompassed within paragraphs 7, 9, 10 or 11 of this
Agreement, the Employee or his attorney shall immediately notify Seth I. Truwit,
Esq., Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177
and Joseph R. Papa, Chief Executive Officer of WellCare in writing within two
business days of such service.
13. Employee agrees that he will assist and cooperate with WellCare in
connection with the defense or prosecution of any claim that may be made against
or by WellCare, or in connection with any ongoing or future investigation or
dispute or claim of any kind involving WellCare, including any proceeding before
any arbitral, administrative, judicial, legislative, or other body or agency,
including testifying in any proceeding to the extent such claims, investigations
or proceedings relate to services performed or required to be performed by
Employee, pertinent knowledge possessed by Employee, or any act or omission by
Employee. Employee further agrees to perform all acts and execute and deliver
any documents that may be reasonably necessary to carry out the provisions of
this paragraph.
14. The failure of the Employee or WellCare to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
thereof, or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
15. The Employee acknowledges that he has been offered twenty-one (21) days
from the date he received this Agreement within which to consider its terms, and
that he has been advised that during such period he should consult an attorney
regarding the terms of this Agreement. The Employee further acknowledges that
his signature below indicates that he is entering into this Agreement freely,
knowingly and voluntarily with a full understanding of its terms. The terms of
this Agreement shall not become effective or enforceable until seven (7) days
following the date of the Employee's execution of this Agreement, during which
time the Employee may revoke this Agreement by notifying WellCare in writing, by
registered letter delivered to the attention of the undersigned representative
of WellCare. Any such revocation must be received by 5:00 p.m. on or before the
seventh day.
5
<PAGE>
16. This Agreement constitutes the entire agreement between the Employee
and WellCare, and supersedes and cancels all prior oral and written agreements,
if any, between the Employee and WellCare. Employee affirms that, in entering
into this Agreement, Employee is not relying upon any oral or written promise or
statement made by anyone at any time on behalf of WellCare.
17. If any of the provisions, terms or clauses of this Agreement are
declared illegal, unenforceable or ineffective in a legal forum, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Agreement shall remain valid and binding
upon both parties; provided, however, if the Employee's release of WellCare as
contained in paragraph 3 of this Agreement is declared by a court of competent
jurisdiction to be illegal, unenforceable or ineffective and the Employee
asserts against WellCare claims that the parties intended to be released under
Paragraph 3, the Employee shall return to WellCare all monies paid to and the
value of all benefits received by him under this Agreement within ten (10)
business days of any such determination.
18. The Employee agrees that in the event he breaches the terms of this
Agreement, WellCare may immediately cease all payments pursuant to this
Agreement, and WellCare shall be entitled to recover from the Employee all
amounts paid to the Employee pursuant to this Agreement as well as all costs and
reasonable attorneys' fees incurred as a result of WellCare's attempt to redress
such breach or to enforce WellCare's rights and protect WellCare's legitimate
interests.
19. The law of the State of New York will control any questions concerning
the validity and interpretation of this Agreement, without regard to principles
of conflicts of law. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in accordance with
the applicable rules then obtaining of the American Arbitration Association and
judgment on the award rendered may be entered in any court having jurisdiction
thereof. The prevailing party in any such proceeding shall be entitled to
reimbursement of its costs and expenses (including reasonable attorneys' fees)
in connection with such proceedings.
20. This Agreement has been reached by mutual and purely voluntary
agreement of the parties, and the parties, by their signatures indicate their
full agreement with, and understanding of, its terms. Employee acknowledges that
Employee has been given a reasonable period of time to consider the Agreement,
and that this Agreement has binding legal effect.
21. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, assigns, heirs, executors and legal
representatives.
6
<PAGE>
22. This Agreement may not be changed or altered, except by a writing
signed by the Employee and an authorized officer of WellCare.
/s/ Jack Sizer
-------------------------
Jack Sizer
STATE OF CONNECTICUT )
) ss.:
COUNTY OF NEW HAVEN )
On this 16th day of April, 1998, before me personally came Jack Sizer, to
me known to be the individual described in the foregoing instrument, who
executed the foregoing instrument in my presence, and who duly acknowledged to
me that he executed the same.
/s/ Pasquale F. Nuzzolillo
------------------------------
Notary Public
My Commission Expires Aug. 31, 1999
THE WELLCARE MANAGEMENT GROUP,
INC.
By: /s/ Joseph R. Papa
---------------------------
Joseph R. Papa, President/CEO
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 30th day of April, 1998, before me personally came Joseph R. Papa,
to me known, who being by me duly sworn, did depose and say that he is
President/CEO of The WellCare Management Group, Inc., the corporation described
in and which executed the foregoing instrument; that he is duly authorized to
execute said instrument on behalf of said corporation, and that he executed said
instrument pursuant to that authority.
/s/ Judy L. Riley
------------------------------
Notary Public
JUDY L. RILEY
Notary Public, State of New York
Reg. No. 5022167
Qualified in Dutchess County
Commission Expires Janauury 3, 2000
7
IPA SERVICE AGREEMENT
This Agreement is dated this 21st day of April, 1998 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and COLUMBIA-GREENE HEALTH CARE ALLIANCE IPA, INC., a
New York business corporation ("IPA").
W I T N E S S E T H:
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the Service Area (as hereinafter defined);
WHEREAS, WellCare and the professional service corporation listed on
Exhibit A-1 hereto (the "PC") have previously entered into the agreements listed
on Exhibit A-2 attached hereto (collectively, the "Prior Agreements"), under
which the PC has provided certain health services to Members;
WHEREAS, the PC has accumulated various liabilities scheduled on Exhibit
A-3 in connection with the performance of its obligations under Prior Agreements
(such liabilities, the "PC Liabilities");
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into a
written provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA, as a successor to PC, desire to enter into this
Agreement under which IPA shall arrange for the provision of, and be responsible
for the payment to IPA Physicians and all other providers who provide, primary
and certain specialty health care services to IPA Members; and
WHEREAS, as a condition to WellCare entering into this Agreement, IPA shall
assume the PC Liabilities.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Benefit Plan. A contract, certificate or other Evidence of Coverage
issued to each Employer Group and/or Member, that describes the obligations of
WellCare to deliver health care services to Members.
1.2 Coinsurance. A cost sharing arrangement in which the Member is required
to pay a specified percentage of the charge directly to the Participating
Provider, as specifically provided in the Evidence of Coverage.
1.3 Commissioner. The Commissioner of the Department of Health of the State
of New --------------------- York.
1.4 Copayment. A cost sharing arrangement in which the Member pays a
specified amount for specific health services such as office visits, outpatient
prescriptions, and emergency room visits directly to the Participating
Providers, as specifically provided in the Evidence of Coverage. Copayment fees
are normally paid at the point of service when the service is rendered.
1.5 Covered Services. Those health care services that IPA Members are
entitled to receive in accordance with the terms and conditions set forth in the
applicable Member Benefit Plans. Services which are not Medically Necessary
shall not be deemed as Covered Services for purposes of this Agreement or the
Member Benefit Plans, except as otherwise provided herein.
1.6 Deductible. A cost sharing arrangement in which the Member is required
to pay a specified amount for Covered Services before WellCare is obligated to
pay, as permitted and as specifically provided in the Evidence of Coverage.
1.7 Emergency. A situation where medical services are required as the
result of a medical or behavioral condition the onset of which is sudden, that
manifests itself by symptoms of sufficient severity, including severe pain, that
a prudent layperson, who possesses an average knowledge of medicine and health,
could reasonably expect the absence of immediate medical attention to result in:
(i) placing the health of the person afflicted with such condition or another
individual in serious jeopardy; (ii) serious impairment to such person's bodily
functions; (iii) serious dysfunction of any bodily organ or part of such person;
or (iv) serious disfigurement of such person.
1.8 Employer Group. An organization, firm or governmental entity that has
contracted with WellCare to provide and/or arrange for the provision of health
care services for its employees and/or retirees and/or the spouses or children
of each.
1.9 Enrolled Population. The aggregate of all persons who are entitled to
receive health care services arranged to be provided by IPA or the other
independent practice associations managed by Primergy set forth on Attachment
1.9, annexed hereto and made a part hereof, for any one or
2
<PAGE>
more product lines (e.g., commercial, Medicaid) for which IPA agrees to arrange
for health care services hereunder.
1.10 Evidence of Coverage. The document evidencing covered health care
services which is issued to each Member.
1.11 FPA. FPA Medical Management, Inc., a Delaware business corporation.
1.12 Hospital Piece. Has the meaning ascribed to it in Section 4.1.
1.13 Hospital Services. Those Medically Necessary acute care inpatient and
outpatient services that are Covered Services.
1.14 Identification Card. Shall mean the card issued by WellCare to each
Member which sets forth the Member identification number, which is to be
included on any claim form submitted to WellCare for payment.
1.15 IPA Member. A Member who has selected a PCP as such individual's
primary care physician.
1.16 IPA Member Benefit Plan. A contract, certificate or other Evidence of
Coverage issued to each Employer Group and/or Member, that describes the
obligations of WellCare to deliver Covered Services to IPA Members, as listed on
Attachment 1.16, annexed hereto and made a part hereof, as amended by WellCare
from time to time.
1.17 IPA Member Panel. A list of IPA Members who have chosen a PCP.
1.18 IPA Physician. Those physicians and entities representing such
physicians that have entered into written agreements with IPA to provide
Physician Services to IPA Members as listed on Attachment 1.18, annexed hereto
and made a part hereof, as amended by IPA quarterly.
1.19 IPA Service Area. The County of New York State set forth on Attachment
1.19, annexed hereto and made a part hereof.
1.20 IPA Services. Those Medically Necessary Covered Services that are
performed, prescribed or directed by IPA Physicians, or other providers to the
extent provided herein, including, but not limited to, Medical Services rendered
in an Emergency, other than (i) those enumerated health care services set forth
on Attachment 1.20, annexed hereto and made a part hereof, and (ii) Hospital
Services.
1.21 Medically Necessary. Medical, surgical or other treatment which a
Member requires for the treatment of illness or bodily injury as determined by
WellCare, or its appropriately delegated medical management authority, and that
is in compliance with professional and technical standards adopted by the
Quality Assurance Committee of WellCare.
3
<PAGE>
1.22 Medical Services. Those Medically Necessary health care services,
other than Hospital Services, that are Covered Services.
1.23 Member. An individual entitled to receive health care services under a
Benefit Plan (including but not limited to commercial, New York State Child
Health Plus, Medicare and Medicaid lines of business).
1.24 Option. The option to cause Primergy to merge with and into FPA,
granted to FPA pursuant to the Option Agreement, made as of March 4, 1997,
between FPA and Primergy, as amended by agreement dated November 20, 1997.
1.25 Option Termination Event. The first to occur of (i) the date on which
FPA notifies Primergy that it relinquishes any and all rights to the Option and
(ii) June 30, 1998, if FPA has not provided Primergy with notice of FPA's desire
to exercise the Option prior thereto.
1.26 Participating Hospital. A licensed hospital that has entered into a
Participating Hospital Agreement with WellCare directly or indirectly.
1.27 Participating Physician. A fully licensed physician or entity
authorized to practice medicine who has entered into a Participating Physician
Agreement with WellCare directly or indirectly.
1.28 Participating Provider. Participating Physicians and Participating
Hospitals and other health care professionals, home health care agencies,
optometrists, pharmacies or other providers of health care services who have
entered into written agreements with WellCare directly or indirectly.
1.29 Payment Period. Has the meaning given to such term in Attachment 4.1
hereto.
1.30 PC. Has the meaning given such term in the recitals to this Agreement.
1.31 PC Liabilities. Has the meaning given such term in the recitals to
this Agreement.
1.32 PCP. An IPA Physician specializing in Family Practice, General
Practice, Internal Medicine or Pediatrics who has met the credentialing
standards of WellCare for designation as a primary care physician and provides
continuity of care to the Member who seeks his/her care by supervising,
coordinating and providing initial and basic care and initiating referrals for
Specialist care.
1.33 Policies and Procedures. WellCare's provider manual and all other
written standards, policies and procedures adopted by WellCare in connection
with the provision of Covered Services to IPA Members, including, but not
limited to, those that relate to quality improvement, utilization review
(including preauthorization), claims payment review, grievance procedures,
coordination of benefits and referral, admission and administrative procedures,
as amended from time to time in accordance with Section 2.2 hereof and which,
together with all amendments thereto, will be
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<PAGE>
incorporated herein by reference.
1.34 Primergy. Primergy, Inc., a New York business corporation, that is the
sole shareholder of IPA and provides management services to IPA.
1.35 Prior Agreements. Has the meaning given such term in the recitals to
this Agreement.
1.36 Specialist. A Participating Physician who has contracted with WellCare
directly or through IPA to provide Specialty Services upon referral from a PCP,
which may also be known as a consultant.
1.37 Specialty Services. Those IPA Services usually and customarily
performed by a Specialist.
ARTICLE II
RIGHTS AND RESPONSIBILITIES OF WELLCARE
2.1 Marketing. WellCare shall use its best efforts to arrange to have IPA
Physicians' names, office addresses, telephone numbers and specialties and other
similar information included in WellCare's Provider Directory. WellCare shall
use its best efforts to market its products in the Service Area and to do so in
compliance with the requirements of applicable state and federal laws.
2.2 Operation of Programs. WellCare shall operate, or WellCare shall
delegate to a third party from time to time to the extent consistent with
applicable federal, state, local law and regulations and regulatory agency's
guidelines, utilization management, quality improvement, health service delivery
and preauthorization Policies and Procedures, in consultation with IPA, as well
as Member and Participating Provider grievance programs, to assure the delivery
of cost effective, quality health care services by IPA Physicians. WellCare
shall deliver to IPA simultaneously with the execution and delivery of this
Agreement all current Policies and Procedures reasonably necessary to keep IPA
Physicians abreast of the policies and programs of WellCare in which they
participate, which Policies and Procedures are, and all additions to and
amendments thereof shall be, incorporated herein by reference. Additionally,
WellCare shall provide IPA with any addition to or amendment of such Policies
and Procedures not less than thirty (30) days prior to the effective date of
such addition or amendment, during which period WellCare shall consult with IPA
regarding any reasonable concerns that IPA might have in connection therewith.
Additionally, WellCare shall deliver to IPA (i) copies of all IPA Member Benefit
Plans, simultaneously with the execution hereof and (ii) any amendments thereto,
not less than thirty (30) days prior to the effective date of such amendments.
2.3 Member Identification Card. WellCare shall furnish to all IPA Members
an Identification Card that is to be presented to the Participating Providers
prior to the delivery of Covered Services.
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2.4 Claims for Non-Members. In the event Medically Necessary services which
are authorized by WellCare are provided to an ineligible person, that ineligible
person shall be responsible for payment of such services.
2.5 IPA Member Panels for PCPs. WellCare shall provide IPA and PCPs with a
list of IPA Members for whom the PCPs are responsible and update such list on a
monthly basis.
2.6 Maintenance of Licensure. WellCare agrees to maintain, in good
standing, all current licenses and certifications required by applicable law,
including, without limitation, its certificate to operate an HMO. WellCare shall
immediately notify IPA in writing of any change in, or loss of insurance, or
action to suspend, revoke or limit any of its licenses or certification or of
other action which could reasonably prevent WellCare from performing its
obligations under this Agreement.
2.7 WellCare Right to Contract. It is expressly recognized and agreed by
and between the parties that WellCare shall retain its full right and ability to
establish, contract, or otherwise associate with any provider of health care
services; provided, however, that subject to Section 3.2(a) hereof, from the
Effective Date until termination of this Agreement pursuant to Article VI
hereof, WellCare agrees not to contract with any (i) primary care physician or
(ii) independent practice association that contracts with primary care
physicians or other organizational structure for a primary care physician
network, to provide IPA Services to IPA Members in the Service Area.
2.8 Credentialing Information. WellCare shall provide IPA with all
credentialing information that WellCare has obtained in connection with each IPA
Physicians; provided that each IPA Physician has consented to the release of
such information by WellCare to IPA in writing.
2.9 WellCare's Obligation to IPA Members. Notwithstanding Sections 3.16 or
4.1 hereof or any other provision of this Agreement, WellCare shall bear
ultimate responsibility for the care of the Members.
2.10 Consents. WellCare shall obtain from each IPA Member all releases and
consents that may be required to permit release of records to WellCare.
2.11 Assistance to Maintain Network. WellCare agrees to use its reasonable
efforts to assist IPA in maintaining a viable provider network for the Service
Area as set forth in Section 3.2 hereof, but shall not be responsible for
maintenance requirements set forth in Section 3.2 hereof.
2.12 Provision of Date. WellCare shall provide to IPA data as mutually
agreed to in the format and frequency set forth in Attachment 2.12.
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ARTICLE III
RIGHTS AND RESPONSIBILITIES OF IPA AND IPA PHYSICIANS
3.1 Access to IPA Physicians. IPA represents and warrants that it is
authorized to contract with WellCare to arrange for IPA Services to be provided
by the IPA Physicians. IPA agrees that by executing this Agreement, the IPA
Physicians become Participating Providers and IPA Physicians agree to be bound
by the terms and conditions of this Agreement. IPA shall provide to WellCare a
list of all IPA Physicians containing the information set forth in Section 3.22
of this Agreement quarterly.
3.2 Network Maintenance and Expansion. (a) Subject to Section 3.2(b), it is
expressly recognized and agreed by and between the parties that IPA is intended
to be the foundation of the WellCare physician network in the Service Area.
Accordingly, IPA shall (i) use its best efforts to meet the PCP/IPA Member
ratios set forth on Attachment 3.2 hereof and (ii) contract with, at a minimum,
the same number and type of Specialists in the Service Area with which the
Departments require WellCare to so contract. Additionally, all physicians and
entities representing such physicians that contract with IPA, or a subsidiary or
an affiliate of IPA, to provide medical services shall be, subject to WellCare's
credentialing criteria, an IPA Physician.
(b) In the event that the ratio of PCPs as compared to IPA Members
falls below any of the ratios as listed on Attachment 3.2, WellCare shall
provide IPA a period of ninety (90) days to contract with primary care
physicians to meet such ratio(s). If IPA is unable to meet any of such ratios,
the limitations set forth in Section 2.7 shall be null and void and be of no
further force or effect.
(c) Subject to Section 4.2 hereof, it is expressly recognized and
agreed by and between the parties that IPA shall retain its full right and
ability to establish, contract or otherwise associate with any other individual
practice association, health maintenance organization or other entity without
being deemed in contravention or breach of this Agreement or any other
obligation to WellCare; provided that any contract or arrangement with any such
entity shall not materially interfere with or prevent IPA or any IPA Physician
from fulfilling his or her obligation under this Agreement.
3.3 Provision of IPA Services to IPA Members. IPA shall require that each
IPA Physician agree to provide IPA Services to IPA Members in accordance with
the terms of this Agreement. IPA hereby acknowledges, and shall require each IPA
Provider to acknowledge, that the presentation of an Identification Card by an
individual shall not be deemed conclusive evidence that such individual is a
Member. IPA acknowledges that WellCare, by this Agreement or otherwise, does not
guarantee to IPA, or to any IPA Physician, a minimum number of IPA Members.
3.4 WellCare Policies and Procedures. Except as expressly provided herein
to the contrary, IPA shall, to the extent applicable, and IPA shall require each
IPA Physician to (i) cooperate, participate, and comply with all Policies and
Procedures and National Committee on Quality Assurance ("NCQA") standards and
guidelines and (ii) abide by the determination of
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WellCare on all such matters set forth therein during the term of this
Agreement. IPA shall deliver to each IPA Physician a copy of the Policies and
Procedures, along with all additions to and amendments thereof, within five (5)
days after delivery by WellCare to IPA in accordance with Section 2.2 hereof.
3.5 Coverage. IPA shall use reasonable efforts to maintain arrangements
with an array of IPA Physicians to make IPA Services available and accessible
for all IPA Members as may be required by federal and/or state law. IPA shall
require that each PCP agree (i) (x) to provide IPA Services to IPA Members and
arrange for calls from IPA Members to be answered by a person hired, directly or
indirectly, by such PCP on a twenty-four (24) hour a day, seven (7) day a week
basis and (y) to return Emergency calls within thirty (30) minutes thereof, or
(ii) to arrange with a physician to provide such coverage to PCP's Member
patients in PCP's absence. Such covering physician shall be a Participating
Provider whenever possible. IPA shall require each PCP to use his or her best
efforts to have such covering Physician agree that he or she will (a) not bill
IPA Members or WellCare for Covered Services under any circumstances except for
Copayments, Coinsurance, and permitted Deductibles, (b) bill, charge, collect
payment from IPA for Covered Services provided to IPA Members, and (c) obtain
authorization from WellCare prior to all hospitalizations or referrals of IPA
Members, except for an Emergency.
3.6 Emergencies. IPA shall require each IPA Physician to agree to notify
WellCare of any admission relating to an Emergency within twenty-four (24) hours
of the admission or the next business day.
3.7 Standard of Care. IPA shall require each IPA Physician to provide IPA
Services and/or arrange for the provision of IPA Services or Covered Services in
order to provide a standard of care in a manner not less than generally accepted
medical practices in effect at the time of services and in a manner consistent
with the Policies and Procedures in effect for WellCare, which shall be
delivered by WellCare to IPA pursuant to Section 2.2 hereof.
3.8 Nondiscrimination. IPA shall require each IPA Physician to provide or
arrange for the provision of Covered Services to IPA Members in the same manner
and quality as services are provided to or arranged for all their other
patients. IPA Members shall not be discriminated against on the basis of age,
race, color, creed, ancestry, religion, gender, sexual orientation, national
origin, health status, marital status, disability, or source of payment.
3.9 Office Closure. IPA shall use its best efforts to require each PCP to
acknowledge and agree that such PCP may only close his or her practice to new
IPA Members if such PCP has closed his or her practice to new members covered
under benefit plans of all third-party payors with which such PCP directly or
indirectly contracts. IPA shall require each PCP to notify WellCare at least
sixty (60) days prior to closing his or her practice to new IPA Members, subject
to this Section 3.9; provided, that the effective date of such closure shall not
occur until the last day of the month in which such closure is to be effective;
and provided, however, that in the event such PCP is disabled or otherwise
incapacitated by illness, such notice shall be given when feasible.
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3.10 Continuity of Care. IPA shall require each PCP to meet the
credentialing standards of WellCare for designation as a PCP and to provide
continuity of care to the Member who seeks his or her care by supervising,
coordinating, and providing initial and basic care and initiating a referral for
Specialist care when Medically Necessary.
3.11 Maintenance of Licensure; Certification. IPA shall require each IPA
Physician to represent and warrant to IPA that he or she is a physician duly
licensed under applicable state law, or otherwise authorized to practice within
the scope of such license or authorization under applicable state law, and,
where appropriate, has obtained all other appropriate licenses, such as DEA
licenses, Medicare participation and, if such IPA Physician is a Specialist,
appropriate specialty board certification. IPA shall require each IPA Physician
to maintain in good standing all of the above.
3.12 Staff Privileges. IPA shall require each IPA Physician, except as
otherwise agreed to by WellCare, to represent and warrant to IPA that he or she
is an active member in good standing on the medical staff of a Participating
Hospital and that he or she shall maintain such status during the term of this
Agreement.
3.13 Health Care Programs. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she (i) is in good standing to
participate in Medicare and Medicaid Programs and to covenant to WellCare that
he/she will continue to be so certified during the term hereof and (ii) has
never been excluded from participation in the Medicare program, Medicaid
program, or any other federal healthcare program.
3.14 Government Sanctions. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she has never been sanctioned by the
Medicare program, Medicaid program, or any other federal or state agency for
Physician's failure to provide medical care of adequate quality or medically
necessary care.
3.15 Compliance with Law. IPA shall, and shall require each IPA Physician
to agree to, comply with all applicable federal, state, and local laws and
regulations or regulatory agency requirements and guidelines relating to the
provision of IPA Services. IPA shall immediately notify WellCare in writing of
any change in, or loss of insurance, or action to suspend, revoke or limit any
of its licenses or certification or of other action which could reasonably
prevent IPA from performing its obligations under this Agreement.
3.16 WellCare Hold Harmless. IPA shall require that each IPA Physician
agree that (i) he or she shall look solely to IPA for payment for any health
care services rendered to IPA Members and (ii) WellCare shall not be liable to
him or her for failure by IPA to pay such IPA Physician for any such services
because of insolvency of IPA or termination of this Agreement pursuant to
Article VI hereof. IPA expressly acknowledges and agrees and shall require each
IPA Physician to expressly acknowledge and agree that no specific payment is
being made directly or indirectly under this Agreement as an inducement to
reduce or limit medically necessary services provided with respect to a Member.
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3.17 Stop-Loss Insurance. To the extent required by federal and/or state
laws, regulations, or regulatory agency requirements or guidelines, IPA (i)
shall purchase and maintain, during the term of this Agreement, stop-loss
insurance, at IPA's sole cost and expense, for the benefit of IPA and (ii)
hereby covenants that at all times during the term hereof, the levels of such
insurance shall be, in compliance with applicable federal and state law and
regulations and state regulatory agency requirements and guidelines.
3.18 Billing Procedures for IPA Services. IPA shall require IPA Physicians
to agree that they shall not require advance payment or any form of deposit
payment from any Member receiving IPA Services covered by an IPA Member Benefit
Plan; provided, however, that an IPA Physician may apply his or her general
credit policies with respect to IPA Members who are financially responsible for
certain services not covered under an IPA Member Benefit Plan subject to Section
3.20 hereof; or charges for certain services such as Copayments, Coinsurance,
and permitted Deductibles. IPA agrees and shall require each IPA Physician to
agree not to claim payment in any form from the Department of Health and Human
Services or any state agency for items or services furnished to Medicaid
qualified beneficiaries in accordance with this Agreement except as approved by
HCFA or the New York Department of Social Services, or otherwise shift the
burden of such an agreement onto Medicaid, other payors, or individuals.
3.19 Coordination of Benefits. IPA shall require each IPA Physician to
agree to be bound by the coordination of benefits Policies and Procedures of
WellCare and to assist WellCare in identifying, billing, and collecting payments
due from primary payors.
3.20 Non-Medically Necessary Covered Services. IPA hereby acknowledges that
Members might request services of Participating Physicians that were not deemed
to be Medically Necessary by WellCare Quality Improvement/Utilization Management
programs as set forth in the Policies and Procedures and are, therefore, payable
by IPA Members. IPA hereby acknowledges and agrees, and shall require each IPA
Physician to acknowledge and agree, that WellCare shall not compensate IPA or
any IPA Physician, nor shall WellCare have any responsibility for charges
incurred by IPA Members for such services. Prior to charging any Member for
non-Medically Necessary Covered Services, the IPA Physician shall have obtained
a written acknowledgement from the Member that the proposed services are not
Medically Necessary and that the Member agrees to be fully responsible for
payment therefor. IPA acknowledges and shall require each IPA Physician to
acknowledge that if any IPA Physician does not obtain such written
acknowledgment, such IPA Physician may not charge any Member for any such
services.
3.21 IPA Member Hold Harmless. (a) Except as otherwise provided herein, IPA
shall require that each IPA Physician agree that in no event, including but not
limited to nonpayment to IPA Physician by IPA, nonpayment by WellCare to IPA,
insolvency of WellCare and/or IPA or breach of this Agreement, shall such IPA
Physician bill, charge, collect a deposit from, seek compensation, remuneration
or reimbursement from, or have any recourse against a Member or family members
or persons (other than recourse against IPA under Section 3.16 or otherwise)
acting on behalf of an IPA Member for services provided in accordance with this
Agreement. This provision does not prohibit an IPA Physician from collecting
permitted Deductibles, Coinsurance, or
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Copayments, as specifically provided in the applicable IPA Member Benefit Plan,
or fees for non- Medically Necessary Services in accordance with Section 3.22
hereof.
(b) IPA shall require that each IPA Physician agree that the above
hold harmless and continuation of benefit provisions supersede any oral or
written contrary agreement now existing or hereafter entered into between the
Physician and IPA Members or family members or persons acting on behalf of a
Member insofar as such contract agreement relates to liability for payment for,
or continuation of Covered Services provided under the terms and conditions of
these clauses.
(c) IPA agrees and each IPA Physician shall be required to agree
that this Section 3.21 shall survive the termination of this Agreement for
authorized Covered Services rendered prior to the termination of this Agreement,
regardless of the cause giving rise to termination and shall be construed to be
for the benefit of the Member. This provision is not intended to apply to
services provided after this Agreement has been terminated.
3.22 Authorization for Marketing. IPA shall obtain proper authorization
from each IPA Physician for WellCare to include the names, office addresses,
telephone numbers and specialties and other similar information of such IPA
Physician in WellCare's provider directory.
3.23 WellCare Contracts. IPA shall use its best efforts to encourage each
PCP to enter into a provider agreement with WellCare, in a form presented by
WellCare, to provide those health care services that primary care physicians are
required to provide in accordance herewith to Members, which agreement shall
become effective automatically, immediately upon termination of this Agreement
in accordance with Article VI hereof. Additionally, IPA shall use its best
efforts to encourage IPA Physicians, other than PCPs, to enter into provider
agreements with WellCare, in a form presented by WellCare, to provide (i)
certain health care services to Members, other than IPA Members, as well as to
individuals covered under benefit plans of WellCare of Connecticut, Inc., Agente
Benefit Consultants, Inc., or other WellCare affiliates during the term and upon
termination hereof and (ii) those health care services that such IPA Physicians
are required to provide in accordance herewith to Members immediately upon
termination of this Agreement in accordance with Article VI hereof. If any IPA
Physician has not entered into such provider agreement with WellCare, IPA shall
notify such IPA Physician, in accordance with federal and state laws and
regulations, sixty (60) days, or such other period as required by law, prior to
the expiration of his or her provider agreement with IPA and shall terminate him
or her after such period.
3.24 Reporting Requirements. IPA shall assist, and shall require each IPA
Physician to assist, WellCare in complying with federal, state, and local laws
and regulations and regulatory agency requirements relating to the provision of
IPA Services, including, but not limited to, complying with reporting
requirements pursuant thereto.
3.25 Financial Management and Reporting. IPA shall implement cash
management policies in keeping with sound financial management practices in
order to ensure timely and accurate payment to all providers who provide
Medically Necessary IPA Services to IPA Members, acknowledging that WellCare is
responsible for the final determination of benefit payments to be made under an
IPA
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Member Benefit Plan. Additionally, upon FPA's exercise of the Option, IPA shall
require FPA to guarantee the PC Liabilities, pursuant to a guarantee in form
reasonably satisfactory to WellCare. Within thirty (30) days of the end of each
calendar quarter during the term hereof, IPA shall deliver to WellCare (i)
balance sheet of IPA and (ii) IPA's statement of operations in connection with
IPA's obligations set forth herein for the calendar quarter then ended prepared
in accordance with generally accepted accounting principles ("GAAP") and fairly
representing the financial condition of IPA for the relevant quarter. Within
sixty (60) days of the end of each of IPA's fiscal years throughout the term
hereof, IPA shall deliver to WellCare (i) annual unaudited balance sheet of IPA
prepared in accordance with GAAP and (ii) IPA's statement of operations in
connection with the obligations of IPA set forth herein. IPA shall also provide
WellCare, upon a reasonable request, financial information and reports related
to IPA's performance of this Agreement, including encounter, utilization, and
cost reports as may be required by the New York State Department of Insurance
and New York State Department of Health (collectively, "Departments") or other
governmental agency and such and other financial reports and data as WellCare
may require to efficiently and effectively manage costs and utilization and to
provide quality medical care to IPA Members.
3.26 Complaints and Litigation. IPA shall, and shall require each IPA
Physician to, forward to WellCare, immediately upon receipt, of Members, the
Departments, and of any other government agency communications, complaints, and
inquiries, whether written or oral, regarding any claim or other business
concerning WellCare that is subject to this Agreement, together with IPA's or
such IPA Physician's, as the case may be, proposed response, if any, and all
information from its/his/her records to assist WellCare or its designee to
respond. Additionally, IPA shall, and shall require each IPA Physician to
forward to WellCare, immediately upon receipt, any legal process in which
WellCare has been named as a party or that arises out of any activities subject
to this Agreement. WellCare is the only party to this Agreement that is
authorized to defend WellCare against any legal process.
3.27 Notice of Change of Condition of IPA Physician. IPA shall require each
IPA Physician to notify IPA in writing within five (5) days of any change in, or
loss of insurance, or action to suspend, revoke or limit any of its licenses or
certification or of other action which could reasonably prevent IPA Physician
from performing his or her obligations under this Agreement. Each party hereto
shall notify the other party in writing immediately upon its receipt of a notice
of or of any information relating to a change of condition of any IPA Physician.
3.28 Effect of Termination of IPA Member - Continuation of Care. IPA
recognizes that WellCare must under certain circumstances, pursuant to certain
federal and state regulatory requirements, continue to arrange for the provision
of services for individuals whose status as IPA Members has terminated.
Accordingly, IPA agrees to continue arranging for the provision of, and shall
require that each IPA Physician shall agree to continue providing, IPA Services
to such individuals, just as WellCare is obligated to do, until the earlier of
(i) ninety (90) days from the date of notice to such IPA Member of the IPA's
disaffiliation with WellCare, (ii) if such IPA Member has entered the second
trimester of pregnancy at the time of such IPA Physician's disaffiliation with
WellCare, for a transitional period that includes the provision of post-partum
care directly related to the delivery, (iii) until WellCare, at its discretion
upon the consent of such IPA Member, makes reasonable and medically appropriate
provision for the assumption of such care by another provider,
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or (iv) until such time as WellCare coverage of such individuals is lawfully and
effectively terminated so that WellCare's obligation to such individuals is
recognized as ended by the applicable law and regulatory authorities. WellCare
shall continue to pay IPA at the agreed upon rate set forth on Attachment 4.1
hereto for each month for which premium payments are due and payable (including
any month for which such payments would have been due and payable but for
WellCare's agreement to waive all or a portion of such payments) from or on
behalf of any such IPA Member, whether or not WellCare receives any such
payment. If WellCare is legally obligated to continue to cover such individual
during any additional period following the months for which premiums are due and
payable (or following the months in which such premiums would have been due and
payable but for WellCare's agreement to waive such premiums in whole or in
part), WellCare shall not be obligated to pay IPA or any IPA Physician for any
services provided to such individual by any IPA Physician pursuant to this
Section 3.28.
3.29 Solicitation of Members. During the term of this Agreement or any
renewal thereof, and for a period of six (6) months after the date of
termination, IPA agrees, and shall require each IPA Physician to agree, that
it/he/she will not, within the Service Area, interfere with WellCare's contract
and/or property rights or advise or counsel any Member or Employer Group to
disenroll from WellCare. Informing a Member of other managed care organizations
with which IPA or an IPA Physician may participate nor solicitations addressed
to the employer or other group community shall not be deemed to be violations of
this Section 3.29.
3.30 Requirement of Insurance. IPA shall require each IPA Physician, other
than those IPA Physicians listed on Attachment 3.30, annexed hereto and made a
part hereof, to procure and maintain, and WellCare and IPA shall each procure
and maintain a policy of general liability, professional liability and other
insurance as may be necessary to protect against any claim for damages arising
by reason of personal injury or death of a Member. IPA shall require that each
such IPA Physician maintains each policy with minimum limits of coverage of one
(1) million dollars ($1,000,000) per occurrence and three (3) million dollars
($3,000,000) in the aggregate. IPA shall require each IPA Physician upon
termination of this Agreement or the termination of an IPA Physician pursuant to
Article VI hereof, to either continue his or her liability insurance policy or
purchase "tail" insurance covering the period that such IPA Physician provided
IPA Services to IPA Members in accordance herewith. Certificates of insurance
evidencing compliance with this provision shall be made available to WellCare
upon request.
3.31 Site Evaluations and Inspections. In accordance with the terms and
conditions of this Agreement and subject to applicable federal and state
confidentiality laws, IPA shall require each IPA Physician to permit (i)
WellCare or a designated representative, upon reasonable notification during
normal business hours, unless otherwise required by federal, state or local law,
regulation, or regulatory agency, and (ii) federal, state, and local regulatory
agencies, to the extent authorized by law, to conduct periodic site evaluations
of such IPA Physician's facilities, equipment, medical records of IPA Members to
monitor utilization review activities and to monitor the quality of professional
and ancillary medical care provided to IPA Members by such IPA Physician. IPA
shall further require each IPA Physician (i) to operate all office sites in
compliance with the criteria established by the WellCare Quality Assurance
Committee and quality assurance requirements of the Departments and
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the NCQA and (ii) to comply with any such agencies' reasonable recommendations,
if any, or to provide WellCare with a written response to any questions or
comments posed by any of the agencies or WellCare.
3.32 Access To Records. (a) IPA shall require each IPA Physician to
provide, in a timely manner, IPA Members' medical records, and such other
relevant records and other information, to WellCare and to IPA and/or their
designee(s), as permitted by law and in any reasonable manner, for the
performance of the Policies and Procedures for claims payment or any other
purposes, as reasonably required by WellCare and/or IPA, as the case may be.
Each IPA Physician shall also be required by IPA to obtain from IPA Members all
releases or consents which may be required to permit release of records to IPA.
(b) IPA shall require each IPA Physician to make available,
subject to applicable federal and state law, IPA Members' medical records to the
Departments for inspection and copying, at no cost to the Departments.
(c) IPA shall require each IPA Physician to retain and maintain
Member's medical records for the longer of (i) the year in which the Member was
discharged or treatment concluded, plus six (6) years, (ii) the year in which
the Member reaches majority, plus six (6) years, or (iii) such greater period
required by federal or state law. Such records shall be maintained in accordance
with prudent standards of insurance record keeping and with all applicable state
and federal laws and regulations.
(d) Additionally, IPA shall require IPA Physicians to provide
WellCare with encounter data (routine claims submissions) relating to all IPA
Services provided pursuant to this Agreement in a mutually agreed upon format
monthly.
3.33 Access to Records for Medicare/Medicaid Programs. If the value or cost
of services provided under this Agreement will be $10,000 or more within a
twelve (12) month period, to the extent that the cost of such service is
reimbursable by the Medicare and/or Medicaid Programs, IPA agrees, and shall
require IPA Physicians to agree, to comply with the Access to Books, Documents
and Records of Subcontractor's provision of Section 952 of the Omnibus
Reconciliation Action of 1980 (P.L. 96-499), and 42 C.F.R. Part 420, Sub-part D,
Section 420.300 et seq. In accordance with these provisions, IPA will allow and
shall require IPA Physicians to allow the Comptroller General of the United
States, the Secretary of Health and Human Services, and their duly authorized
representatives access and to IPA's or the applicable IPA Physician's, as the
case may be, books, documents, and records necessary to certify the nature and
extent of such costs of Medicare reimbursable services provided hereunder. Such
access will be allowed, upon request, until the expiration of four (4) years
after Medicare and/or Medicaid reimbursable services are furnished hereunder. If
IPA carries out any of the duties of this Agreement through a subcontract with a
related party with a value or cost of $10,000 or more over a twelve (12) month
period, such subcontract shall contain a clause which requires the subcontractor
to comply with the above statutes and regulations.
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3.34 Confidentiality of Records. Any data or information obtained from IPA
or any IPA Physician pertaining to the diagnosis, treatment or health of a
Member shall be held confidential to the extent required by law. All parties
agree to maintain the confidentiality of information contained in the Member's
medical records. Notwithstanding the foregoing, subject to all laws regarding
confidentiality of medical records, the parties may disseminate such records to
authorized providers and consulting physicians, to governmental agencies if
required by law, to committees of the Participating Hospitals and WellCare
concerned with the quality of care and utilization, and to WellCare for purposes
of administration. This Article shall not be construed to prevent either party
from releasing information in a form that does not identify a Member to any
organization engaged in the collection and analysis of data.
3.35 Assumption of PC Liabilities. In consideration of WellCare's entering
into this Agreement, the payment of the Compensation to be paid to IPA
hereunder, and for other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, IPA hereby assumes from PC
all of the PC Liabilities.
3.36 Survival. Sections 3.15, 3.16, 3.21, 3.24, 3.26, 3.28, 3.33, 3.34, and
3.35 of this Article III shall survive the expiration or earlier termination of
this Agreement.
ARTICLE IV
BILLING PROCEDURES AND PAYMENT FOR SERVICES
4.1 Payment. (a) Except as otherwise provided in this Agreement, WellCare
shall pay, and IPA shall accept, the compensation, as set forth in Attachment
4.1, annexed hereto and made a part hereof (the "Compensation"), as payment in
full for IPA Services and any and all services performed by IPA pursuant to this
Agreement, including those set forth in Section 4.1(e) hereto. In return for the
Compensation, IPA agrees to arrange and pay for all of the IPA Services that
WellCare is obligated to arrange and pay for pursuant to the IPA Member Benefit
Plans. Such payments shall be made within the earliest of (i) 45 days following
submission of a "clean" claim for payment, unless this requirement is waived in
writing by WellCare, (ii) the last day within the period established by law, if
any, in which a payment by the IPA to an IPA Physician would not be subject to
interest thereon, or (iii) in the case of monthly capitation payments to
providers, within the first five (5) days of the applicable month. IPA shall be
obligated to pay all interest and any other penalties associated with any
failure to comply with all laws and regulations applicable to IPA relating to
prompt payment of claims, if any. Should IPA fail to comply with such laws and
regulations, WellCare may withhold amounts included within the Compensation
necessary to reimburse WellCare (i) for the payment of claims paid directly by
WellCare for IPA Services provided to IPA Members and (ii) for any interest and
penalties associated with such claims.
(b) WellCare and IPA each confirm that the manner of calculating
reductions in hospital utilization and the payments to the PC therefor under the
Prior Agreements, as set forth in Attachment 4.1(b), are complete and accurate
and that the amounts paid to the PC through March
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31, 1997, relating to reductions in hospital utilization, as set forth in
Attachment 4.1(b), constitute full payment by WellCare of any and all
obligations relating to reductions in hospital utilization under the Prior
Agreements. WellCare waives any claim that it may have overpaid IPA relating to
those payments.
(c) The parties acknowledge that for the period since April 1,
1997, PC has not been entitled to any further compensation for reductions in
hospital utilization, but in lieu thereof has been entitled to the monthly
payments set forth on Attachment 4.1(3).
(d) IPA and WellCare acknowledge that IPA is not entitled to any
compensation for reduction in hospital utilization. In lieu thereof, the
Compensation, however, shall include the monthly amount (the "Hospital Piece")
set forth in Section 3 of Attachment 4.1 for the period from the Effective Date
through February 28, 1999. Thereafter, the Compensation shall no longer include
the Hospital Piece but the parties shall negotiate in good faith to replace the
Hospital Piece with Compensation based upon quality and utilization, consistent
with the parameters set forth in Section 4 of Attachment 4.1.
(e) WellCare shall perform all claims processing on behalf of IPA,
at WellCare's sole cost and expense, in connection with IPA Services rendered in
accordance with this Agreement.
(f) IPA shall perform all claims adjudication of IPA Services
rendered in accordance with this Agreement.
4.2 Adjustments to Compensation Exhibit. (a) For so long as Members make up
fifty percent (50%) or more in the aggregate of the Enrolled Population, within
thirty (30) days of the effective date of any new contract or renewal or change
in payment terms of an existing contract between IPA and a third-party payor
other than WellCare, IPA shall certify in writing to WellCare that the payment
terms of such contract are not more favorable to such third-party payor than the
Compensation is to WellCare or shall certify that such payment terms are more
favorable to such third-party payor than the Compensation is to WellCare. Such
determination shall take into account the member composition of each Plan and
the health care services to be provided by IPA under each contract. By executing
and delivering this Agreement, IPA represents and warrants to WellCare that it
is not, as of the effective date of this Agreement, party to any contract with
any other third-party payor on payment terms more favorable to such third-party
payor than the Compensation is to WellCare.
(b) If WellCare shall dispute the representations made in any
certificate delivered under Section 4.2(a), in which IPA claims that the payment
terms under a contract with a third party are not more favorable to the third
party than the Compensation is to WellCare, WellCare may engage an actuary
chosen upon the mutual consent of WellCare and IPA, at WellCare's cost, to make
such determination, whose determination shall be binding upon the parties
hereto.
(c) So long as Members make up fifty percent (50%) or more in the
aggregate of the Enrolled Population, if IPA contracts with any third-party
payor on terms more favorable to such
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third-party payor than the Compensation is to WellCare, for such period as any
such contract is in effect, the Compensation shall not give effect to the CPI
Adjustment (as defined in Attachment 4.1 hereto) in accordance with Section 2(a)
or (b) of Attachment 4.1 hereto.
ARTICLE V
INDEMNIFICATION; COOPERATIVE DEFENSE
5.1 Indemnification. (a) Each of the parties hereto shall indemnify the
other party and hold each other harmless against any and all claims, actions,
assessments, charges, and expenses, including court costs and reasonable
attorneys' fees, and against all liabilities, losses, damages of any nature, and
settlements, judgments, or awards, whether compensatory, extracontractual, or
punitive, (collectively, "Damages") that a party shall sustain or be put to by
reason of any act or omission of the other party or its agents, employees,
officers, and directors or any breach by the other party of the terms of this
Agreement.
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(b) Each party hereto entitled to indemnification under Section
5.1(a) (each, an "Indemnified Party") hereby agrees to give the applicable party
or parties obligated to indemnify it under Section 5.1(a) (each, an
"Indemnifying Party") written notice of any event or assertion of which the
Indemnified Party obtains knowledge concerning any Damage and as to which the
Indemnified Party may request indemnification hereunder. The Indemnified Party
shall cooperate with the Indemnifying Party in determining the validity of any
claim or assertion requiring indemnity hereunder and in defending against third
parties with respect to the same. The defense of such litigation shall be within
the control of the Indemnifying Party, or, as the case may be, any Persons
providing indemnity and defense to such Indemnifying Party; provided, however,
that an Indemnifying Party's choice of counsel shall be reasonably satisfactory
to the Indemnified Party. The Indemnified Party may participate in the defense
of any claim or assertion requiring indemnity hereunder, and in such event,
shall cooperate fully in connection therewith. If an Indemnifying Party fails to
perform its obligations under this Article V, then the Indemnified Party may
directly assume the defense of the claim or assertion at issue, and such
Indemnifying Party shall promptly reimburse the Indemnified Party for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), incurred in connection therewith. The Indemnified Party's failure to
give timely notice or to provide copies of documents or to furnish relevant data
in connection with any such third-party claim shall not constitute a defense (in
part or in whole) to any claim for indemnification by it. WellCare and IPA each
hereby agrees not to settle or compromise any such third-party suit, claim, or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
(c) This Article V shall continue to be of full force and effect,
notwithstanding the termination of this Agreement, until all claims and
liabilities relating to a Member have been asserted, satisfied and released.
5.2 Cooperative Defense. The parties recognize that, during the term of
this Agreement and for some period thereafter, certain risk management issues,
claims, or actions may arise that involve or could potentially involve the
parties and their respective employees and agents. The parties further recognize
the importance of cooperating with each other in good faith when such issues,
claims, or actions arise to the extent that such cooperation does not violate
any applicable laws, cause breach of any duties created by any policies of
insurance, or otherwise compromise the confidentiality of communications of
information regarding the issues, claims, or actions. The parties shall
cooperate in good faith, using their best efforts, to address such risk
management and claims handling issues in a manner that strongly encourages full
cooperation between the parties. This Section 5.2 shall survive the termination
of this Agreement.
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ARTICLE VI
TERM AND TERMINATION
6.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date and shall continue for a period of ten (10) years therefrom,
unless terminated earlier pursuant to Section 6.2 hereof.
6.2 Termination. This Agreement may be terminated as follows:
(a) By mutual written agreement between WellCare and IPA.
(b) Upon written notice by one party (the "Terminating Party")
to the other party (the "Terminated Party") of the
Terminating Party's intention to terminate this Agreement by
reason of the Terminated Party's material breach of this
Agreement. An event of material breach hereunder shall occur
if either party to this Agreement shall fail to keep,
observe, pay or perform any material covenant, obligation,
agreement, term, or provision of this Agreement and such
condition is not remedied within sixty (60) days after
receipt by one party from the other party of such written
notice.
(c) Subject to the terms of any written waiver that a party may
have received from the other party, upon written notice by
the Terminating Party to the Terminated Party of the
Terminating Party's intention to terminate this Agreement by
reason of the Terminated Party (i) becoming insolvent, as
defined in Section 101(32) of Title 11 of the United States
Code as amended, (ii) generally cannot, or is unable to, or
shall admit in writing to its inability to pay debts as such
debts become due, (iii) making an assignment for the benefit
of creditors, (iv) petitioning or applying to any tribunal
for, or other wise seeking, consent to or acquiescence the
appointment of a custodian, receiver, or trustee for it or a
substantial part of its assets, (v) commencing, consenting
to, or acquiescing in any proceeding under any bankruptcy,
reorganization, arrangement, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect, or
(vi) having had any such petition or application filed or
any such proceeding shall have been commenced against it in
which an adjudication or appointment is made or order for
relief is entered and that remains undismissed or unstayed
for a period of sixty (60) days or more.
(d) Upon written notice by WellCare to IPA of WellCare's
intention to terminate this Agreement by reason of (i) IPA's
material breach of any other agreement currently in force
with WellCare or (ii) Primergy's material breach of any
agreement with WellCare currently in force. An event of
material breach thereunder shall occur if IPA and/or
Primergy, as the case may be, shall fail to keep, observe,
pay or perform any material covenant, obligation,
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agreement, term, or provision under any such agreement or
obligation and such condition is not remedied within the
cure period set forth therein and if no cure period is set
forth therein, within sixty (60) days after receipt by the
appropriate party from WellCare of such written notice.
(e) Upon written notice by WellCare to IPA of WellCare's
intention to terminate this Agreement effective sixty (60)
days thereafter by reason of the Change of Ownership. Change
of Ownership shall include the sale, exchange, assignment,
transfer, issuance or other conveyance or disposition, other
than to FPA, of (i) more than fifty percent (50%) of all of
either IPA's or Primergy's issued and outstanding shares of
common stock at the time thereof or (ii) of substantially
all of IPA's or Primergy's assets; provided such event
occurs prior to the date on which the Option is exercised by
FPA or following an Option Termination Event.
6.3 Effect of Option Termination Event. Upon the occurrence of an Option
Termination Event, Wellcare and IPA each hereby agree to attempt in good faith
to negotiate an amendment to this Agreement to properly incorporate the effects
that such event has on the terms and conditions set forth herein. If the terms
and conditions to be set forth in such amendment have not been agreed to within
one hundred twenty (120) days of the Option Termination Event, this Agreement
may be terminated by either party at any time after such period; provided the
parties have not yet agreed to such amendment.
6.4 Effect of Termination of this Agreement. If either party terminates
this Agreement, IPA shall advise the IPA Physicians of the notice of termination
and the provider agreement entered into with WellCare pursuant to Section 3.23
hereof shall be effective as of the date of termination of this Agreement and
shall govern the rights and obligations of each IPA Physician to provide IPA
Services to IPA Members.
6.5 Termination and Suspension of IPA Physicians by IPA. Each party shall
notify the other party immediately upon its receipt of notice of any
circumstance that would constitute termination for "Good Reason" or "Immediate
Cause" as defined in Section 6.6 hereof or any termination or suspension from
the IPA Physician network.
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6.6 Termination and Suspension of IPA Physicians by WellCare.
(a) WellCare may terminate any IPA Physician and thereby prohibit
such IPA Physician from providing any IPA Services to any IPA Members in
connection herewith for "Good Reason" upon sixty (60) days' prior written notice
to such IPA Physician; provided, however, if such IPA Physician shall have
requested a hearing in accordance with this Section 6.6(a), termination by
WellCare for "Good Reason" shall be effective thirty (30) days after receipt by
WellCare of the hearing panel's decision of termination; provided, further, that
if such hearing panel renders a decision to reinstate such IPA Physician, such
notice of termination shall be void and shall have no effect as to this
Agreement. WellCare agrees to notify IPA directly of any dispute that arises
between WellCare and an IPA Physician. "Good Reason" shall include but not be
limited to:
(i) suspension of such IPA Physician's license, certificate, Drug
Enforcement Agency authorization to issue prescriptions or other legal
credential authorizing IPA Physician to provide medical services;
(ii) if such IPA Physician is a Medicaid/Medicare provider, he or she is
suspended from either or both of these programs;
(iii) the indictment or arrest for a felony of such IPA Physician or for
any criminal charge related to the rendering of medical services;
(iv) the cancellation or termination of the professional liability
insurance required by this Agreement with respect to such IPA Physician without
replacement coverage having been obtained;
(v) the failure of such IPA Physician to maintain admitting privileges with
one or more Participating Hospitals, except as otherwise agreed to by WellCare;
(vi) the failure of such IPA Physician to comply with any Policy or
Procedure or other requirements or is not supportive of the purposes an intent
of this Agreement; provided such IPA Physician has not cured any such failure
within thirty (30) days from its receipt of notification from WellCare;
(vii) if such IPA Physician becomes insolvent, bankrupt, files a voluntary
petition in bankruptcy, makes an assignment for the benefit of creditors, or
consents to the appointment of a trustee or receiver;
(viii) if IPA has a right to terminate an IPA Physician under the provider
agreement between IPA and such IPA Physician.
(ix) if such IPA Physician has engaged in conduct that poses an immediate
and material threat to the safety and/or well-being of any patient to whom such
IPA Physician has rendered or intends to render care.
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In addition, "Good Reason" shall expressly not include the occurrence of any of
the following events by such IPA Physician: (i) such IPA Physician's having
advocated on behalf of a Member; (ii) such IPA Physician's having filed a
complaint against WellCare; (iii) IPA Physician's having appealed a decision of
WellCare; (iv) such IPA Physician's having provided information or filed a
report under New York Public Health Law Section 4406-c regarding prohibitions by
plans; or (v) such IPA Physician's having requested a hearing or review pursuant
to this Section 6.6(a).
(b) Any notice of termination under Section 6.6(a) shall include
(i) the reasons for the proposed termination; (ii) notice that such IPA
Physician has the right to request a hearing or review, at such IPA Physician's
discretion, before a panel appointed by WellCare, which panel shall be composed
of persons meeting the standards set forth in Section 4406-d of the New York
Public Health Law; (iii) a time limit not less than thirty (30) days within
which such IPA Physician may request such a hearing; (iv) a time limit for a
hearing date that shall be held within thirty (30) days after the date of
receipt of a request for a hearing. The hearing process shall be consistent with
the provisions of Section 4406-d of the New York Public Health Law.
(c) In the event WellCare shall provide notice of termination for
Good Reason under Paragraphs (i), (ii), (iii), (iv), (v), (vii), or (ix) of
Section 6.6(a) or for a similar occurrence or act, WellCare shall have the right
to suspend such IPA Physician from providing any IPA Services to IPA Members in
connection herewith during the period commencing with any notice given by
WellCare and the date of termination or reinstatement.
(d) WellCare may terminate any IPA Physician and thereby prohibit
such IPA Physician from providing any IPA Services to any IPA Members in
connection herewith immediately and without prior notice for "Immediate Cause."
"Immediate Cause" shall mean (i) a determination by WellCare in its sole
discretion that such IPA Physician shall have engaged in fraud, theft,
embezzlement or other financial misconduct; or (ii) a final disciplinary action
by a state licensing board or other governmental agency, the effect of which is
to impair such IPA Physician's ability to practice medicine.
6.7 Effect of Termination of IPA Physician or Agreement - Continuation of
Care. IPA shall require each IPA Physician to agree that, upon the effective
date of termination of this Agreement pursuant to Section 6.2 hereof or
termination of a Physician pursuant to Section 6.6(a) hereof, except as
otherwise required by federal or state law regulation, or regulatory agency, he
or she shall continue to provide necessary medical services to IPA Members who
retain eligibility and enrollment under an IPA Member Benefit Plan (i) pursuant
to the provider contracts entered into by such IPA Physician and WellCare in
accordance with Section 3.23 hereof, (ii) if such IPA Physician has not entered
into such contract, the earlier of (x) ninety (90) days from the date of notice
to such IPA Member of the IPA's disaffiliation with WellCare, (y) if such IPA
Member has entered the second trimester of pregnancy at the time of such IPA
Physician's disaffiliation with WellCare, for a transitional period that
includes the provision of post-partum care directly related to the delivery, and
(z) until WellCare, at its discretion upon the consent of such IPA Member, makes
reasonable and medically appropriate provision for the assumption of such care
by another provider, or (iii) until
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such time as WellCare coverage of such individuals is lawfully and effectively
terminated so that WellCare's obligation to such individuals is recognized as
ended by the applicable law and regulatory authorities. Additionally, IPA shall
require each IPA Physician to agree to abide by the Policies and Procedures
during any such transitional period other than pursuant to a WellCare provider
agreement. WellCare shall pay IPA Physicians for IPA Services rendered pursuant
to this Section 6.7. This Section 6.7 shall survive the expiration or earlier
termination of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 Negotiation. WellCare and IPA agree to attempt in good faith to resolve
any dispute arising out of or relating to this Agreement promptly by negotiation
between the parties. If any such matter is not resolved within forty-five (45)
days of a party's request for negotiation, either party may initiate an
arbitration proceeding in accordance with Section 7.2 below.
7.2 Arbitration. If WellCare and IPA have not been able to resolve a
dispute by negotiation within forty-five (45) days pursuant to Section 7.1 as
set forth above, either party may submit such dispute to an arbitrator in New
York State subject to the commercial rules and regulations of the American
Arbitration Association. Both parties expressly covenant and agree that they
shall be bound by the decision of the arbitrator as a final determination of the
matter in dispute, subject to any right of appeal under New York law. WellCare
shall provide the Commissioner with notice of all issues submitted to
arbitration pursuant to this Section 7.2 and copies of all decisions related
thereto. Each party shall be solely responsible for its own expenses in
connection with the dispute resolution process; provided that the costs of the
arbitrator shall be divided equally between the parties hereto. Notwithstanding
anything in this Section 7.2, the parties hereto each hereby expressly
acknowledges that the Commissioner shall not be bound by any such arbitration
decision.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. This Agreement or any part, article, subsection, Attachment,
or Exhibit of it, may be amended as follows:
(a) If necessary to comply with a requirement of any state or
federal agency having jurisdiction to regulate WellCare, by
WellCare at any time during the term of the Agreement (i)
upon ten (10) days prior written notice to IPA and (ii) if
material, upon thirty (30) days prior written notice to the
Commissioner.
(b) Any and all other amendments to this Agreement or any part,
article, subsection or Attachment of it will only be
effective in the event that (i) they
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have been agreed to by both parties, (ii) both the amendment
and such agreement have been reduced to writing, (iii) if
such Amendments are material, they have been approved by the
Commissioner after they have been submitted thereto at least
thirty (30) days prior to the anticipated effective date
thereof.
8.2 Assignment. Subject to prior notice to and approval by the
Commissioner, (i) the terms, covenants, conditions, provisions, and agreements
herein contained shall be binding upon and inure to the benefits of the parties
hereto, and their successors and assigns and (ii) WellCare may assign its rights
and obligations under this Agreement, in whole or in part, to a parent,
subsidiary, or an affiliate of WellCare, any entity into which WellCare is
merged or consolidated, or any entity that purchases substantially all of the
stock or assets of WellCare without IPA's prior approval. In the event that all
or substantially all of the stock or assets of a party is acquired by a third
party, that third party shall be bound to terms, covenants, conditions,
provisions, and agreements contained herein. Except as expressly set forth in
this Section 8.2, neither party may assign, delegate, or otherwise transfer this
Agreement without the prior written consent of the other party and of the
Commissioner. 8.3 Notices. All notices hereunder by either party to the other
party shall be in writing. All notices, demands, and requests shall be deemed
given when mailed, by registered or certified mail, postage paid, return receipt
requested.
To WellCare: WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
Attention: President
To IPA: Columbia-Greene Health Care Alliance IPA, Inc.
400 Stockade Drive
Kingston, New York 12401
Attention: Chief Executive Officer
or to such other address or to such other person as may be designated by written
notice given during the term of this Agreement by one party to the other.
8.4 Independent Contractors. The relationship among WellCare and IPA and
the IPA Physicians is a contractual relationship among independent contractors.
Neither IPA nor any IPA Physician is an agent or employee of WellCare nor is
WellCare or any of its employees an agent or employee of IPA or any IPA
Physician.
8.5 Material Agreements. WellCare, IPA, and Primergy, each hereby represent
and warrant that to such parties knowledge as of the date hereof, the agreements
listed on Attachment
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6.2(d) are the only written or oral agreements between either WellCare and IPA
or WellCare and Primergy, as the case may be.
8.6 Impossibility of Performance. Neither party shall be deemed to be in
violation of this Agreement if it is prevented from performing any of its
obligations hereunder for any reasons beyond its control, including, but not
limited to, acts of God or of the public enemy, flood, or storm, strikes or
statutory regulations, rule or action of any federal, state or local government,
or any agency thereof.
8.7 Waiver of Breach. Any waiver by either party of a breach of any
provision of this Agreement shall not be deemed a waiver of any other breach of
the same or different provisions of this Agreement.
8.8 Governing Law. This Agreement shall be governed by the laws of the
State of New ---------------------- York.
8.9 Compliance with Law. Notwithstanding any other provision of this
Agreement, the parties hereto shall each comply with the provisions of the
Managed Care Reform Act of 1996 (Chapter 705 of the Laws of 1996) and all other
applicable federal, state, and local laws, policies, and procedures governing
the provision of IPA Services to IPA Members.
8.10 Severability. If any provision in this Agreement is held to be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force and effect without being impaired or invalidated in any
way.
8.11 Headings. The headings of Articles and Sections contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.12 Confidentiality. Each party agrees that it will not disclose to any
other entity confidential information obtained regarding the operations of the
other contracting party obtained as a result of entry into this Agreement. In
addition, unless such information is a matter of public record:
IPA and IPA Physicians agree not to use participation in
WellCare to exchange or share any information relating to
costs of doing business, including operating costs,
salaries, benefits and material supply costs with other
providers.
IPA and IPA Physicians agree not to discuss, disclose or
otherwise communicate any information relating to the prices
paid by WellCare to IPA or IPA Physicians for the provision
of services to WellCare IPA Members.
IPA or IPA Physicians agree not to use participation in WellCare
to discuss, disclose or otherwise communicate any
information relating to participation in any
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otherhealth plans with WellCare or any other health care
provider.
8.13 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto, supersedes the Prior Agreements and no representations or
agreements, oral or otherwise, between the parties not embodied herein or
attached hereto shall be of any force and effect. Any additions or amendments to
this Agreement subsequent hereto shall be of no force and effect unless in
writing, unless effected pursuant to Section 8.1 hereof and signed by the
parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
COLUMBIA-GREENE HEALTH CARE WELLCARE OF NEW YORK, INC.
IPA, INC.
By: /s/ Richard B. Weininger, M.D. By: /s/ Joseph R. Papa
------------------------------ ---------------------
Name: Richard B. Weininger, M.D. Name: Joseph R. Papa
Title: President Title: President
ACKNOWLEDGED AND AGREED
AS TO SECTION 8.5 HEREOF:
PRIMERGY, INC.
By: /s/ Richard B. Weininger, M.D.
------------------------------
Name: Richard B. Weininger, M.D.
Title: Chief Executive Officer
27
IPA SERVICE AGREEMENT
This Agreement is dated this 21st day of April, 1998 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and DUTCHESS HEALTH CARE ALLIANCE IPA, INC., a New
York business corporation ("IPA").
W I T N E S S E T H:
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the Service Area (as hereinafter defined);
WHEREAS, WellCare and the professional service corporation listed on
Exhibit A-1 hereto (the "PC") have previously entered into the agreements listed
on Exhibit A-2 attached hereto (collectively, the "Prior Agreements"), under
which the PC has provided certain health services to Members;
WHEREAS, the PC has accumulated various liabilities scheduled on Exhibit
A-3 in connection with the performance of its obligations under Prior Agreements
(such liabilities, the "PC Liabilities");
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into a
written provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA, as a successor to PC, desire to enter into this
Agreement under which IPA shall arrange for the provision of, and be responsible
for the payment to IPA Physicians and all other providers who provide, primary
and certain specialty health care services to IPA Members; and
WHEREAS, as a condition to WellCare entering into this Agreement, IPA shall
assume the PC Liabilities.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 Benefit Plan. A contract, certificate or other Evidence of Coverage
issued to each Employer Group and/or Member, that describes the obligations of
WellCare to deliver health care services to Members.
1.2 Coinsurance. A cost sharing arrangement in which the Member is required
to pay a specified percentage of the charge directly to the Participating
Provider, as specifically provided in the Evidence of Coverage.
1.3 Commissioner. The Commissioner of the Department of Health of the State
of New York.
1.4 Copayment. A cost sharing arrangement in which the Member pays a
specified amount for specific health services such as office visits, outpatient
prescriptions, and emergency room visits directly to the Participating
Providers, as specifically provided in the Evidence of Coverage. Copayment fees
are normally paid at the point of service when the service is rendered.
1.5 Covered Services. Those health care services that IPA Members are
entitled to receive in accordance with the terms and conditions set forth in the
applicable Member Benefit Plans. Services which are not Medically Necessary
shall not be deemed as Covered Services for purposes of this Agreement or the
Member Benefit Plans, except as otherwise provided herein.
1.6 Deductible. A cost sharing arrangement in which the Member is required
to pay a specified amount for Covered Services before WellCare is obligated to
pay, as permitted and as specifically provided in the Evidence of Coverage.
1.7 Emergency. A situation where medical services are required as the
result of a medical or behavioral condition the onset of which is sudden, that
manifests itself by symptoms of sufficient severity, including severe pain, that
a prudent layperson, who possesses an average knowledge of medicine and health,
could reasonably expect the absence of immediate medical attention to result in:
(i) placing the health of the person afflicted with such condition or another
individual in serious jeopardy; (ii) serious impairment to such person's bodily
functions; (iii) serious dysfunction of any bodily organ or part of such person;
or (iv) serious disfigurement of such person.
1.8 Employer Group. An organization, firm or governmental entity that has
contracted with WellCare to provide and/or arrange for the provision of health
care services for its employees and/or retirees and/or the spouses or children
of each.
1.9 Enrolled Population. The aggregate of all persons who are entitled to
receive health care services arranged to be provided by IPA or the other
independent practice associations managed by Primergy set forth on Attachment
1.9, annexed hereto and made a part hereof, for any one or
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more product lines (e.g., commercial, Medicaid) for which IPA agrees to arrange
for health care services hereunder.
1.10 Evidence of Coverage. The document evidencing covered health care
services which is issued to each Member.
1.11 FPA. FPA Medical Management, Inc., a Delaware business corporation.
1.12 Hospital Piece. Has the meaning ascribed to it in Section 4.1.
1.13 Hospital Services. Those Medically Necessary acute care inpatient and
outpatient services that are Covered Services.
1.14 Identification Card. Shall mean the card issued by WellCare to each
Member which sets forth the Member identification number, which is to be
included on any claim form submitted to WellCare for payment.
1.15 IPA Member. A Member who has selected a PCP as such individual's
primary care physician.
1.16 IPA Member Benefit Plan. A contract, certificate or other Evidence of
Coverage issued to each Employer Group and/or Member, that describes the
obligations of WellCare to deliver Covered Services to IPA Members, as listed on
Attachment 1.16, annexed hereto and made a part hereof, as amended by WellCare
from time to time.
1.17 IPA Member Panel. A list of IPA Members who have chosen a PCP.
1.18 IPA Physician. Those physicians and entities representing such
physicians that have entered into written agreements with IPA to provide
Physician Services to IPA Members as listed on Attachment 1.18, annexed hereto
and made a part hereof, as amended by IPA quarterly.
1.19 IPA Service Area. The County of New York State set forth on Attachment
1.19, annexed hereto and made a part hereof.
1.20 IPA Services. Those Medically Necessary Covered Services that are
performed, prescribed or directed by IPA Physicians, or other providers to the
extent provided herein, including, but not limited to, Medical Services rendered
in an Emergency, other than (i) those enumerated health care services set forth
on Attachment 1.20, annexed hereto and made a part hereof, and (ii) Hospital
Services.
1.21 Medically Necessary. Medical, surgical or other treatment which a
Member requires for the treatment of illness or bodily injury as determined by
WellCare, or its appropriately delegated medical management authority, and that
is in compliance with professional and technical standards adopted by the
Quality Assurance Committee of WellCare.
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1.22 Medical Services. Those Medically Necessary health care services,
other than Hospital Services, that are Covered Services.
1.23 Member. An individual entitled to receive health care services under a
Benefit Plan (including but not limited to commercial, New York State Child
Health Plus, Medicare and Medicaid lines of business).
1.24 Option. The option to cause Primergy to merge with and into FPA,
granted to FPA pursuant to the Option Agreement, made as of March 4, 1997,
between FPA and Primergy, as amended by agreement dated November 20, 1997.
1.25 Option Termination Event. The first to occur of (i) the date on which
FPA notifies Primergy that it relinquishes any and all rights to the Option and
(ii) June 30, 1998, if FPA has not provided Primergy with notice of FPA's desire
to exercise the Option prior thereto.
1.26 Participating Hospital. A licensed hospital that has entered into a
Participating Hospital Agreement with WellCare directly or indirectly.
1.27 Participating Physician. A fully licensed physician or entity
authorized to practice medicine who has entered into a Participating Physician
Agreement with WellCare directly or indirectly.
1.28 Participating Provider. Participating Physicians and Participating
Hospitals and other health care professionals, home health care agencies,
optometrists, pharmacies or other providers of health care services who have
entered into written agreements with WellCare directly or indirectly.
1.29 Payment Period. Has the meaning given to such term in Attachment 4.1
hereto.
1.30 PC. Has the meaning given such term in the recitals to this Agreement.
1.31 PC Liabilities. Has the meaning given such term in the recitals to
this Agreement.
1.32 PCP. An IPA Physician specializing in Family Practice, General
Practice, Internal Medicine or Pediatrics who has met the credentialing
standards of WellCare for designation as a primary care physician and provides
continuity of care to the Member who seeks his/her care by supervising,
coordinating and providing initial and basic care and initiating referrals for
Specialist care.
1.33 Policies and Procedures. WellCare's provider manual and all other
written standards, policies and procedures adopted by WellCare in connection
with the provision of Covered Services to IPA Members, including, but not
limited to, those that relate to quality improvement, utilization review
(including preauthorization), claims payment review, grievance procedures,
coordination of benefits and referral, admission and administrative procedures,
as amended from time to time in
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accordance with Section 2.2 hereof and which, together with all amendments
thereto, will be incorporated herein by reference.
1.34 Primergy. Primergy, Inc., a New York business corporation, that is the
sole shareholder of IPA and provides management services to IPA.
1.35 Prior Agreements. Has the meaning given such term in the recitals to
this Agreement.
1.36 Specialist. A Participating Physician who has contracted with WellCare
directly or through IPA to provide Specialty Services upon referral from a PCP,
which may also be known as a consultant.
1.37 Specialty Services. Those IPA Services usually and customarily
performed by a Specialist.
ARTICLE II
RIGHTS AND RESPONSIBILITIES OF WELLCARE
2.1 Marketing. WellCare shall use its best efforts to arrange to have IPA
Physicians' names, office addresses, telephone numbers and specialties and other
similar information included in WellCare's Provider Directory. WellCare shall
use its best efforts to market its products in the Service Area and to do so in
compliance with the requirements of applicable state and federal laws.
2.2 Operation of Programs. WellCare shall operate, or WellCare shall
delegate to a third party from time to time to the extent consistent with
applicable federal, state, local law and regulations and regulatory agency's
guidelines, utilization management, quality improvement, health service delivery
and preauthorization Policies and Procedures, in consultation with IPA, as well
as Member and Participating Provider grievance programs, to assure the delivery
of cost effective, quality health care services by IPA Physicians. WellCare
shall deliver to IPA simultaneously with the execution and delivery of this
Agreement all current Policies and Procedures reasonably necessary to keep IPA
Physicians abreast of the policies and programs of WellCare in which they
participate, which Policies and Procedures are, and all additions to and
amendments thereof shall be, incorporated herein by reference. Additionally,
WellCare shall provide IPA with any addition to or amendment of such Policies
and Procedures not less than thirty (30) days prior to the effective date of
such addition or amendment, during which period WellCare shall consult with IPA
regarding any reasonable concerns that IPA might have in connection therewith.
Additionally, WellCare shall deliver to IPA (i) copies of all IPA Member Benefit
Plans, simultaneously with the execution hereof and (ii) any amendments thereto,
not less than thirty (30) days prior to the effective date of such amendments.
2.3 Member Identification Card. WellCare shall furnish to all IPA Members
an Identification Card that is to be presented to the Participating Providers
prior to the delivery of Covered Services.
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2.4 Claims for Non-Members. In the event Medically Necessary services which
are authorized by WellCare are provided to an ineligible person, that ineligible
person shall be responsible for payment of such services.
2.5 IPA Member Panels for PCPs. WellCare shall provide IPA and PCPs with a
list of IPA Members for whom the PCPs are responsible and update such list on a
monthly basis.
2.6 Maintenance of Licensure. WellCare agrees to maintain, in good
standing, all current licenses and certifications required by applicable law,
including, without limitation, its certificate to operate an HMO. WellCare shall
immediately notify IPA in writing of any change in, or loss of insurance, or
action to suspend, revoke or limit any of its licenses or certification or of
other action which could reasonably prevent WellCare from performing its
obligations under this Agreement.
2.7 WellCare Right to Contract. It is expressly recognized and agreed by
and between the parties that WellCare shall retain its full right and ability to
establish, contract, or otherwise associate with any provider of health care
services; provided, however, that subject to Section 3.2(a) hereof, from the
Effective Date until termination of this Agreement pursuant to Article VI
hereof, WellCare agrees not to contract with any (i) primary care physician or
(ii) independent practice association that contracts with primary care
physicians or other organizational structure for a primary care physician
network, to provide IPA Services to IPA Members in the Service Area.
2.8 Credentialing Information. WellCare shall provide IPA with all
credentialing information that WellCare has obtained in connection with each IPA
Physicians; provided that each IPA Physician has consented to the release of
such information by WellCare to IPA in writing.
2.9 WellCare's Obligation to IPA Members. Notwithstanding Sections 3.16 or
4.1 hereof or any other provision of this Agreement, WellCare shall bear
ultimate responsibility for the care of the Members.
2.10 Consents. WellCare shall obtain from each IPA Member all releases and
consents that may be required to permit release of records to WellCare.
2.11 Assistance to Maintain Network. WellCare agrees to use its reasonable
efforts to assist IPA in maintaining a viable provider network for the Service
Area as set forth in Section 3.2 hereof, but shall not be responsible for
maintenance requirements set forth in Section 3.2 hereof.
2.12 Provision of Data. WellCare shall provide to IPA data as mutually
agreed to in the format and frequency set forth in Attachment 2.12.
ARTICLE III
RIGHTS AND RESPONSIBILITIES OF IPA AND IPA PHYSICIANS
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3.1 Access to IPA Physicians. IPA represents and warrants that it is
authorized to contract with WellCare to arrange for IPA Services to be provided
by the IPA Physicians. IPA agrees that by executing this Agreement, the IPA
Physicians become Participating Providers and IPA Physicians agree to be bound
by the terms and conditions of this Agreement. IPA shall provide to WellCare a
list of all IPA Physicians containing the information set forth in Section 3.22
of this Agreement quarterly.
3.2 Network Maintenance and Expansion. (a) Subject to Section 3.2(b), it is
expressly recognized and agreed by and between the parties that IPA is intended
to be the foundation of the WellCare physician network in the Service Area.
Accordingly, IPA shall (i) use its best efforts to meet the PCP/IPA Member
ratios set forth on Attachment 3.2 hereof and (ii) contract with, at a minimum,
the same number and type of Specialists in the Service Area with which the
Departments require WellCare to so contract. Additionally, all physicians and
entities representing such physicians that contract with IPA, or a subsidiary or
an affiliate of IPA, to provide medical services shall be, subject to WellCare's
credentialing criteria, an IPA Physician.
(b) In the event that the ratio of PCPs as compared to IPA Members
falls below any of the ratios as listed on Attachment 3.2, WellCare shall
provide IPA a period of ninety (90) days to contract with primary care
physicians to meet such ratio(s). If IPA is unable to meet any of such ratios,
the limitations set forth in Section 2.7 shall be null and void and be of no
further force or effect.
(c) Subject to Section 4.2 hereof, it is expressly recognized and
agreed by and between the parties that IPA shall retain its full right and
ability to establish, contract or otherwise associate with any other individual
practice association, health maintenance organization or other entity without
being deemed in contravention or breach of this Agreement or any other
obligation to WellCare; provided that any contract or arrangement with any such
entity shall not materially interfere with or prevent IPA or any IPA Physician
from fulfilling his or her obligation under this Agreement.
3.3 Provision of IPA Services to IPA Members. IPA shall require that each
IPA Physician agree to provide IPA Services to IPA Members in accordance with
the terms of this Agreement. IPA hereby acknowledges, and shall require each IPA
Provider to acknowledge, that the presentation of an Identification Card by an
individual shall not be deemed conclusive evidence that such individual is a
Member. IPA acknowledges that WellCare, by this Agreement or otherwise, does not
guarantee to IPA, or to any IPA Physician, a minimum number of IPA Members.
3.4 WellCare Policies and Procedures. Except as expressly provided herein
to the contrary, IPA shall, to the extent applicable, and IPA shall require each
IPA Physician to (i) cooperate, participate, and comply with all Policies and
Procedures and National Committee on Quality Assurance ("NCQA") standards and
guidelines and (ii) abide by the determination of WellCare on all such matters
set forth therein during the term of this Agreement. IPA shall deliver to each
IPA Physician a copy of the Policies and Procedures, along with all additions to
and amendments thereof, within five (5) days after delivery by WellCare to IPA
in accordance with
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Section 2.2 hereof.
3.5 Coverage. IPA shall use reasonable efforts to maintain arrangements
with an array of IPA Physicians to make IPA Services available and accessible
for all IPA Members as may be required by federal and/or state law. IPA shall
require that each PCP agree (i) (x) to provide IPA Services to IPA Members and
arrange for calls from IPA Members to be answered by a person hired, directly or
indirectly, by such PCP on a twenty-four (24) hour a day, seven (7) day a week
basis and (y) to return Emergency calls within thirty (30) minutes thereof, or
(ii) to arrange with a physician to provide such coverage to PCP's Member
patients in PCP's absence. Such covering physician shall be a Participating
Provider whenever possible. IPA shall require each PCP to use his or her best
efforts to have such covering Physician agree that he or she will (a) not bill
IPA Members or WellCare for Covered Services under any circumstances except for
Copayments, Coinsurance, and permitted Deductibles, (b) bill, charge, collect
payment from IPA for Covered Services provided to IPA Members, and (c) obtain
authorization from WellCare prior to all hospitalizations or referrals of IPA
Members, except for an Emergency.
3.6 Emergencies. IPA shall require each IPA Physician to agree to notify
WellCare of any admission relating to an Emergency within twenty-four (24) hours
of the admission or the next business day.
3.7 Standard of Care. IPA shall require each IPA Physician to provide IPA
Services and/or arrange for the provision of IPA Services or Covered Services in
order to provide a standard of care in a manner not less than generally accepted
medical practices in effect at the time of services and in a manner consistent
with the Policies and Procedures in effect for WellCare, which shall be
delivered by WellCare to IPA pursuant to Section 2.2 hereof.
3.8 Nondiscrimination. IPA shall require each IPA Physician to provide or
arrange for the provision of Covered Services to IPA Members in the same manner
and quality as services are provided to or arranged for all their other
patients. IPA Members shall not be discriminated against on the basis of age,
race, color, creed, ancestry, religion, gender, sexual orientation, national
origin, health status, marital status, disability, or source of payment.
3.9 Office Closure. IPA shall use its best efforts to require each PCP to
acknowledge and agree that such PCP may only close his or her practice to new
IPA Members if such PCP has closed his or her practice to new members covered
under benefit plans of all third-party payors with which such PCP directly or
indirectly contracts. IPA shall require each PCP to notify WellCare at least
sixty (60) days prior to closing his or her practice to new IPA Members, subject
to this Section 3.9; provided, that the effective date of such closure shall not
occur until the last day of the month in which such closure is to be effective;
and provided, however, that in the event such PCP is disabled or otherwise
incapacitated by illness, such notice shall be given when feasible.
3.10 Continuity of Care. IPA shall require each PCP to meet the
credentialing standards of WellCare for designation as a PCP and to provide
continuity of care to the Member who seeks his
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or her care by supervising, coordinating, and providing initial and basic care
and initiating a referral for Specialist care when Medically Necessary.
3.11 Maintenance of Licensure; Certification. IPA shall require each IPA
Physician to represent and warrant to IPA that he or she is a physician duly
licensed under applicable state law, or otherwise authorized to practice within
the scope of such license or authorization under applicable state law, and,
where appropriate, has obtained all other appropriate licenses, such as DEA
licenses, Medicare participation and, if such IPA Physician is a Specialist,
appropriate specialty board certification. IPA shall require each IPA Physician
to maintain in good standing all of the above.
3.12 Staff Privileges. IPA shall require each IPA Physician, except as
otherwise agreed to by WellCare, to represent and warrant to IPA that he or she
is an active member in good standing on the medical staff of a Participating
Hospital and that he or she shall maintain such status during the term of this
Agreement.
3.13 Health Care Programs. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she (i) is in good standing to
participate in Medicare and Medicaid Programs and to covenant to WellCare that
he/she will continue to be so certified during the term hereof and (ii) has
never been excluded from participation in the Medicare program, Medicaid
program, or any other federal healthcare program.
3.14 Government Sanctions. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she has never been sanctioned by the
Medicare program, Medicaid program, or any other federal or state agency for
Physician's failure to provide medical care of adequate quality or medically
necessary care.
3.15 Compliance with Law. IPA shall, and shall require each IPA Physician
to agree to, comply with all applicable federal, state, and local laws and
regulations or regulatory agency requirements and guidelines relating to the
provision of IPA Services. IPA shall immediately notify WellCare in writing of
any change in, or loss of insurance, or action to suspend, revoke or limit any
of its licenses or certification or of other action which could reasonably
prevent IPA from performing its obligations under this Agreement.
3.16 WellCare Hold Harmless. IPA shall require that each IPA Physician
agree that (i) he or she shall look solely to IPA for payment for any health
care services rendered to IPA Members and (ii) WellCare shall not be liable to
him or her for failure by IPA to pay such IPA Physician for any such services
because of insolvency of IPA or termination of this Agreement pursuant to
Article VI hereof. IPA expressly acknowledges and agrees and shall require each
IPA Physician to expressly acknowledge and agree that no specific payment is
being made directly or indirectly under this Agreement as an inducement to
reduce or limit medically necessary services provided with respect to a Member.
3.17 Stop-Loss Insurance. To the extent required by federal and/or state
laws, regulations, or regulatory agency requirements or guidelines, IPA (i)
shall purchase and maintain, during the term
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of this Agreement, stop-loss insurance, at IPA's sole cost and expense, for the
benefit of IPA and (ii) hereby covenants that at all times during the term
hereof, the levels of such insurance shall be, in compliance with applicable
federal and state law and regulations and state regulatory agency requirements
and guidelines.
3.18 Billing Procedures for IPA Services. IPA shall require IPA Physicians
to agree that they shall not require advance payment or any form of deposit
payment from any Member receiving IPA Services covered by an IPA Member Benefit
Plan; provided, however, that an IPA Physician may apply his or her general
credit policies with respect to IPA Members who are financially responsible for
certain services not covered under an IPA Member Benefit Plan subject to Section
3.20 hereof; or charges for certain services such as Copayments, Coinsurance,
and permitted Deductibles. IPA agrees and shall require each IPA Physician to
agree not to claim payment in any form from the Department of Health and Human
Services or any state agency for items or services furnished to Medicaid
qualified beneficiaries in accordance with this Agreement except as approved by
HCFA or the New York Department of Social Services, or otherwise shift the
burden of such an agreement onto Medicaid, other payors, or individuals.
3.19 Coordination of Benefits. IPA shall require each IPA Physician to
agree to be bound by the coordination of benefits Policies and Procedures of
WellCare and to assist WellCare in identifying, billing, and collecting payments
due from primary payors.
3.20 Non-Medically Necessary Covered Services. IPA hereby acknowledges that
Members might request services of Participating Physicians that were not deemed
to be Medically Necessary by WellCare Quality Improvement/Utilization Management
programs as set forth in the Policies and Procedures and are, therefore, payable
by IPA Members. IPA hereby acknowledges and agrees, and shall require each IPA
Physician to acknowledge and agree, that WellCare shall not compensate IPA or
any IPA Physician, nor shall WellCare have any responsibility for charges
incurred by IPA Members for such services. Prior to charging any Member for
non-Medically Necessary Covered Services, the IPA Physician shall have obtained
a written acknowledgement from the Member that the proposed services are not
Medically Necessary and that the Member agrees to be fully responsible for
payment therefor. IPA acknowledges and shall require each IPA Physician to
acknowledge that if any IPA Physician does not obtain such written
acknowledgment, such IPA Physician may not charge any Member for any such
services.
3.21 IPA Member Hold Harmless. (a) Except as otherwise provided herein, IPA
shall require that each IPA Physician agree that in no event, including but not
limited to nonpayment to IPA Physician by IPA, nonpayment by WellCare to IPA,
insolvency of WellCare and/or IPA or breach of this Agreement, shall such IPA
Physician bill, charge, collect a deposit from, seek compensation, remuneration
or reimbursement from, or have any recourse against a Member or family members
or persons (other than recourse against IPA under Section 3.16 or otherwise)
acting on behalf of an IPA Member for services provided in accordance with this
Agreement. This provision does not prohibit an IPA Physician from collecting
permitted Deductibles, Coinsurance, or Copayments, as specifically provided in
the applicable IPA Member Benefit Plan, or fees for non- Medically Necessary
Services in accordance with Section 3.22 hereof.
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(b) IPA shall require that each IPA Physician agree that the above hold
harmless and continuation of benefit provisions supersede any oral or written
contrary agreement now existing or hereafter entered into between the Physician
and IPA Members or family members or persons acting on behalf of a Member
insofar as such contract agreement relates to liability for payment for, or
continuation of Covered Services provided under the terms and conditions of
these clauses.
(c) IPA agrees and each IPA Physician shall be required to agree that
this Section 3.21 shall survive the termination of this Agreement for authorized
Covered Services rendered prior to the termination of this Agreement, regardless
of the cause giving rise to termination and shall be construed to be for the
benefit of the Member. This provision is not intended to apply to services
provided after this Agreement has been terminated.
3.22 Authorization for Marketing. IPA shall obtain proper authorization
from each IPA Physician for WellCare to include the names, office addresses,
telephone numbers and specialties and other similar information of such IPA
Physician in WellCare's provider directory.
3.23 WellCare Contracts. IPA shall use its best efforts to encourage each
PCP to enter into a provider agreement with WellCare, in a form presented by
WellCare, to provide those health care services that primary care physicians are
required to provide in accordance herewith to Members, which agreement shall
become effective automatically, immediately upon termination of this Agreement
in accordance with Article VI hereof. Additionally, IPA shall use its best
efforts to encourage IPA Physicians, other than PCPs, to enter into provider
agreements with WellCare, in a form presented by WellCare, to provide (i)
certain health care services to Members, other than IPA Members, as well as to
individuals covered under benefit plans of WellCare of Connecticut, Inc., Agente
Benefit Consultants, Inc., or other WellCare affiliates during the term and upon
termination hereof and (ii) those health care services that such IPA Physicians
are required to provide in accordance herewith to Members immediately upon
termination of this Agreement in accordance with Article VI hereof. If any IPA
Physician has not entered into such provider agreement with WellCare, IPA shall
notify such IPA Physician, in accordance with federal and state laws and
regulations, sixty (60) days, or such other period as required by law, prior to
the expiration of his or her provider agreement with IPA and shall terminate him
or her after such period.
3.24 Reporting Requirements. IPA shall assist, and shall require each IPA
Physician to assist, WellCare in complying with federal, state, and local laws
and regulations and regulatory agency requirements relating to the provision of
IPA Services, including, but not limited to, complying with reporting
requirements pursuant thereto.
3.25 Financial Management and Reporting. IPA shall implement cash
management policies in keeping with sound financial management practices in
order to ensure timely and accurate payment to all providers who provide
Medically Necessary IPA Services to IPA Members, acknowledging that WellCare is
responsible for the final determination of benefit payments to be made under an
IPA Member Benefit Plan. Additionally, upon FPA's exercise of the Option, IPA
shall require FPA to guarantee the PC Liabilities, pursuant to a guarantee in
form reasonably satisfactory to WellCare.
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Within thirty (30) days of the end of each calendar quarter during the term
hereof, IPA shall deliver to WellCare (i) balance sheet of IPA and (ii) IPA's
statement of operations in connection with IPA's obligations set forth herein
for the calendar quarter then ended prepared in accordance with generally
accepted accounting principles ("GAAP") and fairly representing the financial
condition of IPA for the relevant quarter. Within sixty (60) days of the end of
each of IPA's fiscal years throughout the term hereof, IPA shall deliver to
WellCare (i) annual unaudited balance sheet of IPA prepared in accordance with
GAAP and (ii) IPA's statement of operations in connection with the obligations
of IPA set forth herein. IPA shall also provide WellCare, upon a reasonable
request, financial information and reports related to IPA's performance of this
Agreement, including encounter, utilization, and cost reports as may be required
by the New York State Department of Insurance and New York State Department of
Health (collectively, "Departments") or other governmental agency and such and
other financial reports and data as WellCare may require to efficiently and
effectively manage costs and utilization and to provide quality medical care to
IPA Members.
3.26 Complaints and Litigation. IPA shall, and shall require each IPA
Physician to, forward to WellCare, immediately upon receipt, of Members, the
Departments, and of any other government agency communications, complaints, and
inquiries, whether written or oral, regarding any claim or other business
concerning WellCare that is subject to this Agreement, together with IPA's or
such IPA Physician's, as the case may be, proposed response, if any, and all
information from its/his/her records to assist WellCare or its designee to
respond. Additionally, IPA shall, and shall require each IPA Physician to
forward to WellCare, immediately upon receipt, any legal process in which
WellCare has been named as a party or that arises out of any activities subject
to this Agreement. WellCare is the only party to this Agreement that is
authorized to defend WellCare against any legal process.
3.27 Notice of Change of Condition of IPA Physician. IPA shall require each
IPA Physician to notify IPA in writing within five (5) days of any change in, or
loss of insurance, or action to suspend, revoke or limit any of its licenses or
certification or of other action which could reasonably prevent IPA Physician
from performing his or her obligations under this Agreement. Each party hereto
shall notify the other party in writing immediately upon its receipt of a notice
of or of any information relating to a change of condition of any IPA Physician.
3.28 Effect of Termination of IPA Member - Continuation of Care. IPA
recognizes that WellCare must under certain circumstances, pursuant to certain
federal and state regulatory requirements, continue to arrange for the provision
of services for individuals whose status as IPA Members has terminated.
Accordingly, IPA agrees to continue arranging for the provision of, and shall
require that each IPA Physician shall agree to continue providing, IPA Services
to such individuals, just as WellCare is obligated to do, until the earlier of
(i) ninety (90) days from the date of notice to such IPA Member of the IPA's
disaffiliation with WellCare, (ii) if such IPA Member has entered the second
trimester of pregnancy at the time of such IPA Physician's disaffiliation with
WellCare, for a transitional period that includes the provision of post-partum
care directly related to the delivery, (iii) until WellCare, at its discretion
upon the consent of such IPA Member, makes reasonable and medically appropriate
provision for the assumption of such care by another provider, or (iv) until
such time as WellCare coverage of such individuals is lawfully and effectively
terminated so that WellCare's obligation to such individuals is recognized as
ended by the applicable law and
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regulatory authorities. WellCare shall continue to pay IPA at the agreed upon
rate set forth on Attachment 4.1 hereto for each month for which premium
payments are due and payable (including any month for which such payments would
have been due and payable but for WellCare's agreement to waive all or a portion
of such payments) from or on behalf of any such IPA Member, whether or not
WellCare receives any such payment. If WellCare is legally obligated to continue
to cover such individual during any additional period following the months for
which premiums are due and payable (or following the months in which such
premiums would have been due and payable but for WellCare's agreement to waive
such premiums in whole or in part), WellCare shall not be obligated to pay IPA
or any IPA Physician for any services provided to such individual by any IPA
Physician pursuant to this Section 3.28.
3.29 Solicitation of Members. During the term of this Agreement or any
renewal thereof, and for a period of six (6) months after the date of
termination, IPA agrees, and shall require each IPA Physician to agree, that
it/he/she will not, within the Service Area, interfere with WellCare's contract
and/or property rights or advise or counsel any Member or Employer Group to
disenroll from WellCare. Informing a Member of other managed care organizations
with which IPA or an IPA Physician may participate nor solicitations addressed
to the employer or other group community shall not be deemed to be violations of
this Section 3.29.
3.30 Requirement of Insurance. IPA shall require each IPA Physician, other
than those IPA Physicians listed on Attachment 3.30, annexed hereto and made a
part hereof, to procure and maintain, and WellCare and IPA shall each procure
and maintain a policy of general liability, professional liability and other
insurance as may be necessary to protect against any claim for damages arising
by reason of personal injury or death of a Member. IPA shall require that each
such IPA Physician maintains each policy with minimum limits of coverage of one
(1) million dollars ($1,000,000) per occurrence and three (3) million dollars
($3,000,000) in the aggregate. IPA shall require each IPA Physician upon
termination of this Agreement or the termination of an IPA Physician pursuant to
Article VI hereof, to either continue his or her liability insurance policy or
purchase "tail" insurance covering the period that such IPA Physician provided
IPA Services to IPA Members in accordance herewith. Certificates of insurance
evidencing compliance with this provision shall be made available to WellCare
upon request.
3.31 Site Evaluations and Inspections. In accordance with the terms and
conditions of this Agreement and subject to applicable federal and state
confidentiality laws, IPA shall require each IPA Physician to permit (i)
WellCare or a designated representative, upon reasonable notification during
normal business hours, unless otherwise required by federal, state or local law,
regulation, or regulatory agency, and (ii) federal, state, and local regulatory
agencies, to the extent authorized by law, to conduct periodic site evaluations
of such IPA Physician's facilities, equipment, medical records of IPA Members to
monitor utilization review activities and to monitor the quality of professional
and ancillary medical care provided to IPA Members by such IPA Physician. IPA
shall further require each IPA Physician (i) to operate all office sites in
compliance with the criteria established by the WellCare Quality Assurance
Committee and quality assurance requirements of the Departments and the NCQA and
(ii) to comply with any such agencies' reasonable recommendations, if any, or to
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provide WellCare with a written response to any questions or comments posed by
any of the agencies or WellCare.
3.32 Access To Records. (a) IPA shall require each IPA Physician to
provide, in a timely manner, IPA Members' medical records, and such other
relevant records and other information, to WellCare and to IPA and/or their
designee(s), as permitted by law and in any reasonable manner, for the
performance of the Policies and Procedures for claims payment or any other
purposes, as reasonably required by WellCare and/or IPA, as the case may be.
Each IPA Physician shall also be required by IPA to obtain from IPA Members all
releases or consents which may be required to permit release of records to IPA.
(b) IPA shall require each IPA Physician to make available, subject to
applicable federal and state law, IPA Members' medical records to the
Departments for inspection and copying, at no cost to the Departments.
(c) IPA shall require each IPA Physician to retain and maintain
Member's medical records for the longer of (i) the year in which the Member was
discharged or treatment concluded, plus six (6) years, (ii) the year in which
the Member reaches majority, plus six (6) years, or (iii) such greater period
required by federal or state law. Such records shall be maintained in accordance
with prudent standards of insurance record keeping and with all applicable state
and federal laws and regulations.
(d) Additionally, IPA shall require IPA Physicians to provide WellCare
with encounter data (routine claims submissions) relating to all IPA Services
provided pursuant to this Agreement in a mutually agreed upon format monthly.
3.33 Access to Records for Medicare/Medicaid Programs. If the value or cost
of services provided under this Agreement will be $10,000 or more within a
twelve (12) month period, to the extent that the cost of such service is
reimbursable by the Medicare and/or Medicaid Programs, IPA agrees, and shall
require IPA Physicians to agree, to comply with the Access to Books, Documents
and Records of Subcontractor's provision of Section 952 of the Omnibus
Reconciliation Action of 1980 (P.L. 96-499), and 42 C.F.R. Part 420, Sub-part D,
Section 420.300 et seq. In accordance with these provisions, IPA will allow and
shall require IPA Physicians to allow the Comptroller General of the United
States, the Secretary of Health and Human Services, and their duly authorized
representatives access and to IPA's or the applicable IPA Physician's, as the
case may be, books, documents, and records necessary to certify the nature and
extent of such costs of Medicare reimbursable services provided hereunder. Such
access will be allowed, upon request, until the expiration of four (4) years
after Medicare and/or Medicaid reimbursable services are furnished hereunder. If
IPA carries out any of the duties of this Agreement through a subcontract with a
related party with a value or cost of $10,000 or more over a twelve (12) month
period, such subcontract shall contain a clause which requires the subcontractor
to comply with the above statutes and regulations.
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3.34 Confidentiality of Records. Any data or information obtained from IPA
or any IPA Physician pertaining to the diagnosis, treatment or health of a
Member shall be held confidential to the extent required by law. All parties
agree to maintain the confidentiality of information contained in the Member's
medical records. Notwithstanding the foregoing, subject to all laws regarding
confidentiality of medical records, the parties may disseminate such records to
authorized providers and consulting physicians, to governmental agencies if
required by law, to committees of the Participating Hospitals and WellCare
concerned with the quality of care and utilization, and to WellCare for purposes
of administration. This Article shall not be construed to prevent either party
from releasing information in a form that does not identify a Member to any
organization engaged in the collection and analysis of data.
3.35 Assumption of PC Liabilities. In consideration of WellCare's entering
into this Agreement, the payment of the Compensation to be paid to IPA
hereunder, and for other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, IPA hereby assumes from PC
all of the PC Liabilities.
3.36 Survival. Sections 3.15, 3.16, 3.21, 3.24, 3.26, 3.28, 3.33, 3.34, and
3.35 of this Article III shall survive the expiration or earlier termination of
this Agreement.
ARTICLE IV
BILLING PROCEDURES AND PAYMENT FOR SERVICES
4.1 Payment. (a) Except as otherwise provided in this Agreement, WellCare
shall pay, and IPA shall accept, the compensation, as set forth in Attachment
4.1, annexed hereto and made a part hereof (the "Compensation"), as payment in
full for IPA Services and any and all services performed by IPA pursuant to this
Agreement, including those set forth in Section 4.1(e) hereto. In return for the
Compensation, IPA agrees to arrange and pay for all of the IPA Services that
WellCare is obligated to arrange and pay for pursuant to the IPA Member Benefit
Plans. Such payments shall be made within the earliest of (i) 45 days following
submission of a "clean" claim for payment, unless this requirement is waived in
writing by WellCare, (ii) the last day within the period established by law, if
any, in which a payment by the IPA to an IPA Physician would not be subject to
interest thereon, or (iii) in the case of monthly capitation payments to
providers, within the first five (5) days of the applicable month. IPA shall be
obligated to pay all interest and any other penalties associated with any
failure to comply with all laws and regulations applicable to IPA relating to
prompt payment of claims, if any. Should IPA fail to comply with such laws and
regulations, WellCare may withhold amounts included within the Compensation
necessary to reimburse WellCare (i) for the payment of claims paid directly by
WellCare for IPA Services provided to IPA Members and (ii) for any interest and
penalties associated with such claims.
(b) WellCare and IPA each confirm that the manner of calculating
reductions in hospital utilization and the payments to the PC therefor under the
Prior Agreements, as set forth in Attachment 4.1(b), are complete and accurate
and that the amounts paid to the PC through March
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31, 1997, relating to reductions in hospital utilization, as set forth in
Attachment 4.1(b), constitute full payment by WellCare of any and all
obligations relating to reductions in hospital utilization under the Prior
Agreements. WellCare waives any claim that it may have overpaid IPA relating to
those payments.
(c) The parties acknowledge that for the period since April 1, 1997, PC
has not been entitled to any further compensation for reductions in hospital
utilization, but in lieu thereof has been entitled to the monthly payments set
forth on Attachment 4.1(3).
(d) IPA and WellCare acknowledge that IPA is not entitled to any
compensation for reduction in hospital utilization. In lieu thereof, the
Compensation, however, shall include the monthly amount (the "Hospital Piece")
set forth in Section 3 of Attachment 4.1 for the period from the Effective Date
through February 28, 1999. Thereafter, the Compensation shall no longer include
the Hospital Piece but the parties shall negotiate in good faith to replace the
Hospital Piece with Compensation based upon quality and utilization, consistent
with the parameters set forth in Section 4 of Attachment 4.1.
(e) WellCare shall perform all claims processing on behalf of IPA, at
WellCare's sole cost and expense, in connection with IPA Services rendered in
accordance with this Agreement.
(f) IPA shall perform all claims adjudication of IPA Services rendered
in accordance with this Agreement.
4.2 Adjustments to Compensation Exhibit. (a) For so long as Members make up
fifty percent (50%) or more in the aggregate of the Enrolled Population, within
thirty (30) days of the effective date of any new contract or renewal or change
in payment terms of an existing contract between IPA and a third-party payor
other than WellCare, IPA shall certify in writing to WellCare that the payment
terms of such contract are not more favorable to such third-party payor than the
Compensation is to WellCare or shall certify that such payment terms are more
favorable to such third-party payor than the Compensation is to WellCare. Such
determination shall take into account the member composition of each Plan and
the health care services to be provided by IPA under each contract. By executing
and delivering this Agreement, IPA represents and warrants to WellCare that it
is not, as of the effective date of this Agreement, party to any contract with
any other third-party payor on payment terms more favorable to such third-party
payor than the Compensation is to WellCare.
(b) If WellCare shall dispute the representations made in any
certificate delivered under Section 4.2(a), in which IPA claims that the payment
terms under a contract with a third party are not more favorable to the third
party than the Compensation is to WellCare, WellCare may engage an actuary
chosen upon the mutual consent of WellCare and IPA, at WellCare's cost, to make
such determination, whose determination shall be binding upon the parties
hereto.
(c) So long as Members make up fifty percent (50%) or more in the
aggregate of the Enrolled Population, if IPA contracts with any third-party
payor on terms more favorable to such
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third-party payor than the Compensation is to WellCare, for such period as any
such contract is in effect, the Compensation shall not give effect to the CPI
Adjustment (as defined in Attachment 4.1 hereto) in accordance with Section 2(a)
or (b) of Attachment 4.1 hereto.
ARTICLE V
INDEMNIFICATION; COOPERATIVE DEFENSE
5.1 Indemnification. (a) Each of the parties hereto shall indemnify the
other party and hold each other harmless against any and all claims, actions,
assessments, charges, and expenses, including court costs and reasonable
attorneys' fees, and against all liabilities, losses, damages of any nature, and
settlements, judgments, or awards, whether compensatory, extracontractual, or
punitive, (collectively, "Damages") that a party shall sustain or be put to by
reason of any act or omission of the other party or its agents, employees,
officers, and directors or any breach by the other party of the terms of this
Agreement.
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(b) Each party hereto entitled to indemnification under Section 5.1(a)
(each, an "Indemnified Party") hereby agrees to give the applicable party or
parties obligated to indemnify it under Section 5.1(a) (each, an "Indemnifying
Party") written notice of any event or assertion of which the Indemnified Party
obtains knowledge concerning any Damage and as to which the Indemnified Party
may request indemnification hereunder. The Indemnified Party shall cooperate
with the Indemnifying Party in determining the validity of any claim or
assertion requiring indemnity hereunder and in defending against third parties
with respect to the same. The defense of such litigation shall be within the
control of the Indemnifying Party, or, as the case may be, any Persons providing
indemnity and defense to such Indemnifying Party; provided, however, that an
Indemnifying Party's choice of counsel shall be reasonably satisfactory to the
Indemnified Party. The Indemnified Party may participate in the defense of any
claim or assertion requiring indemnity hereunder, and in such event, shall
cooperate fully in connection therewith. If an Indemnifying Party fails to
perform its obligations under this Article V, then the Indemnified Party may
directly assume the defense of the claim or assertion at issue, and such
Indemnifying Party shall promptly reimburse the Indemnified Party for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), incurred in connection therewith. The Indemnified Party's failure to
give timely notice or to provide copies of documents or to furnish relevant data
in connection with any such third-party claim shall not constitute a defense (in
part or in whole) to any claim for indemnification by it. WellCare and IPA each
hereby agrees not to settle or compromise any such third-party suit, claim, or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
(c) This Article V shall continue to be of full force and effect,
notwithstanding the termination of this Agreement, until all claims and
liabilities relating to a Member have been asserted, satisfied and released.
5.2 Cooperative Defense. The parties recognize that, during the term of
this Agreement and for some period thereafter, certain risk management issues,
claims, or actions may arise that involve or could potentially involve the
parties and their respective employees and agents. The parties further recognize
the importance of cooperating with each other in good faith when such issues,
claims, or actions arise to the extent that such cooperation does not violate
any applicable laws, cause breach of any duties created by any policies of
insurance, or otherwise compromise the confidentiality of communications of
information regarding the issues, claims, or actions. The parties shall
cooperate in good faith, using their best efforts, to address such risk
management and claims handling issues in a manner that strongly encourages full
cooperation between the parties. This Section 5.2 shall survive the termination
of this Agreement.
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ARTICLE VI
TERM AND TERMINATION
6.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date and shall continue for a period of ten (10) years therefrom,
unless terminated earlier pursuant to Section 6.2 hereof.
6.2 Termination. This Agreement may be terminated as follows:
(a) By mutual written agreement between WellCare and IPA.
(b) Upon written notice by one party (the "Terminating Party") to the
other party (the "Terminated Party") of the Terminating Party's
intention to terminate this Agreement by reason of the Terminated
Party's material breach of this Agreement. An event of material
breach hereunder shall occur if either party to this Agreement
shall fail to keep, observe, pay or perform any material
covenant, obligation, agreement, term, or provision of this
Agreement and such condition is not remedied within sixty (60)
days after receipt by one party from the other party of such
written notice.
(c) Subject to the terms of any written waiver that a party may have
received from the other party, upon written notice by the
Terminating Party to the Terminated Party of the Terminating
Party's intention to terminate this Agreement by reason of the
Terminated Party (i) becoming insolvent, as defined in Section
101(32) of Title 11 of the United States Code as amended, (ii)
generally cannot, or is unable to, or shall admit in writing to
its inability to pay debts as such debts become due, (iii) making
an assignment for the benefit of creditors, (iv) petitioning or
applying to any tribunal for, or other wise seeking, consent to
or acquiescence the appointment of a custodian, receiver, or
trustee for it or a substantial part of its assets, (v)
commencing, consenting to, or acquiescing in any proceeding under
any bankruptcy, reorganization, arrangement, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or (vi) having had any such petition or application filed
or any such proceeding shall have been commenced against it in
which an adjudication or appointment is made or order for relief
is entered and that remains undismissed or unstayed for a period
of sixty (60) days or more.
(d) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement by reason of (i) IPA's material breach
of any other agreement currently in force with WellCare, or (ii)
Primergy's material breach of any agreement with WellCare
currently in force. An event of material breach thereunder shall
occur if IPA and/or Primergy, as the case may be, shall fail to
keep, observe, pay or perform any material covenant, obligation,
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agreement, term, or provision under any such agreement or
obligation and such condition is not remedied within the cure
period set forth therein and if no cure period is set forth
therein, within sixty (60) days after receipt by the appropriate
party from WellCare of such written notice.
(e) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement effective sixty (60) days thereafter by
reason of the Change of Ownership. Change of Ownership shall
include the sale, exchange, assignment, transfer, issuance or
other conveyance or disposition, other than to FPA, of (i) more
than fifty percent (50%) of all of either IPA's or Primergy's
issued and outstanding shares of common stock at the time thereof
or (ii) of substantially all of IPA's or Primergy's assets;
provided such event occurs prior to the date on which the Option
is exercised by FPA or following an Option Termination Event.
6.3 Effect of Option Termination Event. Upon the occurrence of an Option
Termination Event, Wellcare and IPA each hereby agree to attempt in good faith
to negotiate an amendment to this Agreement to properly incorporate the effects
that such event has on the terms and conditions set forth herein. If the terms
and conditions to be set forth in such amendment have not been agreed to within
one hundred twenty (120) days of the Option Termination Event, this Agreement
may be terminated by either party at any time after such period; provided the
parties have not yet agreed to such amendment.
6.4 Effect of Termination of this Agreement. If either party terminates
this Agreement, IPA shall advise the IPA Physicians of the notice of termination
and the provider agreement entered into with WellCare pursuant to Section 3.23
hereof shall be effective as of the date of termination of this Agreement and
shall govern the rights and obligations of each IPA Physician to provide IPA
Services to IPA Members.
6.5 Termination and Suspension of IPA Physicians by IPA. Each party shall
notify the other party immediately upon its receipt of notice of any
circumstance that would constitute termination for "Good Reason" or "Immediate
Cause" as defined in Section 6.6 hereof or any termination or suspension from
the IPA Physician network.
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6.6 Termination and Suspension of IPA Physicians by WellCare.
(a) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith for "Good Reason" upon sixty (60) days' prior written notice to such
IPA Physician; provided, however, if such IPA Physician shall have requested a
hearing in accordance with this Section 6.6(a), termination by WellCare for
"Good Reason" shall be effective thirty (30) days after receipt by WellCare of
the hearing panel's decision of termination; provided, further, that if such
hearing panel renders a decision to reinstate such IPA Physician, such notice of
termination shall be void and shall have no effect as to this Agreement.
WellCare agrees to notify IPA directly of any dispute that arises between
WellCare and an IPA Physician. "Good Reason" shall include but not be limited
to:
(i) suspension of such IPA Physician's license, certificate, Drug
Enforcement Agency authorization to issue prescriptions or other legal
credential authorizing IPA Physician to provide medical services;
(ii) if such IPA Physician is a Medicaid/Medicare provider, he or she
is suspended from either or both of these programs;
(iii) the indictment or arrest for a felony of such IPA Physician or
for any criminal charge related to the rendering of medical services;
(iv) the cancellation or termination of the professional liability
insurance required by this Agreement with respect to such IPA Physician
without replacement coverage having been obtained;
(v) the failure of such IPA Physician to maintain admitting privileges
with one or more Participating Hospitals, except as otherwise agreed to by
WellCare;
(vi) the failure of such IPA Physician to comply with any Policy or
Procedure or other requirements or is not supportive of the purposes an
intent of this Agreement; provided such IPA Physician has not cured any
such failure within thirty (30) days from its receipt of notification from
WellCare;
(vii) if such IPA Physician becomes insolvent, bankrupt, files a
voluntary petition in bankruptcy, makes an assignment for the benefit of
creditors, or consents to the appointment of a trustee or receiver;
(viii) if IPA has a right to terminate an IPA Physician under the
provider agreement between IPA and such IPA Physician.
(ix) if such IPA Physician has engaged in conduct that poses an
immediate and material threat to the safety and/or well-being of any
patient to whom such IPA Physician has rendered or intends to render care.
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In addition, "Good Reason" shall expressly not include the occurrence of any of
the following events by such IPA Physician: (i) such IPA Physician's having
advocated on behalf of a Member; (ii) such IPA Physician's having filed a
complaint against WellCare; (iii) IPA Physician's having appealed a decision of
WellCare; (iv) such IPA Physician's having provided information or filed a
report under New York Public Health Law Section 4406-c regarding prohibitions by
plans; or (v) such IPA Physician's having requested a hearing or review pursuant
to this Section 6.6(a).
(b) Any notice of termination under Section 6.6(a) shall include (i)
the reasons for the proposed termination; (ii) notice that such IPA Physician
has the right to request a hearing or review, at such IPA Physician's
discretion, before a panel appointed by WellCare, which panel shall be composed
of persons meeting the standards set forth in Section 4406-d of the New York
Public Health Law; (iii) a time limit not less than thirty (30) days within
which such IPA Physician may request such a hearing; (iv) a time limit for a
hearing date that shall be held within thirty (30) days after the date of
receipt of a request for a hearing. The hearing process shall be consistent with
the provisions of Section 4406-d of the New York Public Health Law.
(c) In the event WellCare shall provide notice of termination for Good
Reason under Paragraphs (i), (ii), (iii), (iv), (v), (vii), or (ix) of Section
6.6(a) or for a similar occurrence or act, WellCare shall have the right to
suspend such IPA Physician from providing any IPA Services to IPA Members in
connection herewith during the period commencing with any notice given by
WellCare and the date of termination or reinstatement.
(d) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith immediately and without prior notice for "Immediate Cause." "Immediate
Cause" shall mean (i) a determination by WellCare in its sole discretion that
such IPA Physician shall have engaged in fraud, theft, embezzlement or other
financial misconduct; or (ii) a final disciplinary action by a state licensing
board or other governmental agency, the effect of which is to impair such IPA
Physician's ability to practice medicine.
6.7 Effect of Termination of IPA Physician or Agreement - Continuation of
Care. IPA shall require each IPA Physician to agree that, upon the effective
date of termination of this Agreement pursuant to Section 6.2 hereof or
termination of a Physician pursuant to Section 6.6(a) hereof, except as
otherwise required by federal or state law regulation, or regulatory agency, he
or she shall continue to provide necessary medical services to IPA Members who
retain eligibility and enrollment under an IPA Member Benefit Plan (i) pursuant
to the provider contracts entered into by such IPA Physician and WellCare in
accordance with Section 3.23 hereof, (ii) if such IPA Physician has not entered
into such contract, the earlier of (x) ninety (90) days from the date of notice
to such IPA Member of the IPA's disaffiliation with WellCare, (y) if such IPA
Member has entered the second trimester of pregnancy at the time of such IPA
Physician's disaffiliation with WellCare, for a transitional period that
includes the provision of post-partum care directly related to the delivery, and
(z) until WellCare, at its discretion upon the consent of such IPA Member, makes
reasonable and medically appropriate provision for the assumption of such care
by another provider, or (iii) until such
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time as WellCare coverage of such individuals is lawfully and effectively
terminated so that WellCare's obligation to such individuals is recognized as
ended by the applicable law and regulatory authorities. Additionally, IPA shall
require each IPA Physician to agree to abide by the Policies and Procedures
during any such transitional period other than pursuant to a WellCare provider
agreement. WellCare shall pay IPA Physicians for IPA Services rendered pursuant
to this Section 6.7. This Section 6.7 shall survive the expiration or earlier
termination of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 Negotiation. WellCare and IPA agree to attempt in good faith to resolve
any dispute arising out of or relating to this Agreement promptly by negotiation
between the parties. If any such matter is not resolved within forty-five (45)
days of a party's request for negotiation, either party may initiate an
arbitration proceeding in accordance with Section 7.2 below.
7.2 Arbitration. If WellCare and IPA have not been able to resolve a
dispute by negotiation within forty-five (45) days pursuant to Section 7.1 as
set forth above, either party may submit such dispute to an arbitrator in New
York State subject to the commercial rules and regulations of the American
Arbitration Association. Both parties expressly covenant and agree that they
shall be bound by the decision of the arbitrator as a final determination of the
matter in dispute, subject to any right of appeal under New York law. WellCare
shall provide the Commissioner with notice of all issues submitted to
arbitration pursuant to this Section 7.2 and copies of all decisions related
thereto. Each party shall be solely responsible for its own expenses in
connection with the dispute resolution process; provided that the costs of the
arbitrator shall be divided equally between the parties hereto. Notwithstanding
anything in this Section 7.2, the parties hereto each hereby expressly
acknowledges that the Commissioner shall not be bound by any such arbitration
decision.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. This Agreement or any part, article, subsection, Attachment,
or Exhibit of it, may be amended as follows:
(a) If necessary to comply with a requirement of any state or federal
agency having jurisdiction to regulate WellCare, by WellCare at
any time during the term of the Agreement (i) upon ten (10) days
prior written notice to IPA and (ii) if material, upon thirty
(30) days prior written notice to the Commissioner.
(b) Any and all other amendments to this Agreement or any part,
article, subsection or Attachment of it will only be effective in
the event that (i) they
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have been agreed to by both parties, (ii) both the amendment and
such agreement have been reduced to writing, (iii) if such
Amendments are material, they have been approved by the
Commissioner after they have been submitted thereto at least
thirty (30) days prior to the anticipated effective date thereof.
8.2 Assignment. Subject to prior notice to and approval by the
Commissioner, (i) the terms, covenants, conditions, provisions, and agreements
herein contained shall be binding upon and inure to the benefits of the parties
hereto, and their successors and assigns and (ii) WellCare may assign its rights
and obligations under this Agreement, in whole or in part, to a parent,
subsidiary, or an affiliate of WellCare, any entity into which WellCare is
merged or consolidated, or any entity that purchases substantially all of the
stock or assets of WellCare without IPA's prior approval. In the event that all
or substantially all of the stock or assets of a party is acquired by a third
party, that third party shall be bound to terms, covenants, conditions,
provisions, and agreements contained herein. Except as expressly set forth in
this Section 8.2, neither party may assign, delegate, or otherwise transfer this
Agreement without the prior written consent of the other party and of the
Commissioner.
8.3 Notices. All notices hereunder by either party to the other party shall
be in writing. All notices, demands, and requests shall be deemed given when
mailed, by registered or certified mail, postage paid, return receipt requested.
To WellCare: WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
Attention: President
To IPA: Dutchess Health Care Alliance IPA, Inc.
400 Stockade Drive
Kingston, New York 12401
Attention: Chief Executive Officer
or to such other address or to such other person as may be designated by written
notice given during the term of this Agreement by one party to the other.
8.4 Independent Contractors. The relationship among WellCare and IPA and
the IPA Physicians is a contractual relationship among independent contractors.
Neither IPA nor any IPA Physician is an agent or employee of WellCare nor is
WellCare or any of its employees an agent or employee of IPA or any IPA
Physician.
8.5 Material Agreements. WellCare, IPA, and Primergy, each hereby represent
and warrant that to such parties knowledge as of the date hereof, the agreements
listed on Attachment
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6.2(d) are the only written or oral agreements between either WellCare and IPA
or WellCare and Primergy, as the case may be.
8.6 Impossibility of Performance. Neither party shall be deemed to be in
violation of this Agreement if it is prevented from performing any of its
obligations hereunder for any reasons beyond its control, including, but not
limited to, acts of God or of the public enemy, flood, or storm, strikes or
statutory regulations, rule or action of any federal, state or local government,
or any agency thereof.
8.7 Waiver of Breach. Any waiver by either party of a breach of any
provision of this Agreement shall not be deemed a waiver of any other breach of
the same or different provisions of this Agreement.
8.8 Governing Law. This Agreement shall be governed by the laws of the
State of New York.
8.9 Compliance with Law. Notwithstanding any other provision of this
Agreement, the parties hereto shall each comply with the provisions of the
Managed Care Reform Act of 1996 (Chapter 705 of the Laws of 1996) and all other
applicable federal, state, and local laws, policies, and procedures governing
the provision of IPA Services to IPA Members.
8.10 Severability. If any provision in this Agreement is held to be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force and effect without being impaired or invalidated in any
way.
8.11 Headings. The headings of Articles and Sections contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.12 Confidentiality. Each party agrees that it will not disclose to any
other entity confidential information obtained regarding the operations of the
other contracting party obtained as a result of entry into this Agreement. In
addition, unless such information is a matter of public record:
IPA and IPA Physicians agree not to use participation in WellCare to
exchange or share any information relating to costs of doing
business, including operating costs, salaries, benefits and
material supply costs with other providers.
IPA and IPA Physicians agree not to discuss, disclose or otherwise
communicate any information relating to the prices paid by
WellCare to IPA or IPA Physicians for the provision of services
to WellCare IPA Members.
IPA or IPA Physicians agree not to use participation in WellCare to
discuss, disclose or otherwise communicate any information
relating to participation in any
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other health plans with WellCare or any other health care
provider.
8.13 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto, supersedes the Prior Agreements and no representations or
agreements, oral or otherwise, between the parties not embodied herein or
attached hereto shall be of any force and effect. Any additions or amendments to
this Agreement subsequent hereto shall be of no force and effect unless in
writing, unless effected pursuant to Section 8.1 hereof and signed by the
parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
DUTCHESS HEALTH CARE WELLCARE OF NEW YORK, INC.
ALLIANCE IPA, INC.
By: /s/ Richard B. Weininger By: /s/ Joseph R. Papa
------------------------------- -----------------------
Name: Richard B. Weininger, M.D. Name: Joseph R. Papa
Title: President Title: President
ACKNOWLEDGED AND AGREED
AS TO SECTION 8.5 HEREOF:
PRIMERGY, INC.
By: /s/ Richard B. Weininger
------------------------------
Name: Richard B. Weininer, M.D.
Title: CEO
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IPA SERVICE AGREEMENT
This Agreement is dated this 21st day of April, 1998 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and ORANGE-SULLIVAN HEALTH CARE ALLIANCE IPA, INC., a
New York business corporation ("IPA").
W I T N E S S E T H:
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the Service Area (as hereinafter defined);
WHEREAS, WellCare and the professional service corporation listed on
Exhibit A-1 hereto (the "PC") have previously entered into the agreements listed
on Exhibit A-2 attached hereto (collectively, the "Prior Agreements"), under
which the PC has provided certain health services to Members;
WHEREAS, the PC has accumulated various liabilities scheduled on Exhibit
A-3 in connection with the performance of its obligations under Prior Agreements
(such liabilities, the "PC Liabilities");
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into a
written provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA, as a successor to PC, desire to enter into this
Agreement under which IPA shall arrange for the provision of, and be responsible
for the payment to IPA Physicians and all other providers who provide, primary
and certain specialty health care services to IPA Members; and
WHEREAS, as a condition to WellCare entering into this Agreement, IPA shall
assume the PC Liabilities.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
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ARTICLE I
DEFINITIONS
1.1 Benefit Plan. A contract, certificate or other Evidence of Coverage
issued to each Employer Group and/or Member, that describes the obligations of
WellCare to deliver health care services to Members.
1.2 Coinsurance. A cost sharing arrangement in which the Member is required
to pay a specified percentage of the charge directly to the Participating
Provider, as specifically provided in the Evidence of Coverage.
1.3 Commissioner. The Commissioner of the Department of Health of the State
of New York.
1.4 Copayment. A cost sharing arrangement in which the Member pays a
specified amount for specific health services such as office visits, outpatient
prescriptions, and emergency room visits directly to the Participating
Providers, as specifically provided in the Evidence of Coverage. Copayment fees
are normally paid at the point of service when the service is rendered.
1.5 Covered Services. Those health care services that IPA Members are
entitled to receive in accordance with the terms and conditions set forth in the
applicable Member Benefit Plans. Services which are not Medically Necessary
shall not be deemed as Covered Services for purposes of this Agreement or the
Member Benefit Plans, except as otherwise provided herein.
1.6 Deductible. A cost sharing arrangement in which the Member is required
to pay a specified amount for Covered Services before WellCare is obligated to
pay, as permitted and as specifically provided in the Evidence of Coverage.
1.7 Emergency. A situation where medical services are required as the
result of a medical or behavioral condition the onset of which is sudden, that
manifests itself by symptoms of sufficient severity, including severe pain, that
a prudent layperson, who possesses an average knowledge of medicine and health,
could reasonably expect the absence of immediate medical attention to result in:
(i) placing the health of the person afflicted with such condition or another
individual in serious jeopardy; (ii) serious impairment to such person's bodily
functions; (iii) serious dysfunction of any bodily organ or part of such person;
or (iv) serious disfigurement of such person.
1.8 Employer Group. An organization, firm or governmental entity that has
contracted with WellCare to provide and/or arrange for the provision of health
care services for its employees and/or retirees and/or the spouses or children
of each.
1.9 Enrolled Population. The aggregate of all persons who are entitled to
receive health care services arranged to be provided by IPA or the other
independent practice associations managed by Primergy set forth on Attachment
1.9, annexed hereto and made a part hereof, for any one or
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more product lines (e.g., commercial, Medicaid) for which IPA agrees to arrange
for health care services hereunder.
1.10 Evidence of Coverage. The document evidencing covered health care
services which is issued to each Member.
1.11 FPA. FPA Medical Management, Inc., a Delaware business corporation.
1.12 Hospital Piece. Has the meaning ascribed to it in Section 4.1.
1.13 Hospital Services. Those Medically Necessary acute care inpatient and
outpatient services that are Covered Services.
1.14 Identification Card. Shall mean the card issued by WellCare to each
Member which sets forth the Member identification number, which is to be
included on any claim form submitted to WellCare for payment.
1.15 IPA Member. A Member who has selected a PCP as such individual's
primary care physician.
1.16 IPA Member Benefit Plan. A contract, certificate or other Evidence of
Coverage issued to each Employer Group and/or Member, that describes the
obligations of WellCare to deliver Covered Services to IPA Members, as listed on
Attachment 1.16, annexed hereto and made a part hereof, as amended by WellCare
from time to time.
1.17 IPA Member Panel. A list of IPA Members who have chosen a PCP.
1.18 IPA Physician. Those physicians and entities representing such
physicians that have entered into written agreements with IPA to provide
Physician Services to IPA Members as listed on Attachment 1.18, annexed hereto
and made a part hereof, as amended by IPA quarterly.
1.19 IPA Service Area. The County of New York State set forth on Attachment
1.19, annexed hereto and made a part hereof.
1.20 IPA Services. Those Medically Necessary Covered Services that are
performed, prescribed or directed by IPA Physicians, or other providers to the
extent provided herein, including, but not limited to, Medical Services rendered
in an Emergency, other than (i) those enumerated health care services set forth
on Attachment 1.20, annexed hereto and made a part hereof, and (ii) Hospital
Services.
1.21 Medically Necessary. Medical, surgical or other treatment which a
Member requires for the treatment of illness or bodily injury as determined by
WellCare, or its appropriately delegated medical management authority, and that
is in compliance with professional and technical standards adopted by the
Quality Assurance Committee of WellCare.
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1.22 Medical Services. Those Medically Necessary health care services,
other than Hospital Services, that are Covered Services.
1.23 Member. An individual entitled to receive health care services under a
Benefit Plan (including but not limited to commercial, New York State Child
Health Plus, Medicare and Medicaid lines of business).
1.24 Option. The option to cause Primergy to merge with and into FPA,
granted to FPA pursuant to the Option Agreement, made as of March 4, 1997,
between FPA and Primergy, as amended by agreement dated November 20, 1997.
1.25 Option Termination Event. The first to occur of (i) the date on which
FPA notifies Primergy that it relinquishes any and all rights to the Option and
(ii) June 30, 1998, if FPA has not provided Primergy with notice of FPA's desire
to exercise the Option prior thereto.
1.26 Participating Hospital. A licensed hospital that has entered into a
Participating Hospital Agreement with WellCare directly or indirectly.
1.27 Participating Physician. A fully licensed physician or entity
authorized to practice medicine who has entered into a Participating Physician
Agreement with WellCare directly or indirectly.
1.28 Participating Provider. Participating Physicians and Participating
Hospitals and other health care professionals, home health care agencies,
optometrists, pharmacies or other providers of health care services who have
entered into written agreements with WellCare directly or indirectly.
1.29 Payment Period. Has the meaning given to such term in Attachment 4.1
hereto.
1.30 PC. Has the meaning given such term in the recitals to this Agreement.
1.31 PC Liabilities. Has the meaning given such term in the recitals to
this Agreement.
1.32 PCP. An IPA Physician specializing in Family Practice, General
Practice, Internal Medicine or Pediatrics who has met the credentialing
standards of WellCare for designation as a primary care physician and provides
continuity of care to the Member who seeks his/her care by supervising,
coordinating and providing initial and basic care and initiating referrals for
Specialist care.
1.33 Policies and Procedures. WellCare's provider manual and all other
written standards, policies and procedures adopted by WellCare in connection
with the provision of Covered Services to IPA Members, including, but not
limited to, those that relate to quality improvement, utilization review
(including preauthorization), claims payment review, grievance procedures,
coordination of benefits and referral, admission and administrative procedures,
as amended from time to time in
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accordance with Section 2.2 hereof and which, together with all amendments
thereto, will be incorporated herein by reference.
1.34 Primergy. Primergy, Inc., a New York business corporation, that is the
sole shareholder of IPA and provides management services to IPA.
1.35 Prior Agreements. Has the meaning given such term in the recitals to
this Agreement.
1.36 Specialist. A Participating Physician who has contracted with WellCare
directly or through IPA to provide Specialty Services upon referral from a PCP,
which may also be known as a consultant.
1.37 Specialty Services. Those IPA Services usually and customarily
performed by a Specialist.
ARTICLE II
RIGHTS AND RESPONSIBILITIES OF WELLCARE
2.1 Marketing. WellCare shall use its best efforts to arrange to have
IPA Physicians' names, office addresses, telephone numbers and specialties and
other similar information included in WellCare's Provider Directory. WellCare
shall use its best efforts to market its products in the Service Area and to do
so in compliance with the requirements of applicable state and federal laws.
2.2 Operation of Programs. WellCare shall operate, or WellCare shall
delegate to a third party from time to time to the extent consistent with
applicable federal, state, local law and regulations and regulatory agency's
guidelines, utilization management, quality improvement, health service delivery
and preauthorization Policies and Procedures, in consultation with IPA, as well
as Member and Participating Provider grievance programs, to assure the delivery
of cost effective, quality health care services by IPA Physicians. WellCare
shall deliver to IPA simultaneously with the execution and delivery of this
Agreement all current Policies and Procedures reasonably necessary to keep IPA
Physicians abreast of the policies and programs of WellCare in which they
participate, which Policies and Procedures are, and all additions to and
amendments thereof shall be, incorporated herein by reference. Additionally,
WellCare shall provide IPA with any addition to or amendment of such Policies
and Procedures not less than thirty (30) days prior to the effective date of
such addition or amendment, during which period WellCare shall consult with IPA
regarding any reasonable concerns that IPA might have in connection therewith.
Additionally, WellCare shall deliver to IPA (i) copies of all IPA Member Benefit
Plans, simultaneously with the execution hereof and (ii) any amendments thereto,
not less than thirty (30) days prior to the effective date of such amendments.
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2.3 Member Identification Card. WellCare shall furnish to all IPA Members
an Identification Card that is to be presented to the Participating Providers
prior to the delivery of Covered Services.
2.4 Claims for Non-Members. In the event Medically Necessary services which
are authorized by WellCare are provided to an ineligible person, that ineligible
person shall be responsible for payment of such services.
2.5 IPA Member Panels for PCPs. WellCare shall provide IPA and PCPs with a
list of IPA Members for whom the PCPs are responsible and update such list on a
monthly basis.
2.6 Maintenance of Licensure. WellCare agrees to maintain, in good
standing, all current licenses and certifications required by applicable law,
including, without limitation, its certificate to operate an HMO. WellCare shall
immediately notify IPA in writing of any change in, or loss of insurance, or
action to suspend, revoke or limit any of its licenses or certification or of
other action which could reasonably prevent WellCare from performing its
obligations under this Agreement.
2.7 WellCare Right to Contract. It is expressly recognized and agreed by
and between the parties that WellCare shall retain its full right and ability to
establish, contract, or otherwise associate with any provider of health care
services; provided, however, that subject to Section 3.2(a) hereof, from the
Effective Date until termination of this Agreement pursuant to Article VI
hereof, WellCare agrees not to contract with any (i) primary care physician or
(ii) independent practice association that contracts with primary care
physicians or other organizational structure for a primary care physician
network, to provide IPA Services to IPA Members in the Service Area.
2.8 Credentialing Information. WellCare shall provide IPA with all
credentialing information that WellCare has obtained in connection with each IPA
Physicians; provided that each IPA Physician has consented to the release of
such information by WellCare to IPA in writing.
2.9 WellCare's Obligation to IPA Members. Notwithstanding Sections 3.16 or
4.1 hereof or any other provision of this Agreement, WellCare shall bear
ultimate responsibility for the care of the Members.
2.10 Consents. WellCare shall obtain from each IPA Member all releases and
consents that may be required to permit release of records to WellCare.
2.11 Assistance to Maintain Network. WellCare agrees to use its reasonable
efforts to assist IPA in maintaining a viable provider network for the Service
Area as set forth in Section 3.2 hereof, but shall not be responsible for
maintenance requirements set forth in Section 3.2 hereof.
2.12 Provision of Data. WellCare shall proivde to IPA data as mutually
agreed to in the format and frequency set forth in Attachment 2.12.
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ARTICLE III
RIGHTS AND RESPONSIBILITIES OF IPA AND IPA PHYSICIANS
3.1 Access to IPA Physicians. IPA represents and warrants that it is
authorized to contract with WellCare to arrange for IPA Services to be provided
by the IPA Physicians. IPA agrees that by executing this Agreement, the IPA
Physicians become Participating Providers and IPA Physicians agree to be bound
by the terms and conditions of this Agreement. IPA shall provide to WellCare a
list of all IPA Physicians containing the information set forth in Section 3.22
of this Agreement quarterly.
3.2 Network Maintenance and Expansion. (a) Subject to Section 3.2(b), it is
expressly recognized and agreed by and between the parties that IPA is intended
to be the foundation of the WellCare physician network in the Service Area.
Accordingly, IPA shall (i) use its best efforts to meet the PCP/IPA Member
ratios set forth on Attachment 3.2 hereof and (ii) contract with, at a minimum,
the same number and type of Specialists in the Service Area with which the
Departments require WellCare to so contract. Additionally, all physicians and
entities representing such physicians that contract with IPA, or a subsidiary or
an affiliate of IPA, to provide medical services shall be, subject to WellCare's
credentialing criteria, an IPA Physician.
(b) In the event that the ratio of PCPs as compared to IPA Members
falls below any of the ratios as listed on Attachment 3.2, WellCare shall
provide IPA a period of ninety (90) days to contract with primary care
physicians to meet such ratio(s). If IPA is unable to meet any of such ratios,
the limitations set forth in Section 2.7 shall be null and void and be of no
further force or effect.
(c) Subject to Section 4.2 hereof, it is expressly recognized and
agreed by and between the parties that IPA shall retain its full right and
ability to establish, contract or otherwise associate with any other individual
practice association, health maintenance organization or other entity without
being deemed in contravention or breach of this Agreement or any other
obligation to WellCare; provided that any contract or arrangement with any such
entity shall not materially interfere with or prevent IPA or any IPA Physician
from fulfilling his or her obligation under this Agreement.
3.3 Provision of IPA Services to IPA Members. IPA shall require that each
IPA Physician agree to provide IPA Services to IPA Members in accordance with
the terms of this Agreement. IPA hereby acknowledges, and shall require each IPA
Provider to acknowledge, that the presentation of an Identification Card by an
individual shall not be deemed conclusive evidence that such individual is a
Member. IPA acknowledges that WellCare, by this Agreement or otherwise, does not
guarantee to IPA, or to any IPA Physician, a minimum number of IPA Members.
3.4 WellCare Policies and Procedures. Except as expressly provided herein
to the contrary, IPA shall, to the extent applicable, and IPA shall require each
IPA Physician to (i) cooperate, participate, and comply with all Policies and
Procedures and National Committee on Quality Assurance ("NCQA") standards and
guidelines and (ii) abide by the determination of
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WellCare on all such matters set forth therein during the term of this
Agreement. IPA shall deliver to each IPA Physician a copy of the Policies and
Procedures, along with all additions to and amendments thereof, within five (5)
days after delivery by WellCare to IPA in accordance with Section 2.2 hereof.
3.5 Coverage. IPA shall use reasonable efforts to maintain arrangements
with an array of IPA Physicians to make IPA Services available and accessible
for all IPA Members as may be required by federal and/or state law. IPA shall
require that each PCP agree (i) (x) to provide IPA Services to IPA Members and
arrange for calls from IPA Members to be answered by a person hired, directly or
indirectly, by such PCP on a twenty-four (24) hour a day, seven (7) day a week
basis and (y) to return Emergency calls within thirty (30) minutes thereof, or
(ii) to arrange with a physician to provide such coverage to PCP's Member
patients in PCP's absence. Such covering physician shall be a Participating
Provider whenever possible. IPA shall require each PCP to use his or her best
efforts to have such covering Physician agree that he or she will (a) not bill
IPA Members or WellCare for Covered Services under any circumstances except for
Copayments, Coinsurance, and permitted Deductibles, (b) bill, charge, collect
payment from IPA for Covered Services provided to IPA Members, and (c) obtain
authorization from WellCare prior to all hospitalizations or referrals of IPA
Members, except for an Emergency.
3.6 Emergencies. IPA shall require each IPA Physician to agree to notify
WellCare of any admission relating to an Emergency within twenty-four (24) hours
of the admission or the next business day.
3.7 Standard of Care. IPA shall require each IPA Physician to provide IPA
Services and/or arrange for the provision of IPA Services or Covered Services in
order to provide a standard of care in a manner not less than generally accepted
medical practices in effect at the time of services and in a manner consistent
with the Policies and Procedures in effect for WellCare, which shall be
delivered by WellCare to IPA pursuant to Section 2.2 hereof.
3.8 Nondiscrimination. IPA shall require each IPA Physician to provide or
arrange for the provision of Covered Services to IPA Members in the same manner
and quality as services are provided to or arranged for all their other
patients. IPA Members shall not be discriminated against on the basis of age,
race, color, creed, ancestry, religion, gender, sexual orientation, national
origin, health status, marital status, disability, or source of payment.
3.9 Office Closure. IPA shall use its best efforts to require each PCP to
acknowledge and agree that such PCP may only close his or her practice to new
IPA Members if such PCP has closed his or her practice to new members covered
under benefit plans of all third-party payors with which such PCP directly or
indirectly contracts. IPA shall require each PCP to notify WellCare at least
sixty (60) days prior to closing his or her practice to new IPA Members, subject
to this Section 3.9; provided, that the effective date of such closure shall not
occur until the last day of the month in which such closure is to be effective;
and provided, however, that in the event such PCP is disabled or otherwise
incapacitated by illness, such notice shall be given when feasible.
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3.10 Continuity of Care. IPA shall require each PCP to meet the
credentialing standards of WellCare for designation as a PCP and to provide
continuity of care to the Member who seeks his or her care by supervising,
coordinating, and providing initial and basic care and initiating a referral for
Specialist care when Medically Necessary.
3.11 Maintenance of Licensure; Certification. IPA shall require each IPA
Physician to represent and warrant to IPA that he or she is a physician duly
licensed under applicable state law, or otherwise authorized to practice within
the scope of such license or authorization under applicable state law, and,
where appropriate, has obtained all other appropriate licenses, such as DEA
licenses, Medicare participation and, if such IPA Physician is a Specialist,
appropriate specialty board certification. IPA shall require each IPA Physician
to maintain in good standing all of the above.
3.12 Staff Privileges. IPA shall require each IPA Physician, except as
otherwise agreed to by WellCare, to represent and warrant to IPA that he or she
is an active member in good standing on the medical staff of a Participating
Hospital and that he or she shall maintain such status during the term of this
Agreement.
3.13 Health Care Programs. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she (i) is in good standing to
participate in Medicare and Medicaid Programs and to covenant to WellCare that
he/she will continue to be so certified during the term hereof and (ii) has
never been excluded from participation in the Medicare program, Medicaid
program, or any other federal healthcare program.
3.14 Government Sanctions. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she has never been sanctioned by the
Medicare program, Medicaid program, or any other federal or state agency for
Physician's failure to provide medical care of adequate quality or medically
necessary care.
3.15 Compliance with Law. IPA shall, and shall require each IPA Physician
to agree to, comply with all applicable federal, state, and local laws and
regulations or regulatory agency requirements and guidelines relating to the
provision of IPA Services. IPA shall immediately notify WellCare in writing of
any change in, or loss of insurance, or action to suspend, revoke or limit any
of its licenses or certification or of other action which could reasonably
prevent IPA from performing its obligations under this Agreement.
3.16 WellCare Hold Harmless. IPA shall require that each IPA Physician
agree that (i) he or she shall look solely to IPA for payment for any health
care services rendered to IPA Members and (ii) WellCare shall not be liable to
him or her for failure by IPA to pay such IPA Physician for any such services
because of insolvency of IPA or termination of this Agreement pursuant to
Article VI hereof. IPA expressly acknowledges and agrees and shall require each
IPA Physician to expressly acknowledge and agree that no specific payment is
being made directly or indirectly under this Agreement as an inducement to
reduce or limit medically necessary services provided with respect to a Member.
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3.17 Stop-Loss Insurance. To the extent required by federal and/or state
laws, regulations, or regulatory agency requirements or guidelines, IPA (i)
shall purchase and maintain, during the term of this Agreement, stop-loss
insurance, at IPA's sole cost and expense, for the benefit of IPA and (ii)
hereby covenants that at all times during the term hereof, the levels of such
insurance shall be, in compliance with applicable federal and state law and
regulations and state regulatory agency requirements and guidelines.
3.18 Billing Procedures for IPA Services. IPA shall require IPA Physicians
to agree that they shall not require advance payment or any form of deposit
payment from any Member receiving IPA Services covered by an IPA Member Benefit
Plan; provided, however, that an IPA Physician may apply his or her general
credit policies with respect to IPA Members who are financially responsible for
certain services not covered under an IPA Member Benefit Plan subject to Section
3.20 hereof; or charges for certain services such as Copayments, Coinsurance,
and permitted Deductibles. IPA agrees and shall require each IPA Physician to
agree not to claim payment in any form from the Department of Health and Human
Services or any state agency for items or services furnished to Medicaid
qualified beneficiaries in accordance with this Agreement except as approved by
HCFA or the New York Department of Social Services, or otherwise shift the
burden of such an agreement onto Medicaid, other payors, or individuals.
3.19 Coordination of Benefits. IPA shall require each IPA Physician to
agree to be bound by the coordination of benefits Policies and Procedures of
WellCare and to assist WellCare in identifying, billing, and collecting payments
due from primary payors.
3.20 Non-Medically Necessary Covered Services. IPA hereby acknowledges that
Members might request services of Participating Physicians that were not deemed
to be Medically Necessary by WellCare Quality Improvement/Utilization Management
programs as set forth in the Policies and Procedures and are, therefore, payable
by IPA Members. IPA hereby acknowledges and agrees, and shall require each IPA
Physician to acknowledge and agree, that WellCare shall not compensate IPA or
any IPA Physician, nor shall WellCare have any responsibility for charges
incurred by IPA Members for such services. Prior to charging any Member for
non-Medically Necessary Covered Services, the IPA Physician shall have obtained
a written acknowledgement from the Member that the proposed services are not
Medically Necessary and that the Member agrees to be fully responsible for
payment therefor. IPA acknowledges and shall require each IPA Physician to
acknowledge that if any IPA Physician does not obtain such written
acknowledgment, such IPA Physician may not charge any Member for any such
services.
3.21 IPA Member Hold Harmless. (a) Except as otherwise provided herein, IPA
shall require that each IPA Physician agree that in no event, including but not
limited to nonpayment to IPA Physician by IPA, nonpayment by WellCare to IPA,
insolvency of WellCare and/or IPA or breach of this Agreement, shall such IPA
Physician bill, charge, collect a deposit from, seek compensation, remuneration
or reimbursement from, or have any recourse against a Member or family members
or persons (other than recourse against IPA under Section 3.16 or otherwise)
acting on behalf of an IPA Member for services provided in accordance with this
Agreement. This provision does not prohibit an IPA Physician from collecting
permitted Deductibles, Coinsurance, or
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Copayments, as specifically provided in the applicable IPA Member Benefit Plan,
or fees for non- Medically Necessary Services in accordance with Section 3.22
hereof.
(b) IPA shall require that each IPA Physician agree that the above hold
harmless and continuation of benefit provisions supersede any oral or written
contrary agreement now existing or hereafter entered into between the Physician
and IPA Members or family members or persons acting on behalf of a Member
insofar as such contract agreement relates to liability for payment for, or
continuation of Covered Services provided under the terms and conditions of
these clauses.
(c) IPA agrees and each IPA Physician shall be required to agree that
this Section 3.21 shall survive the termination of this Agreement for authorized
Covered Services rendered prior to the termination of this Agreement, regardless
of the cause giving rise to termination and shall be construed to be for the
benefit of the Member. This provision is not intended to apply to services
provided after this Agreement has been terminated.
3.22 Authorization for Marketing. IPA shall obtain proper authorization
from each IPA Physician for WellCare to include the names, office addresses,
telephone numbers and specialties and other similar information of such IPA
Physician in WellCare's provider directory.
3.23 WellCare Contracts. IPA shall use its best efforts to encourage
each PCP to enter into a provider agreement with WellCare, in a form presented
by WellCare, to provide those health care services that primary care physicians
are required to provide in accordance herewith to Members, which agreement shall
become effective automatically, immediately upon termination of this Agreement
in accordance with Article VI hereof. Additionally, IPA shall use its best
efforts to encourage IPA Physicians, other than PCPs, to enter into provider
agreements with WellCare, in a form presented by WellCare, to provide (i)
certain health care services to Members, other than IPA Members, as well as to
individuals covered under benefit plans of WellCare of Connecticut, Inc., Agente
Benefit Consultants, Inc., or other WellCare affiliates during the term and upon
termination hereof and (ii) those health care services that such IPA Physicians
are required to provide in accordance herewith to Members immediately upon
termination of this Agreement in accordance with Article VI hereof. If any IPA
Physician has not entered into such provider agreement with WellCare, IPA shall
notify such IPA Physician, in accordance with federal and state laws and
regulations, sixty (60) days, or such other period as required by law, prior to
the expiration of his or her provider agreement with IPA and shall terminate him
or her after such period.
3.24 Reporting Requirements. IPA shall assist, and shall require each IPA
Physician to assist, WellCare in complying with federal, state, and local laws
and regulations and regulatory agency requirements relating to the provision of
IPA Services, including, but not limited to, complying with reporting
requirements pursuant thereto.
3.25 Financial Management and Reporting. IPA shall implement cash
management policies in keeping with sound financial management practices in
order to ensure timely and accurate payment to all providers who provide
Medically Necessary IPA Services to IPA Members, acknowledging that WellCare is
responsible for the final determination of benefit payments to be made under an
IPA
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Member Benefit Plan. Additionally, upon FPA's exercise of the Option, IPA shall
require FPA to guarantee the PC Liabilities, pursuant to a guarantee in form
reasonably satisfactory to WellCare. Within thirty (30) days of the end of each
calendar quarter during the term hereof, IPA shall deliver to WellCare (i)
balance sheet of IPA and (ii) IPA's statement of operations in connection with
IPA's obligations set forth herein for the calendar quarter then ended prepared
in accordance with generally accepted accounting principles ("GAAP") and fairly
representing the financial condition of IPA for the relevant quarter. Within
sixty (60) days of the end of each of IPA's fiscal years throughout the term
hereof, IPA shall deliver to WellCare (i) annual unaudited balance sheet of IPA
prepared in accordance with GAAP and (ii) IPA's statement of operations in
connection with the obligations of IPA set forth herein. IPA shall also provide
WellCare, upon a reasonable request, financial information and reports related
to IPA's performance of this Agreement, including encounter, utilization, and
cost reports as may be required by the New York State Department of Insurance
and New York State Department of Health (collectively, "Departments") or other
governmental agency and such and other financial reports and data as WellCare
may require to efficiently and effectively manage costs and utilization and to
provide quality medical care to IPA Members.
3.26 Complaints and Litigation. IPA shall, and shall require each IPA
Physician to, forward to WellCare, immediately upon receipt, of Members, the
Departments, and of any other government agency communications, complaints, and
inquiries, whether written or oral, regarding any claim or other business
concerning WellCare that is subject to this Agreement, together with IPA's or
such IPA Physician's, as the case may be, proposed response, if any, and all
information from its/his/her records to assist WellCare or its designee to
respond. Additionally, IPA shall, and shall require each IPA Physician to
forward to WellCare, immediately upon receipt, any legal process in which
WellCare has been named as a party or that arises out of any activities subject
to this Agreement. WellCare is the only party to this Agreement that is
authorized to defend WellCare against any legal process.
3.27 Notice of Change of Condition of IPA Physician. IPA shall require each
IPA Physician to notify IPA in writing within five (5) days of any change in, or
loss of insurance, or action to suspend, revoke or limit any of its licenses or
certification or of other action which could reasonably prevent IPA Physician
from performing his or her obligations under this Agreement. Each party hereto
shall notify the other party in writing immediately upon its receipt of a notice
of or of any information relating to a change of condition of any IPA Physician.
3.28 Effect of Termination of IPA Member - Continuation of Care. IPA
recognizes that WellCare must under certain circumstances, pursuant to certain
federal and state regulatory requirements, continue to arrange for the provision
of services for individuals whose status as IPA Members has terminated.
Accordingly, IPA agrees to continue arranging for the provision of, and shall
require that each IPA Physician shall agree to continue providing, IPA Services
to such individuals, just as WellCare is obligated to do, until the earlier of
(i) ninety (90) days from the date of notice to such IPA Member of the IPA's
disaffiliation with WellCare, (ii) if such IPA Member has entered the second
trimester of pregnancy at the time of such IPA Physician's disaffiliation with
WellCare, for a transitional period that includes the provision of post-partum
care directly related to the delivery, (iii) until WellCare, at its discretion
upon the consent of such IPA Member, makes reasonable and medically appropriate
provision for the assumption of such care by another provider,
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or (iv) until such time as WellCare coverage of such individuals is lawfully and
effectively terminated so that WellCare's obligation to such individuals is
recognized as ended by the applicable law and regulatory authorities. WellCare
shall continue to pay IPA at the agreed upon rate set forth on Attachment 4.1
hereto for each month for which premium payments are due and payable (including
any month for which such payments would have been due and payable but for
WellCare's agreement to waive all or a portion of such payments) from or on
behalf of any such IPA Member, whether or not WellCare receives any such
payment. If WellCare is legally obligated to continue to cover such individual
during any additional period following the months for which premiums are due and
payable (or following the months in which such premiums would have been due and
payable but for WellCare's agreement to waive such premiums in whole or in
part), WellCare shall not be obligated to pay IPA or any IPA Physician for any
services provided to such individual by any IPA Physician pursuant to this
Section 3.28.
3.29 Solicitation of Members. During the term of this Agreement or any
renewal thereof, and for a period of six (6) months after the date of
termination, IPA agrees, and shall require each IPA Physician to agree, that
it/he/she will not, within the Service Area, interfere with WellCare's contract
and/or property rights or advise or counsel any Member or Employer Group to
disenroll from WellCare. Informing a Member of other managed care organizations
with which IPA or an IPA Physician may participate nor solicitations addressed
to the employer or other group community shall not be deemed to be violations of
this Section 3.29.
3.30 Requirement of Insurance. IPA shall require each IPA Physician, other
than those IPA Physicians listed on Attachment 3.30, annexed hereto and made a
part hereof, to procure and maintain, and WellCare and IPA shall each procure
and maintain a policy of general liability, professional liability and other
insurance as may be necessary to protect against any claim for damages arising
by reason of personal injury or death of a Member. IPA shall require that each
such IPA Physician maintains each policy with minimum limits of coverage of one
(1) million dollars ($1,000,000) per occurrence and three (3) million dollars
($3,000,000) in the aggregate. IPA shall require each IPA Physician upon
termination of this Agreement or the termination of an IPA Physician pursuant to
Article VI hereof, to either continue his or her liability insurance policy or
purchase "tail" insurance covering the period that such IPA Physician provided
IPA Services to IPA Members in accordance herewith. Certificates of insurance
evidencing compliance with this provision shall be made available to WellCare
upon request.
3.31 Site Evaluations and Inspections. In accordance with the terms and
conditions of this Agreement and subject to applicable federal and state
confidentiality laws, IPA shall require each IPA Physician to permit (i)
WellCare or a designated representative, upon reasonable notification during
normal business hours, unless otherwise required by federal, state or local law,
regulation, or regulatory agency, and (ii) federal, state, and local regulatory
agencies, to the extent authorized by law, to conduct periodic site evaluations
of such IPA Physician's facilities, equipment, medical records of IPA Members to
monitor utilization review activities and to monitor the quality of professional
and ancillary medical care provided to IPA Members by such IPA Physician. IPA
shall further require each IPA Physician (i) to operate all office sites in
compliance with the criteria established by the WellCare Quality Assurance
Committee and quality assurance requirements of the Departments and
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the NCQA and (ii) to comply with any such agencies' reasonable recommendations,
if any, or to provide WellCare with a written response to any questions or
comments posed by any of the agencies or WellCare.
3.32 Access To Records. (a) IPA shall require each IPA Physician to
provide, in a timely manner, IPA Members' medical records, and such other
relevant records and other information, to WellCare and to IPA and/or their
designee(s), as permitted by law and in any reasonable manner, for the
performance of the Policies and Procedures for claims payment or any other
purposes, as reasonably required by WellCare and/or IPA, as the case may be.
Each IPA Physician shall also be required by IPA to obtain from IPA Members all
releases or consents which may be required to permit release of records to IPA.
(b) IPA shall require each IPA Physician to make available, subject to
applicable federal and state law, IPA Members' medical records to the
Departments for inspection and copying, at no cost to the Departments.
(c) IPA shall require each IPA Physician to retain and maintain
Member's medical records for the longer of (i) the year in which the Member was
discharged or treatment concluded, plus six (6) years, (ii) the year in which
the Member reaches majority, plus six (6) years, or (iii) such greater period
required by federal or state law. Such records shall be maintained in accordance
with prudent standards of insurance record keeping and with all applicable state
and federal laws and regulations.
(d) Additionally, IPA shall require IPA Physicians to provide WellCare
with encounter data (routine claims submissions) relating to all IPA Services
provided pursuant to this Agreement in a mutually agreed upon format monthly.
3.33 Access to Records for Medicare/Medicaid Programs. If the value or cost
of services provided under this Agreement will be $10,000 or more within a
twelve (12) month period, to the extent that the cost of such service is
reimbursable by the Medicare and/or Medicaid Programs, IPA agrees, and shall
require IPA Physicians to agree, to comply with the Access to Books, Documents
and Records of Subcontractor's provision of Section 952 of the Omnibus
Reconciliation Action of 1980 (P.L. 96-499), and 42 C.F.R. Part 420, Sub-part D,
Section 420.300 et seq. In accordance with these provisions, IPA will allow and
shall require IPA Physicians to allow the Comptroller General of the United
States, the Secretary of Health and Human Services, and their duly authorized
representatives access and to IPA's or the applicable IPA Physician's, as the
case may be, books, documents, and records necessary to certify the nature and
extent of such costs of Medicare reimbursable services provided hereunder. Such
access will be allowed, upon request, until the expiration of four (4) years
after Medicare and/or Medicaid reimbursable services are furnished hereunder. If
IPA carries out any of the duties of this Agreement through a subcontract with a
related party with a value or cost of $10,000 or more over a twelve (12) month
period, such subcontract shall contain a clause which requires the subcontractor
to comply with the above statutes and regulations.
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3.34 Confidentiality of Records. Any data or information obtained from IPA
or any IPA Physician pertaining to the diagnosis, treatment or health of a
Member shall be held confidential to the extent required by law. All parties
agree to maintain the confidentiality of information contained in the Member's
medical records. Notwithstanding the foregoing, subject to all laws regarding
confidentiality of medical records, the parties may disseminate such records to
authorized providers and consulting physicians, to governmental agencies if
required by law, to committees of the Participating Hospitals and WellCare
concerned with the quality of care and utilization, and to WellCare for purposes
of administration. This Article shall not be construed to prevent either party
from releasing information in a form that does not identify a Member to any
organization engaged in the collection and analysis of data.
3.35 Assumption of PC Liabilities. In consideration of WellCare's entering
into this Agreement, the payment of the Compensation to be paid to IPA
hereunder, and for other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, IPA hereby assumes from PC
all of the PC Liabilities.
3.36 Survival. Sections 3.15, 3.16, 3.21, 3.24, 3.26, 3.28, 3.33, 3.34, and
3.35 of this Article III shall survive the expiration or earlier termination of
this Agreement.
ARTICLE IV
BILLING PROCEDURES AND PAYMENT FOR SERVICES
4.1 Payment. (a) Except as otherwise provided in this Agreement, WellCare
shall pay, and IPA shall accept, the compensation, as set forth in Attachment
4.1, annexed hereto and made a part hereof (the "Compensation"), as payment in
full for IPA Services and any and all services performed by IPA pursuant to this
Agreement, including those set forth in Section 4.1(e) hereto. In return for the
Compensation, IPA agrees to arrange and pay for all of the IPA Services that
WellCare is obligated to arrange and pay for pursuant to the IPA Member Benefit
Plans. Such payments shall be made within the earliest of (i) 45 days following
submission of a "clean" claim for payment, unless this requirement is waived in
writing by WellCare, (ii) the last day within the period established by law, if
any, in which a payment by the IPA to an IPA Physician would not be subject to
interest thereon, or (iii) in the case of monthly capitation payments to
providers, within the first five (5) days of the applicable month. IPA shall be
obligated to pay all interest and any other penalties associated with any
failure to comply with all laws and regulations applicable to IPA relating to
prompt payment of claims, if any. Should IPA fail to comply with such laws and
regulations, WellCare may withhold amounts included within the Compensation
necessary to reimburse WellCare (i) for the payment of claims paid directly by
WellCare for IPA Services provided to IPA Members and (ii) for any interest and
penalties associated with such claims.
(b) WellCare and IPA each confirm that the manner of
calculating reductions in hospital utilization and the payments to the PC
therefor under the Prior Agreements, as set forth in Attachment 4.1(b), are
complete and accurate and that the amounts paid to the PC through March
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31, 1997, relating to reductions in hospital utilization, as set forth in
Attachment 4.1(b), constitute full payment by WellCare of any and all
obligations relating to reductions in hospital utilization under the Prior
Agreements. WellCare waives any claim that it may have overpaid IPA relating to
those payments.
(c) The parties acknowledge that for the period since April 1, 1997, PC
has not been entitled to any further compensation for reductions in hospital
utilization, but in lieu thereof has been entitled to the monthly payments set
forth on Attachment 4.1(3).
(d) IPA and WellCare acknowledge that IPA is not entitled to any
compensation for reduction in hospital utilization. In lieu thereof, the
Compensation, however, shall include the monthly amount (the "Hospital Piece")
set forth in Section 3 of Attachment 4.1 for the period from the Effective Date
through February 28, 1999. Thereafter, the Compensation shall no longer include
the Hospital Piece but the parties shall negotiate in good faith to replace the
Hospital Piece with Compensation based upon quality and utilization, consistent
with the parameters set forth in Section 4 of Attachment 4.1.
(e) WellCare shall perform all claims processing on behalf of IPA, at
WellCare's sole cost and expense, in connection with IPA Services rendered in
accordance with this Agreement.
(f) IPA shall perform all claims adjudication of IPA Services rendered
in accordance with this Agreement.
4.2 Adjustments to Compensation Exhibit. (a) For so long as Members make up
fifty percent (50%) or more in the aggregate of the Enrolled Population, within
thirty (30) days of the effective date of any new contract or renewal or change
in payment terms of an existing contract between IPA and a third-party payor
other than WellCare, IPA shall certify in writing to WellCare that the payment
terms of such contract are not more favorable to such third-party payor than the
Compensation is to WellCare or shall certify that such payment terms are more
favorable to such third-party payor than the Compensation is to WellCare. Such
determination shall take into account the member composition of each Plan and
the health care services to be provided by IPA under each contract. By executing
and delivering this Agreement, IPA represents and warrants to WellCare that it
is not, as of the effective date of this Agreement, party to any contract with
any other third-party payor on payment terms more favorable to such third-party
payor than the Compensation is to WellCare.
(b) If WellCare shall dispute the representations made in any
certificate delivered under Section 4.2(a), in which IPA claims that the payment
terms under a contract with a third party are not more favorable to the third
party than the Compensation is to WellCare, WellCare may engage an actuary
chosen upon the mutual consent of WellCare and IPA, at WellCare's cost, to make
such determination, whose determination shall be binding upon the parties
hereto.
(c) So long as Members make up fifty percent (50%) or more in the
aggregate of the Enrolled Population, if IPA contracts with any third-party
payor on terms more favorable to such
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third-party payor than the Compensation is to WellCare, for such period as any
such contract is in effect, the Compensation shall not give effect to the CPI
Adjustment (as defined in Attachment 4.1 hereto) in accordance with Section 2(a)
or (b) of Attachment 4.1 hereto.
ARTICLE V
INDEMNIFICATION; COOPERATIVE DEFENSE
5.1 Indemnification. (a) Each of the parties hereto shall indemnify the
other party and hold each other harmless against any and all claims, actions,
assessments, charges, and expenses, including court costs and reasonable
attorneys' fees, and against all liabilities, losses, damages of any nature, and
settlements, judgments, or awards, whether compensatory, extracontractual, or
punitive, (collectively, "Damages") that a party shall sustain or be put to by
reason of any act or omission of the other party or its agents, employees,
officers, and directors or any breach by the other party of the terms of this
Agreement.
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(b) Each party hereto entitled to indemnification under Section 5.1(a)
(each, an "Indemnified Party") hereby agrees to give the applicable party or
parties obligated to indemnify it under Section 5.1(a) (each, an "Indemnifying
Party") written notice of any event or assertion of which the Indemnified Party
obtains knowledge concerning any Damage and as to which the Indemnified Party
may request indemnification hereunder. The Indemnified Party shall cooperate
with the Indemnifying Party in determining the validity of any claim or
assertion requiring indemnity hereunder and in defending against third parties
with respect to the same. The defense of such litigation shall be within the
control of the Indemnifying Party, or, as the case may be, any Persons providing
indemnity and defense to such Indemnifying Party; provided, however, that an
Indemnifying Party's choice of counsel shall be reasonably satisfactory to the
Indemnified Party. The Indemnified Party may participate in the defense of any
claim or assertion requiring indemnity hereunder, and in such event, shall
cooperate fully in connection therewith. If an Indemnifying Party fails to
perform its obligations under this Article V, then the Indemnified Party may
directly assume the defense of the claim or assertion at issue, and such
Indemnifying Party shall promptly reimburse the Indemnified Party for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), incurred in connection therewith. The Indemnified Party's failure to
give timely notice or to provide copies of documents or to furnish relevant data
in connection with any such third-party claim shall not constitute a defense (in
part or in whole) to any claim for indemnification by it. WellCare and IPA each
hereby agrees not to settle or compromise any such third-party suit, claim, or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
(c) This Article V shall continue to be of full force and effect,
notwithstanding the termination of this Agreement, until all claims and
liabilities relating to a Member have been asserted, satisfied and released.
5.2 Cooperative Defense. The parties recognize that, during the term of
this Agreement and for some period thereafter, certain risk management issues,
claims, or actions may arise that involve or could potentially involve the
parties and their respective employees and agents. The parties further recognize
the importance of cooperating with each other in good faith when such issues,
claims, or actions arise to the extent that such cooperation does not violate
any applicable laws, cause breach of any duties created by any policies of
insurance, or otherwise compromise the confidentiality of communications of
information regarding the issues, claims, or actions. The parties shall
cooperate in good faith, using their best efforts, to address such risk
management and claims handling issues in a manner that strongly encourages full
cooperation between the parties. This Section 5.2 shall survive the termination
of this Agreement.
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ARTICLE VI
TERM AND TERMINATION
6.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date and shall continue for a period of ten (10) years therefrom,
unless terminated earlier pursuant to Section 6.2 hereof.
6.2 Termination. This Agreement may be terminated as follows:
(a) By mutual written agreement between WellCare and IPA.
(b) Upon written notice by one party (the "Terminating Party") to the
other party (the "Terminated Party") of the Terminating Party's
intention to terminate this Agreement by reason of the Terminated
Party's material breach of this Agreement. An event of material
breach hereunder shall occur if either party to this Agreement
shall fail to keep, observe, pay or perform any material
covenant, obligation, agreement, term, or provision of this
Agreement and such condition is not remedied within sixty (60)
days after receipt by one party from the other party of such
written notice.
(c) Subject to the terms of any written waiver that a party may have
received from the other party, upon written notice by the
Terminating Party to the Terminated Party of the Terminating
Party's intention to terminate this Agreement by reason of the
Terminated Party (i) becoming insolvent, as defined in Section
101(32) of Title 11 of the United States Code as amended, (ii)
generally cannot, or is unable to, or shall admit in writing to
its inability to pay debts as such debts become due, (iii) making
an assignment for the benefit of creditors, (iv) petitioning or
applying to any tribunal for, or other wise seeking, consent to
or acquiescence the appointment of a custodian, receiver, or
trustee for it or a substantial part of its assets, (v)
commencing, consenting to, or acquiescing in any proceeding under
any bankruptcy, reorganization, arrangement, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or (vi) having had any such petition or application filed
or any such proceeding shall have been commenced against it in
which an adjudication or appointment is made or order for relief
is entered and that remains undismissed or unstayed for a period
of sixty (60) days or more.
(d) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement by reason of (i) IPA's material breach
of any other agreement currently in force with WellCare or (ii)
Primergy's material breach of any agreement with WellCare
currenty in force. An event of material breach thereunder shall
occur if IPA and/or Primergy, as the case may be, shall fail to
keep, observe, pay or perform any material covenant, obligation,
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agreement, term, or provision under any such agreement or
obligation and such condition is not remedied within the cure
period set forth therein and if no cure period is set forth
therein, within sixty (60) days after receipt by the appropriate
party from WellCare of such written notice.
(e) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement effective sixty (60) days thereafter by
reason of the Change of Ownership. Change of Ownership shall
include the sale, exchange, assignment, transfer, issuance or
other conveyance or disposition, other than to FPA, of (i) more
than fifty percent (50%) of all of either IPA's or Primergy's
issued and outstanding shares of common stock at the time thereof
or (ii) of substantially all of IPA's or Primergy's assets;
provided such event occurs prior to the date on which the Option
is exercised by FPA or following an Option Termination Event.
6.3 Effect of Option Termination Event. Upon the occurrence of an Option
Termination Event, Wellcare and IPA each hereby agree to attempt in good faith
to negotiate an amendment to this Agreement to properly incorporate the effects
that such event has on the terms and conditions set forth herein. If the terms
and conditions to be set forth in such amendment have not been agreed to within
one hundred twenty (120) days of the Option Termination Event, this Agreement
may be terminated by either party at any time after such period; provided the
parties have not yet agreed to such amendment.
6.4 Effect of Termination of this Agreement. If either party terminates
this Agreement, IPA shall advise the IPA Physicians of the notice of termination
and the provider agreement entered into with WellCare pursuant to Section 3.23
hereof shall be effective as of the date of termination of this Agreement and
shall govern the rights and obligations of each IPA Physician to provide IPA
Services to IPA Members.
6.5 Termination and Suspension of IPA Physicians by IPA. Each party shall
notify the other party immediately upon its receipt of notice of any
circumstance that would constitute termination for "Good Reason" or "Immediate
Cause" as defined in Section 6.6 hereof or any termination or suspension from
the IPA Physician network.
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6.6 Termination and Suspension of IPA Physicians by WellCare.
(a) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith for "Good Reason" upon sixty (60) days' prior written notice to such
IPA Physician; provided, however, if such IPA Physician shall have requested a
hearing in accordance with this Section 6.6(a), termination by WellCare for
"Good Reason" shall be effective thirty (30) days after receipt by WellCare of
the hearing panel's decision of termination; provided, further, that if such
hearing panel renders a decision to reinstate such IPA Physician, such notice of
termination shall be void and shall have no effect as to this Agreement.
WellCare agrees to notify IPA directly of any dispute that arises between
WellCare and an IPA Physician. "Good Reason" shall include but not be limited
to:
(i) suspension of such IPA Physician's license, certificate, Drug
Enforcement Agency authorization to issue prescriptions or other legal
credential authorizing IPA Physician to provide medical services;
(ii) if such IPA Physician is a Medicaid/Medicare provider, he or she is
suspended from either or both of these programs;
(iii) the indictment or arrest for a felony of such IPA Physician or for
any criminal charge related to the rendering of medical services;
(iv) the cancellation or termination of the professional liability
insurance required by this Agreement with respect to such IPA Physician without
replacement coverage having been obtained;
(v) the failure of such IPA Physician to maintain admitting privileges with
one or more Participating Hospitals, except as otherwise agreed to by WellCare;
(vi) the failure of such IPA Physician to comply with any Policy or
Procedure or other requirements or is not supportive of the purposes an intent
of this Agreement; provided such IPA Physician has not cured any such failure
within thirty (30) days from its receipt of notification from WellCare;
(vii) if such IPA Physician becomes insolvent, bankrupt, files a voluntary
petition in bankruptcy, makes an assignment for the benefit of creditors, or
consents to the appointment of a trustee or receiver;
(viii) if IPA has a right to terminate an IPA Physician under the provider
agreement between IPA and such IPA Physician.
(ix) if such IPA Physician has engaged in conduct that poses an immediate
and material threat to the safety and/or well-being of any patient to whom such
IPA Physician has rendered or intends to render care.
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In addition, "Good Reason" shall expressly not include the occurrence of any of
the following events by such IPA Physician: (i) such IPA Physician's having
advocated on behalf of a Member; (ii) such IPA Physician's having filed a
complaint against WellCare; (iii) IPA Physician's having appealed a decision of
WellCare; (iv) such IPA Physician's having provided information or filed a
report under New York Public Health Law Section 4406-c regarding prohibitions by
plans; or (v) such IPA Physician's having requested a hearing or review pursuant
to this Section 6.6(a).
(b) Any notice of termination under Section 6.6(a) shall include (i)
the reasons for the proposed termination; (ii) notice that such IPA Physician
has the right to request a hearing or review, at such IPA Physician's
discretion, before a panel appointed by WellCare, which panel shall be composed
of persons meeting the standards set forth in Section 4406-d of the New York
Public Health Law; (iii) a time limit not less than thirty (30) days within
which such IPA Physician may request such a hearing; (iv) a time limit for a
hearing date that shall be held within thirty (30) days after the date of
receipt of a request for a hearing. The hearing process shall be consistent with
the provisions of Section 4406-d of the New York Public Health Law.
(c) In the event WellCare shall provide notice of termination for Good
Reason under Paragraphs (i), (ii), (iii), (iv), (v), (vii), or (ix) of Section
6.6(a) or for a similar occurrence or act, WellCare shall have the right to
suspend such IPA Physician from providing any IPA Services to IPA Members in
connection herewith during the period commencing with any notice given by
WellCare and the date of termination or reinstatement.
(d) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith immediately and without prior notice for "Immediate Cause." "Immediate
Cause" shall mean (i) a determination by WellCare in its sole discretion that
such IPA Physician shall have engaged in fraud, theft, embezzlement or other
financial misconduct; or (ii) a final disciplinary action by a state licensing
board or other governmental agency, the effect of which is to impair such IPA
Physician's ability to practice medicine.
6.7 Effect of Termination of IPA Physician or Agreement - Continuation of
Care. IPA shall require each IPA Physician to agree that, upon the effective
date of termination of this Agreement pursuant to Section 6.2 hereof or
termination of a Physician pursuant to Section 6.6(a) hereof, except as
otherwise required by federal or state law regulation, or regulatory agency, he
or she shall continue to provide necessary medical services to IPA Members who
retain eligibility and enrollment under an IPA Member Benefit Plan (i) pursuant
to the provider contracts entered into by such IPA Physician and WellCare in
accordance with Section 3.23 hereof, (ii) if such IPA Physician has not entered
into such contract, the earlier of (x) ninety (90) days from the date of notice
to such IPA Member of the IPA's disaffiliation with WellCare, (y) if such IPA
Member has entered the second trimester of pregnancy at the time of such IPA
Physician's disaffiliation with WellCare, for a transitional period that
includes the provision of post-partum care directly related to the delivery, and
(z) until WellCare, at its discretion upon the consent of such IPA Member, makes
reasonable and medically appropriate provision for the assumption of such care
by another provider, or (iii) until such
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time as WellCare coverage of such individuals is lawfully and effectively
terminated so that WellCare's obligation to such individuals is recognized as
ended by the applicable law and regulatory authorities. Additionally, IPA shall
require each IPA Physician to agree to abide by the Policies and Procedures
during any such transitional period other than pursuant to a WellCare provider
agreement. WellCare shall pay IPA Physicians for IPA Services rendered pursuant
to this Section 6.7. This Section 6.7 shall survive the expiration or earlier
termination of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 Negotiation. WellCare and IPA agree to attempt in good faith to resolve
any dispute arising out of or relating to this Agreement promptly by negotiation
between the parties. If any such matter is not resolved within forty-five (45)
days of a party's request for negotiation, either party may initiate an
arbitration proceeding in accordance with Section 7.2 below.
7.2 Arbitration. If WellCare and IPA have not been able to resolve a
dispute by negotiation within forty-five (45) days pursuant to Section 7.1 as
set forth above, either party may submit such dispute to an arbitrator in New
York State subject to the commercial rules and regulations of the American
Arbitration Association. Both parties expressly covenant and agree that they
shall be bound by the decision of the arbitrator as a final determination of the
matter in dispute, subject to any right of appeal under New York law. WellCare
shall provide the Commissioner with notice of all issues submitted to
arbitration pursuant to this Section 7.2 and copies of all decisions related
thereto. Each party shall be solely responsible for its own expenses in
connection with the dispute resolution process; provided that the costs of the
arbitrator shall be divided equally between the parties hereto. Notwithstanding
anything in this Section 7.2, the parties hereto each hereby expressly
acknowledges that the Commissioner shall not be bound by any such arbitration
decision.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. This Agreement or any part, article, subsection, Attachment,
or Exhibit of it, may be amended as follows:
(a) If necessary to comply with a requirement of any state or
federal agency having jurisdiction to regulate WellCare, by
WellCare at any time during the term of the Agreement (i)
upon ten (10) days prior written notice to IPA and (ii) if
material, upon thirty (30) days prior written notice to the
Commissioner.
(b) Any and all other amendments to this Agreement or any part,
article, subsection or Attachment of it will only be
effective in the event that (i) they
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have been agreed to by both parties, (ii) both the amendment
and such agreement have been reduced to writing, (iii) if
such Amendments are material, they have been approved by the
Commissioner after they have been submitted thereto at least
thirty (30) days prior to the anticipated effective date
thereof.
8.2 Assignment. Subject to prior notice to and approval by the
Commissioner, (i) the terms, covenants, conditions, provisions, and agreements
herein contained shall be binding upon and inure to the benefits of the parties
hereto, and their successors and assigns and (ii) WellCare may assign its rights
and obligations under this Agreement, in whole or in part, to a parent,
subsidiary, or an affiliate of WellCare, any entity into which WellCare is
merged or consolidated, or any entity that purchases substantially all of the
stock or assets of WellCare without IPA's prior approval. In the event that all
or substantially all of the stock or assets of a party is acquired by a third
party, that third party shall be bound to terms, covenants, conditions,
provisions, and agreements contained herein. Except as expressly set forth in
this Section 8.2, neither party may assign, delegate, or otherwise transfer this
Agreement without the prior written consent of the other party and of the
Commissioner.
8.3 Notices. All notices hereunder by either party to the other party shall
be in writing. All notices, demands, and requests shall be deemed given when
mailed, by registered or certified mail, postage paid, return receipt requested.
To WellCare: WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
Attention: President
To IPA: Orange-Sullivan Health Care Alliance IPA, Inc.
400 Stockade Drive
Kingston, New York 12401
Attention: Chief Executive Officer
or to such other address or to such other person as may be designated by written
notice given during the term of this Agreement by one party to the other.
8.4 Independent Contractors. The relationship among WellCare and IPA and
the IPA Physicians is a contractual relationship among independent contractors.
Neither IPA nor any IPA Physician is an agent or employee of WellCare nor is
WellCare or any of its employees an agent or employee of IPA or any IPA
Physician.
8.5 Material Agreements. WellCare, IPA, and Primergy, each hereby represent
and warrant that to such parties knowledge as of the date hereof, the agreements
listed on Attachment 6.2(d) are the only written or oral agreements between
either WellCare and IPA or WellCare and
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Primergy, as the case may be.
8.6 Impossibility of Performance. Neither party shall be deemed to be in
violation of this Agreement if it is prevented from performing any of its
obligations hereunder for any reasons beyond its control, including, but not
limited to, acts of God or of the public enemy, flood, or storm, strikes or
statutory regulations, rule or action of any federal, state or local government,
or any agency thereof.
8.7 Waiver of Breach. Any waiver by either party of a breach of any
provision of this Agreement shall not be deemed a waiver of any other breach of
the same or different provisions of this Agreement.
8.8 Governing Law. This Agreement shall be governed by the laws of the
State of New York.
8.9 Compliance with Law. Notwithstanding any other provision of this
Agreement, the parties hereto shall each comply with the provisions of the
Managed Care Reform Act of 1996 (Chapter 705 of the Laws of 1996) and all other
applicable federal, state, and local laws, policies, and procedures governing
the provision of IPA Services to IPA Members.
8.10 Severability. If any provision in this Agreement is held to be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force and effect without being impaired or invalidated in any
way.
8.11 Headings. The headings of Articles and Sections contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.12 Confidentiality. Each party agrees that it will not disclose to any
other entity confidential information obtained regarding the operations of the
other contracting party obtained as a result of entry into this Agreement. In
addition, unless such information is a matter of public record:
IPA and IPA Physicians agree not to use participation in WellCare to
exchange or share any information relating to costs of doing
business, including operating costs, salaries, benefits and
material supply costs with other providers.
IPA and IPA Physicians agree not to discuss, disclose or otherwise
communicate any information relating to the prices paid by
WellCare to IPA or IPA Physicians for the provision of services
to WellCare IPA Members.
IPA or IPA Physicians agree not to use participation in WellCare to
discuss, disclose or otherwise communicate any information
relating to participation in any other health plans with WellCare
or any other health care provider.
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8.13 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto, supersedes the Prior Agreements and no representations or
agreements, oral or otherwise, between the parties not embodied herein or
attached hereto shall be of any force and effect. Any additions or amendments to
this Agreement subsequent hereto shall be of no force and effect unless in
writing, unless effected pursuant to Section 8.1 hereof and signed by the
parties hereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
ORANGE-SULLIVAN HEALTH CARE WELLCARE OF NEW YORK, INC.
ALLIANCE IPA, INC.
By: /s/ Richard B. Weininger, M.D. By: /s/ Joseph R. Papa
---------------------------- --------------------
Name: Richard B. Weininger, M.D. Name: Joseph R. Papa
Title: President Title: President
ACKNOWLEDGED AND AGREED
AS TO SECTION 8.5 HEREOF:
PRIMERGY, INC.
By: /s/ Richard B. Weininger, M.D.
------------------------------
Name: Richard B. Weininger, M.D.
Title: Chief Executive Officer
27
IPA SERVICE AGREEMENT
This Agreement is dated this 21st day of April, 1998 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and ULSTER HEALTH CARE ALLIANCE IPA, INC., a New York
business corporation ("IPA").
W I T N E S S E T H:
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the Service Area (as hereinafter defined);
WHEREAS, WellCare and the professional service corporation listed on
Exhibit A-1 hereto (the "PC") have previously entered into the agreements listed
on Exhibit A-2 attached hereto (collectively, the "Prior Agreements"), under
which the PC has provided certain health services to Members;
WHEREAS, the PC has accumulated various liabilities scheduled on
Exhibit A-3 in connection with the performance of its obligations under Prior
Agreements (such liabilities, the "PC Liabilities");
WHEREAS, IPA is duly incorporated under the laws of the State of New
York as an independent practice association organized to arrange for the
delivery of certain primary and specialty health care services and has entered
into a written provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA, as a successor to PC, desire to enter into
this Agreement under which IPA shall arrange for the provision of, and be
responsible for the payment to IPA Physicians and all other providers who
provide, primary and certain specialty health care services to IPA Members; and
WHEREAS, as a condition to WellCare entering into this Agreement, IPA
shall assume the PC Liabilities.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and intending to be legally bound hereby, the parties agree as follows:
1.1 Benefit Plan. A contract, certificate or other Evidence of Coverage
issued to each Employer Group and/or Member, that describes the obligations of
WellCare to deliver health care services to Members.
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1.2 Coinsurance. A cost sharing arrangement in which the Member is required
to pay a specified percentage of the charge directly to the Participating
Provider, as specifically provided in the Evidence of Coverage.
1.3 Commissioner. The Commissioner of the Department of Health of the State
of New York.
1.4 Copayment. A cost sharing arrangement in which the Member pays a
specified amount for specific health services such as office visits, outpatient
prescriptions, and emergency room visits directly to the Participating
Providers, as specifically provided in the Evidence of Coverage. Copayment fees
are normally paid at the point of service when the service is rendered.
1.5 Covered Services. Those health care services that IPA Members are
entitled to receive in accordance with the terms and conditions set forth in the
applicable Member Benefit Plans. Services which are not Medically Necessary
shall not be deemed as Covered Services for purposes of this Agreement or the
Member Benefit Plans, except as otherwise provided herein.
1.6 Deductible. A cost sharing arrangement in which the Member is required
to pay a specified amount for Covered Services before WellCare is obligated to
pay, as permitted and as specifically provided in the Evidence of Coverage.
1.7 Emergency. A situation where medical services are required as the
result of a medical or behavioral condition the onset of which is sudden, that
manifests itself by symptoms of sufficient severity, including severe pain, that
a prudent layperson, who possesses an average knowledge of medicine and health,
could reasonably expect the absence of immediate medical attention to result in:
(i) placing the health of the person afflicted with such condition or another
individual in serious jeopardy; (ii) serious impairment to such person's bodily
functions; (iii) serious dysfunction of any bodily organ or part of such person;
or (iv) serious disfigurement of such person.
1.8 Employer Group. An organization, firm or governmental entity that has
contracted with WellCare to provide and/or arrange for the provision of health
care services for its employees and/or retirees and/or the spouses or children
of each.
1.9 Enrolled Population. The aggregate of all persons who are entitled to
receive health care services arranged to be provided by IPA or the other
independent practice associations managed by Primergy set forth on Attachment
1.9, annexed hereto and made a part hereof, for any one or more product lines
(e.g., commercial, Medicaid) for which IPA agrees to arrange for health care
services hereunder.
1.10 Evidence of Coverage. The document evidencing covered health care
services which is issued to each Member.
1.11 FPA. FPA Medical Management, Inc., a Delaware business corporation.
1.12 Hospital Piece. Has the meaning ascribed to it in Section 4.1.
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1.13 Hospital Services. Those Medically Necessary acute care inpatient and
outpatient services that are Covered Services.
1.14 Identification Card. Shall mean the card issued by WellCare to each
Member which sets forth the Member identification number, which is to be
included on any claim form submitted to WellCare for payment.
1.15 IPA Member. A Member who has selected a PCP as such individual's
primary care physician.
1.16 IPA Member Benefit Plan. A contract, certificate or other Evidence of
Coverage issued to each Employer Group and/or Member, that describes the
obligations of WellCare to deliver Covered Services to IPA Members, as listed on
Attachment 1.16, annexed hereto and made a part hereof, as amended by WellCare
from time to time.
1.17 IPA Member Panel. A list of IPA Members who have chosen a PCP.
1.18 IPA Physician. Those physicians and entities representing such
physicians that have entered into written agreements with IPA to provide
Physician Services to IPA Members as listed on Attachment 1.18, annexed hereto
and made a part hereof, as amended by IPA quarterly.
1.19 IPA Service Area. The County of New York State set forth on Attachment
1.19, annexed hereto and made a part hereof.
1.20 IPA Services. Those Medically Necessary Covered Services that are
performed, prescribed or directed by IPA Physicians, or other providers to the
extent provided herein, including, but not limited to, Medical Services rendered
in an Emergency, other than (i) those enumerated health care services set forth
on Attachment 1.20, annexed hereto and made a part hereof, and (ii) Hospital
Services.
1.21 Medically Necessary. Medical, surgical or other treatment which a
Member requires for the treatment of illness or bodily injury as determined by
WellCare, or its appropriately delegated medical management authority, and that
is in compliance with professional and technical standards adopted by the
Quality Assurance Committee of WellCare.
1.22 Medical Services. Those Medically Necessary health care services,
other than Hospital Services, that are Covered Services.
1.23 Member. An individual entitled to receive health care services under a
Benefit Plan (including but not limited to commercial, New York State Child
Health Plus, Medicare and Medicaid lines of business).
1.24 Option. The option to cause Primergy to merge with and into FPA,
granted to FPA pursuant to the Option Agreement, made as of March 4, 1997,
between FPA and Primergy, as amended by agreement dated November 20, 1997.
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1.25 Option Termination Event. The first to occur of (i) the date on which
FPA notifies Primergy that it relinquishes any and all rights to the Option and
(ii) June 30, 1998, if FPA has not provided Primergy with notice of FPA's desire
to exercise the Option prior thereto.
1.26 Participating Hospital. A licensed hospital that has entered into a
Participating Hospital Agreement with WellCare directly or indirectly.
1.27 Participating Physician. A fully licensed physician or entity
authorized to practice medicine who has entered into a Participating Physician
Agreement with WellCare directly or indirectly.
1.28 Participating Provider. Participating Physicians and Participating
Hospitals and other health care professionals, home health care agencies,
optometrists, pharmacies or other providers of health care services who have
entered into written agreements with WellCare directly or indirectly.
1.29 Payment Period. Has the meaning given to such term in Attachment 4.1
hereto. -----------------------
1.30 PC. Has the meaning given such term in the recitals to this Agreement.
1.31 PC Liabilities. Has the meaning given such term in the recitals to
this Agreement.
1.32 PCP. An IPA Physician specializing in Family Practice, General
Practice, Internal Medicine or Pediatrics who has met the credentialing
standards of WellCare for designation as a primary care physician and provides
continuity of care to the Member who seeks his/her care by supervising,
coordinating and providing initial and basic care and initiating referrals for
Specialist care.
1.33 Policies and Procedures. WellCare's provider manual and all other
written standards, policies and procedures adopted by WellCare in connection
with the provision of Covered Services to IPA Members, including, but not
limited to, those that relate to quality improvement, utilization review
(including preauthorization), claims payment review, grievance procedures,
coordination of benefits and referral, admission and administrative procedures,
as amended from time to time in accordance with Section 2.2 hereof and which,
together with all amendments thereto, will be incorporated herein by reference.
1.34 Primergy. Primergy, Inc., a New York business corporation, that is the
sole shareholder of IPA and provides management services to IPA.
1.35 Prior Agreements. Has the meaning given such term in the recitals to
this Agreement.
1.36 Specialist. A Participating Physician who has contracted with WellCare
directly or through IPA to provide Specialty Services upon referral from a PCP,
which may also be known as a consultant.
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1.37 Specialty Services. Those IPA Services usually and customarily
performed by a Specialist.
ARTICLE II
RIGHTS AND RESPONSIBILITIES OF WELLCARE
2.1 Marketing. WellCare shall use its best efforts to arrange to have IPA
Physicians' names, office addresses, telephone numbers and specialties and other
similar information included in WellCare's Provider Directory. WellCare shall
use its best efforts to market its products in the Service Area and to do so in
compliance with the requirements of applicable state and federal laws.
2.2 Operation of Programs. WellCare shall operate, or WellCare shall
delegate to a third party from time to time to the extent consistent with
applicable federal, state, local law and regulations and regulatory agency's
guidelines, utilization management, quality improvement, health service delivery
and preauthorization Policies and Procedures, in consultation with IPA, as well
as Member and Participating Provider grievance programs, to assure the delivery
of cost effective, quality health care services by IPA Physicians. WellCare
shall deliver to IPA simultaneously with the execution and delivery of this
Agreement all current Policies and Procedures reasonably necessary to keep IPA
Physicians abreast of the policies and programs of WellCare in which they
participate, which Policies and Procedures are, and all additions to and
amendments thereof shall be, incorporated herein by reference. Additionally,
WellCare shall provide IPA with any addition to or amendment of such Policies
and Procedures not less than thirty (30) days prior to the effective date of
such addition or amendment, during which period WellCare shall consult with IPA
regarding any reasonable concerns that IPA might have in connection therewith.
Additionally, WellCare shall deliver to IPA (i) copies of all IPA Member Benefit
Plans, simultaneously with the execution hereof and (ii) any amendments thereto,
not less than thirty (30) days prior to the effective date of such amendments.
2.3 Member Identification Card. WellCare shall furnish to all IPA Members
an Identification Card that is to be presented to the Participating Providers
prior to the delivery of Covered Services.
2.4 Claims for Non-Members. In the event Medically Necessary services which
are authorized by WellCare are provided to an ineligible person, that ineligible
person shall be responsible for payment of such services.
2.5 IPA Member Panels for PCPs. WellCare shall provide IPA and PCPs with a
list of IPA Members for whom the PCPs are responsible and update such list on a
monthly basis.
2.6 Maintenance of Licensure. WellCare agrees to maintain, in good
standing, all current licenses and certifications required by applicable law,
including, without limitation, its certificate to operate an HMO. WellCare shall
immediately notify IPA in writing of any change in, or loss of insurance, or
action to suspend, revoke or limit any of its licenses or certification or of
other action
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which could reasonably prevent WellCare from performing its obligations under
this Agreement.
2.7 WellCare Right to Contract. It is expressly recognized and agreed by
and between the parties that WellCare shall retain its full right and ability to
establish, contract, or otherwise associate with any provider of health care
services; provided, however, that subject to Section 3.2(a) hereof, from the
Effective Date until termination of this Agreement pursuant to Article VI
hereof, WellCare agrees not to contract with any (i) primary care physician or
(ii) independent practice association that contracts with primary care
physicians or other organizational structure for a primary care physician
network, to provide IPA Services to IPA Members in the Service Area.
2.8 Credentialing Information. WellCare shall provide IPA with all
credentialing information that WellCare has obtained in connection with each IPA
Physicians; provided that each IPA Physician has consented to the release of
such information by WellCare to IPA in writing.
2.9 WellCare's Obligation to IPA Members. Notwithstanding Sections 3.16 or
4.1 hereof or any other provision of this Agreement, WellCare shall bear
ultimate responsibility for the care of the Members.
2.10 Consents. WellCare shall obtain from each IPA Member all releases and
consents that may be required to permit release of records to WellCare.
2.11 Assistance to Maintain Network. WellCare agrees to use its reasonable
efforts to assist IPA in maintaining a viable provider network for the Service
Area as set forth in Section 3.2 hereof, but shall not be responsible for
maintenance requirements set forth in Section 3.2 hereof.
2.12 Provision of Data. WellCare shall provide to IPA data as mutually
agreed to in the format and frequency set forth in Attachment 2.12.
ARTICLE III
RIGHTS AND RESPONSIBILITIES OF IPA AND IPA PHYSICIANS
3.1 Access to IPA Physicians. IPA represents and warrants that it is
authorized to contract with WellCare to arrange for IPA Services to be provided
by the IPA Physicians. IPA agrees that by executing this Agreement, the IPA
Physicians become Participating Providers and IPA Physicians agree to be bound
by the terms and conditions of this Agreement. IPA shall provide to WellCare a
list of all IPA Physicians containing the information set forth in Section 3.22
of this Agreement quarterly.
3.2 Network Maintenance and Expansion. (a) Subject to Section 3.2(b), it is
expressly recognized and agreed by and between the parties that IPA is intended
to be the foundation of the WellCare physician network in the Service Area.
Accordingly, IPA shall (i) use its best efforts to meet the PCP/IPA Member
ratios set forth on Attachment 3.2 hereof and (ii) contract with, at a minimum,
the same number and type of Specialists in the Service Area with which the
Departments require WellCare to so contract. Additionally, all physicians and
entities representing such physicians
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that contract with IPA, or a subsidiary or an affiliate of IPA, to provide
medical services shall be, subject to WellCare's credentialing criteria, an IPA
Physician.
(b) In the event that the ratio of PCPs as compared to IPA Members
falls below any of the ratios as listed on Attachment 3.2, WellCare shall
provide IPA a period of ninety (90) days to contract with primary care
physicians to meet such ratio(s). If IPA is unable to meet any of such ratios,
the limitations set forth in Section 2.7 shall be null and void and be of no
further force or effect.
(c) Subject to Section 4.2 hereof, it is expressly recognized and
agreed by and between the parties that IPA shall retain its full right and
ability to establish, contract or otherwise associate with any other individual
practice association, health maintenance organization or other entity without
being deemed in contravention or breach of this Agreement or any other
obligation to WellCare; provided that any contract or arrangement with any such
entity shall not materially interfere with or prevent IPA or any IPA Physician
from fulfilling his or her obligation under this Agreement.
3.3 Provision of IPA Services to IPA Members. IPA shall require that each
IPA Physician agree to provide IPA Services to IPA Members in accordance with
the terms of this Agreement. IPA hereby acknowledges, and shall require each IPA
Provider to acknowledge, that the presentation of an Identification Card by an
individual shall not be deemed conclusive evidence that such individual is a
Member. IPA acknowledges that WellCare, by this Agreement or otherwise, does not
guarantee to IPA, or to any IPA Physician, a minimum number of IPA Members.
3.4 WellCare Policies and Procedures. Except as expressly provided herein
to the contrary, IPA shall, to the extent applicable, and IPA shall require each
IPA Physician to (i) cooperate, participate, and comply with all Policies and
Procedures and National Committee on Quality Assurance ("NCQA") standards and
guidelines and (ii) abide by the determination of WellCare on all such matters
set forth therein during the term of this Agreement. IPA shall deliver to each
IPA Physician a copy of the Policies and Procedures, along with all additions to
and amendments thereof, within five (5) days after delivery by WellCare to IPA
in accordance with Section 2.2 hereof.
3.5 Coverage. IPA shall use reasonable efforts to maintain arrangements
with an array of IPA Physicians to make IPA Services available and accessible
for all IPA Members as may be required by federal and/or state law. IPA shall
require that each PCP agree (i) (x) to provide IPA Services to IPA Members and
arrange for calls from IPA Members to be answered by a person hired, directly or
indirectly, by such PCP on a twenty-four (24) hour a day, seven (7) day a week
basis and (y) to return Emergency calls within thirty (30) minutes thereof, or
(ii) to arrange with a physician to provide such coverage to PCP's Member
patients in PCP's absence. Such covering physician shall be a Participating
Provider whenever possible. IPA shall require each PCP to use his or her best
efforts to have such covering Physician agree that he or she will (a) not bill
IPA Members or WellCare for Covered Services under any circumstances except for
Copayments, Coinsurance, and permitted Deductibles, (b) bill, charge, collect
payment from IPA for Covered Services provided to IPA Members, and (c) obtain
authorization from WellCare prior to all hospitalizations or referrals of IPA
Members, except for an Emergency.
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3.6 Emergencies. IPA shall require each IPA Physician to agree to notify
WellCare of any admission relating to an Emergency within twenty-four (24) hours
of the admission or the next business day.
3.7 Standard of Care. IPA shall require each IPA Physician to provide IPA
Services and/or arrange for the provision of IPA Services or Covered Services in
order to provide a standard of care in a manner not less than generally accepted
medical practices in effect at the time of services and in a manner consistent
with the Policies and Procedures in effect for WellCare, which shall be
delivered by WellCare to IPA pursuant to Section 2.2 hereof.
3.8 Nondiscrimination. IPA shall require each IPA Physician to provide or
arrange for the provision of Covered Services to IPA Members in the same manner
and quality as services are provided to or arranged for all their other
patients. IPA Members shall not be discriminated against on the basis of age,
race, color, creed, ancestry, religion, gender, sexual orientation, national
origin, health status, marital status, disability, or source of payment.
3.9 Office Closure. IPA shall use its best efforts to require each PCP to
acknowledge and agree that such PCP may only close his or her practice to new
IPA Members if such PCP has closed his or her practice to new members covered
under benefit plans of all third-party payors with which such PCP directly or
indirectly contracts. IPA shall require each PCP to notify WellCare at least
sixty (60) days prior to closing his or her practice to new IPA Members, subject
to this Section 3.9; provided, that the effective date of such closure shall not
occur until the last day of the month in which such closure is to be effective;
and provided, however, that in the event such PCP is disabled or otherwise
incapacitated by illness, such notice shall be given when feasible.
3.10 Continuity of Care. IPA shall require each PCP to meet the
credentialing standards of WellCare for designation as a PCP and to provide
continuity of care to the Member who seeks his or her care by supervising,
coordinating, and providing initial and basic care and initiating a referral for
Specialist care when Medically Necessary.
3.11 Maintenance of Licensure; Certification. IPA shall require each IPA
Physician to represent and warrant to IPA that he or she is a physician duly
licensed under applicable state law, or otherwise authorized to practice within
the scope of such license or authorization under applicable state law, and,
where appropriate, has obtained all other appropriate licenses, such as DEA
licenses, Medicare participation and, if such IPA Physician is a Specialist,
appropriate specialty board certification. IPA shall require each IPA Physician
to maintain in good standing all of the above.
3.12 Staff Privileges. IPA shall require each IPA Physician, except as
otherwise agreed to by WellCare, to represent and warrant to IPA that he or she
is an active member in good standing on the medical staff of a Participating
Hospital and that he or she shall maintain such status during the term of this
Agreement.
3.13 Health Care Programs. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she (i) is in good standing to
participate in Medicare and Medicaid Programs and to covenant to WellCare that
he/she will continue to be so certified during the term hereof and (ii)
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has never been excluded from participation in the Medicare program, Medicaid
program, or any other federal healthcare program.
3.14 Government Sanctions. IPA shall require each IPA Physician to
represent and warrant to IPA that he or she has never been sanctioned by the
Medicare program, Medicaid program, or any other federal or state agency for
Physician's failure to provide medical care of adequate quality or medically
necessary care.
3.15 Compliance with Law. IPA shall, and shall require each IPA Physician
to agree to, comply with all applicable federal, state, and local laws and
regulations or regulatory agency requirements and guidelines relating to the
provision of IPA Services. IPA shall immediately notify WellCare in writing of
any change in, or loss of insurance, or action to suspend, revoke or limit any
of its licenses or certification or of other action which could reasonably
prevent IPA from performing its obligations under this Agreement.
3.16 WellCare Hold Harmless. IPA shall require that each IPA Physician
agree that (i) he or she shall look solely to IPA for payment for any health
care services rendered to IPA Members and (ii) WellCare shall not be liable to
him or her for failure by IPA to pay such IPA Physician for any such services
because of insolvency of IPA or termination of this Agreement pursuant to
Article VI hereof. IPA expressly acknowledges and agrees and shall require each
IPA Physician to expressly acknowledge and agree that no specific payment is
being made directly or indirectly under this Agreement as an inducement to
reduce or limit medically necessary services provided with respect to a Member.
3.17 Stop-Loss Insurance. To the extent required by federal and/or state
laws, regulations, or regulatory agency requirements or guidelines, IPA (i)
shall purchase and maintain, during the term of this Agreement, stop-loss
insurance, at IPA's sole cost and expense, for the benefit of IPA and (ii)
hereby covenants that at all times during the term hereof, the levels of such
insurance shall be, in compliance with applicable federal and state law and
regulations and state regulatory agency requirements and guidelines.
3.18 Billing Procedures for IPA Services. IPA shall require IPA Physicians
to agree that they shall not require advance payment or any form of deposit
payment from any Member receiving IPA Services covered by an IPA Member Benefit
Plan; provided, however, that an IPA Physician may apply his or her general
credit policies with respect to IPA Members who are financially responsible for
certain services not covered under an IPA Member Benefit Plan subject to Section
3.20 hereof; or charges for certain services such as Copayments, Coinsurance,
and permitted Deductibles. IPA agrees and shall require each IPA Physician to
agree not to claim payment in any form from the Department of Health and Human
Services or any state agency for items or services furnished to Medicaid
qualified beneficiaries in accordance with this Agreement except as approved by
HCFA or the New York Department of Social Services, or otherwise shift the
burden of such an agreement onto Medicaid, other payors, or individuals.
3.19 Coordination of Benefits. IPA shall require each IPA Physician to
agree to be bound by the coordination of benefits Policies and Procedures of
WellCare and to assist WellCare in
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identifying, billing, and collecting payments due from primary payors.
3.20 Non-Medically Necessary Covered Services. IPA hereby acknowledges that
Members might request services of Participating Physicians that were not deemed
to be Medically Necessary by WellCare Quality Improvement/Utilization Management
programs as set forth in the Policies and Procedures and are, therefore, payable
by IPA Members. IPA hereby acknowledges and agrees, and shall require each IPA
Physician to acknowledge and agree, that WellCare shall not compensate IPA or
any IPA Physician, nor shall WellCare have any responsibility for charges
incurred by IPA Members for such services. Prior to charging any Member for
non-Medically Necessary Covered Services, the IPA Physician shall have obtained
a written acknowledgement from the Member that the proposed services are not
Medically Necessary and that the Member agrees to be fully responsible for
payment therefor. IPA acknowledges and shall require each IPA Physician to
acknowledge that if any IPA Physician does not obtain such written
acknowledgment, such IPA Physician may not charge any Member for any such
services.
3.21 IPA Member Hold Harmless. (a) Except as otherwise provided herein, IPA
shall require that each IPA Physician agree that in no event, including but not
limited to nonpayment to IPA Physician by IPA, nonpayment by WellCare to IPA,
insolvency of WellCare and/or IPA or breach of this Agreement, shall such IPA
Physician bill, charge, collect a deposit from, seek compensation, remuneration
or reimbursement from, or have any recourse against a Member or family members
or persons (other than recourse against IPA under Section 3.16 or otherwise)
acting on behalf of an IPA Member for services provided in accordance with this
Agreement. This provision does not prohibit an IPA Physician from collecting
permitted Deductibles, Coinsurance, or Copayments, as specifically provided in
the applicable IPA Member Benefit Plan, or fees for non- Medically Necessary
Services in accordance with Section 3.22 hereof.
(b) IPA shall require that each IPA Physician agree that the above hold
harmless and continuation of benefit provisions supersede any oral or written
contrary agreement now existing or hereafter entered into between the Physician
and IPA Members or family members or persons acting on behalf of a Member
insofar as such contract agreement relates to liability for payment for, or
continuation of Covered Services provided under the terms and conditions of
these clauses.
(c) IPA agrees and each IPA Physician shall be required to agree that
this Section 3.21 shall survive the termination of this Agreement for authorized
Covered Services rendered prior to the termination of this Agreement, regardless
of the cause giving rise to termination and shall be construed to be for the
benefit of the Member. This provision is not intended to apply to services
provided after this Agreement has been terminated.
3.22 Authorization for Marketing. IPA shall obtain proper authorization
from each IPA Physician for WellCare to include the names, office addresses,
telephone numbers and specialties and other similar information of such IPA
Physician in WellCare's provider directory.
3.23 WellCare Contracts. IPA shall use its best efforts to encourage each
PCP to enter into a provider agreement with WellCare, in a form presented by
WellCare, to provide those health care services that primary care physicians are
required to provide in accordance herewith to Members,
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which agreement shall become effective automatically, immediately upon
termination of this Agreement in accordance with Article VI hereof.
Additionally, IPA shall use its best efforts to encourage IPA Physicians, other
than PCPs, to enter into provider agreements with WellCare, in a form presented
by WellCare, to provide (i) certain health care services to Members, other than
IPA Members, as well as to individuals covered under benefit plans of WellCare
of Connecticut, Inc., Agente Benefit Consultants, Inc., or other WellCare
affiliates during the term and upon termination hereof and (ii) those health
care services that such IPA Physicians are required to provide in accordance
herewith to Members immediately upon termination of this Agreement in accordance
with Article VI hereof. If any IPA Physician has not entered into such provider
agreement with WellCare, IPA shall notify such IPA Physician, in accordance with
federal and state laws and regulations, sixty (60) days, or such other period as
required by law, prior to the expiration of his or her provider agreement with
IPA and shall terminate him or her after such period.
3.24 Reporting Requirements. IPA shall assist, and shall require each IPA
Physician to assist, WellCare in complying with federal, state, and local laws
and regulations and regulatory agency requirements relating to the provision of
IPA Services, including, but not limited to, complying with reporting
requirements pursuant thereto.
3.25 Financial Management and Reporting. IPA shall implement cash
management policies in keeping with sound financial management practices in
order to ensure timely and accurate payment to all providers who provide
Medically Necessary IPA Services to IPA Members, acknowledging that WellCare is
responsible for the final determination of benefit payments to be made under an
IPA Member Benefit Plan. Additionally, upon FPA's exercise of the Option, IPA
shall require FPA to guarantee the PC Liabilities, pursuant to a guarantee in
form reasonably satisfactory to WellCare. Within thirty (30) days of the end of
each calendar quarter during the term hereof, IPA shall deliver to WellCare (i)
balance sheet of IPA and (ii) IPA's statement of operations in connection with
IPA's obligations set forth herein for the calendar quarter then ended prepared
in accordance with generally accepted accounting principles ("GAAP") and fairly
representing the financial condition of IPA for the relevant quarter. Within
sixty (60) days of the end of each of IPA's fiscal years throughout the term
hereof, IPA shall deliver to WellCare (i) annual unaudited balance sheet of IPA
prepared in accordance with GAAP and (ii) IPA's statement of operations in
connection with the obligations of IPA set forth herein. IPA shall also provide
WellCare, upon a reasonable request, financial information and reports related
to IPA's performance of this Agreement, including encounter, utilization, and
cost reports as may be required by the New York State Department of Insurance
and New York State Department of Health (collectively, "Departments") or other
governmental agency and such and other financial reports and data as WellCare
may require to efficiently and effectively manage costs and utilization and to
provide quality medical care to IPA Members.
3.26 Complaints and Litigation. IPA shall, and shall require each IPA
Physician to, forward to WellCare, immediately upon receipt, of Members, the
Departments, and of any other government agency communications, complaints, and
inquiries, whether written or oral, regarding any claim or other business
concerning WellCare that is subject to this Agreement, together with IPA's or
such IPA Physician's, as the case may be, proposed response, if any, and all
information from its/his/her records to assist WellCare or its designee to
respond. Additionally, IPA shall, and shall require each IPA Physician to
forward to WellCare, immediately upon receipt, any legal process in which
WellCare
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has been named as a party or that arises out of any activities subject to this
Agreement. WellCare is the only party to this Agreement that is authorized to
defend WellCare against any legal process.
3.27 Notice of Change of Condition of IPA Physician. IPA shall require each
IPA Physician to notify IPA in writing within five (5) days of any change in, or
loss of insurance, or action to suspend, revoke or limit any of its licenses or
certification or of other action which could reasonably prevent IPA Physician
from performing his or her obligations under this Agreement. Each party hereto
shall notify the other party in writing immediately upon its receipt of a notice
of or of any information relating to a change of condition of any IPA Physician.
3.28 Effect of Termination of IPA Member - Continuation of Care. IPA
recognizes that WellCare must under certain circumstances, pursuant to certain
federal and state regulatory requirements, continue to arrange for the provision
of services for individuals whose status as IPA Members has terminated.
Accordingly, IPA agrees to continue arranging for the provision of, and shall
require that each IPA Physician shall agree to continue providing, IPA Services
to such individuals, just as WellCare is obligated to do, until the earlier of
(i) ninety (90) days from the date of notice to such IPA Member of the IPA's
disaffiliation with WellCare, (ii) if such IPA Member has entered the second
trimester of pregnancy at the time of such IPA Physician's disaffiliation with
WellCare, for a transitional period that includes the provision of post-partum
care directly related to the delivery, (iii) until WellCare, at its discretion
upon the consent of such IPA Member, makes reasonable and medically appropriate
provision for the assumption of such care by another provider, or (iv) until
such time as WellCare coverage of such individuals is lawfully and effectively
terminated so that WellCare's obligation to such individuals is recognized as
ended by the applicable law and regulatory authorities. WellCare shall continue
to pay IPA at the agreed upon rate set forth on Attachment 4.1 hereto for each
month for which premium payments are due and payable (including any month for
which such payments would have been due and payable but for WellCare's agreement
to waive all or a portion of such payments) from or on behalf of any such IPA
Member, whether or not WellCare receives any such payment. If WellCare is
legally obligated to continue to cover such individual during any additional
period following the months for which premiums are due and payable (or following
the months in which such premiums would have been due and payable but for
WellCare's agreement to waive such premiums in whole or in part), WellCare shall
not be obligated to pay IPA or any IPA Physician for any services provided to
such individual by any IPA Physician pursuant to this Section 3.28.
3.29 Solicitation of Members. During the term of this Agreement or any
renewal thereof, and for a period of six (6) months after the date of
termination, IPA agrees, and shall require each IPA Physician to agree, that
it/he/she will not, within the Service Area, interfere with WellCare's contract
and/or property rights or advise or counsel any Member or Employer Group to
disenroll from WellCare. Informing a Member of other managed care organizations
with which IPA or an IPA Physician may participate nor solicitations addressed
to the employer or other group community shall not be deemed to be violations of
this Section 3.29.
3.30 Requirement of Insurance. IPA shall require each IPA Physician, other
than those IPA Physicians listed on Attachment 3.30, annexed hereto and made a
part hereof, to procure and maintain, and WellCare and IPA shall each procure
and maintain a policy of general liability,
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professional liability and other insurance as may be necessary to protect
against any claim for damages arising by reason of personal injury or death of a
Member. IPA shall require that each such IPA Physician maintains each policy
with minimum limits of coverage of one (1) million dollars ($1,000,000) per
occurrence and three (3) million dollars ($3,000,000) in the aggregate. IPA
shall require each IPA Physician upon termination of this Agreement or the
termination of an IPA Physician pursuant to Article VI hereof, to either
continue his or her liability insurance policy or purchase "tail" insurance
covering the period that such IPA Physician provided IPA Services to IPA Members
in accordance herewith. Certificates of insurance evidencing compliance with
this provision shall be made available to WellCare upon request.
3.31 Site Evaluations and Inspections. In accordance with the terms and
conditions of this Agreement and subject to applicable federal and state
confidentiality laws, IPA shall require each IPA Physician to permit (i)
WellCare or a designated representative, upon reasonable notification during
normal business hours, unless otherwise required by federal, state or local law,
regulation, or regulatory agency, and (ii) federal, state, and local regulatory
agencies, to the extent authorized by law, to conduct periodic site evaluations
of such IPA Physician's facilities, equipment, medical records of IPA Members to
monitor utilization review activities and to monitor the quality of professional
and ancillary medical care provided to IPA Members by such IPA Physician. IPA
shall further require each IPA Physician (i) to operate all office sites in
compliance with the criteria established by the WellCare Quality Assurance
Committee and quality assurance requirements of the Departments and the NCQA and
(ii) to comply with any such agencies' reasonable recommendations, if any, or to
provide WellCare with a written response to any questions or comments posed by
any of the agencies or WellCare.
3.32 Access To Records. (a) IPA shall require each IPA Physician to
provide, in a timely manner, IPA Members' medical records, and such other
relevant records and other information, to WellCare and to IPA and/or their
designee(s), as permitted by law and in any reasonable manner, for the
performance of the Policies and Procedures for claims payment or any other
purposes, as reasonably required by WellCare and/or IPA, as the case may be.
Each IPA Physician shall also be required by IPA to obtain from IPA Members all
releases or consents which may be required to permit release of records to IPA.
(b) IPA shall require each IPA Physician to make available, subject to
applicable federal and state law, IPA Members' medical records to the
Departments for inspection and copying, at no cost to the Departments.
(c) IPA shall require each IPA Physician to retain and maintain
Member's medical records for the longer of (i) the year in which the Member was
discharged or treatment concluded, plus six (6) years, (ii) the year in which
the Member reaches majority, plus six (6) years, or (iii) such greater period
required by federal or state law. Such records shall be maintained in accordance
with prudent standards of insurance record keeping and with all applicable state
and federal laws and regulations.
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(d) Additionally, IPA shall require IPA Physicians to provide WellCare
with encounter data (routine claims submissions) relating to all IPA Services
provided pursuant to this Agreement in a mutually agreed upon format monthly.
3.33 Access to Records for Medicare/Medicaid Programs. If the value or cost
of services provided under this Agreement will be $10,000 or more within a
twelve (12) month period, to the extent that the cost of such service is
reimbursable by the Medicare and/or Medicaid Programs, IPA agrees, and shall
require IPA Physicians to agree, to comply with the Access to Books, Documents
and Records of Subcontractor's provision of Section 952 of the Omnibus
Reconciliation Action of 1980 (P.L. 96-499), and 42 C.F.R. Part 420, Sub-part D,
Section 420.300 et seq. In accordance with these provisions, IPA will allow and
shall require IPA Physicians to allow the Comptroller General of the United
States, the Secretary of Health and Human Services, and their duly authorized
representatives access and to IPA's or the applicable IPA Physician's, as the
case may be, books, documents, and records necessary to certify the nature and
extent of such costs of Medicare reimbursable services provided hereunder. Such
access will be allowed, upon request, until the expiration of four (4) years
after Medicare and/or Medicaid reimbursable services are furnished hereunder. If
IPA carries out any of the duties of this Agreement through a subcontract with a
related party with a value or cost of $10,000 or more over a twelve (12) month
period, such subcontract shall contain a clause which requires the subcontractor
to comply with the above statutes and regulations. 3.34 Confidentiality of
Records. Any data or information obtained from IPA or any IPA Physician
pertaining to the diagnosis, treatment or health of a Member shall be held
confidential to the extent required by law. All parties agree to maintain the
confidentiality of information contained in the Member's medical records.
Notwithstanding the foregoing, subject to all laws regarding confidentiality of
medical records, the parties may disseminate such records to authorized
providers and consulting physicians, to governmental agencies if required by
law, to committees of the Participating Hospitals and WellCare concerned with
the quality of care and utilization, and to WellCare for purposes of
administration. This Article shall not be construed to prevent either party from
releasing information in a form that does not identify a Member to any
organization engaged in the collection and analysis of data.
3.35 Assumption of PC Liabilities. In consideration of WellCare's entering
into this Agreement, the payment of the Compensation to be paid to IPA
hereunder, and for other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, IPA hereby assumes from PC
all of the PC Liabilities.
3.36 Survival. Sections 3.15, 3.16, 3.21, 3.24, 3.26, 3.28, 3.33, 3.34, and
3.35 of this Article III shall survive the expiration or earlier termination of
this Agreement.
ARTICLE IV
BILLING PROCEDURES AND PAYMENT FOR SERVICES
4.1 Payment. (a) Except as otherwise provided in this Agreement, WellCare
shall pay, and IPA shall accept, the compensation, as set forth in Attachment
4.1, annexed hereto and made
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a part hereof (the "Compensation"), as payment in full for IPA Services and any
and all services performed by IPA pursuant to this Agreement, including those
set forth in Section 4.1(e) hereto. In return for the Compensation, IPA agrees
to arrange and pay for all of the IPA Services that WellCare is obligated to
arrange and pay for pursuant to the IPA Member Benefit Plans. Such payments
shall be made within the earliest of (i) 45 days following submission of a
"clean" claim for payment, unless this requirement is waived in writing by
WellCare, (ii) the last day within the period established by law, if any, in
which a payment by the IPA to an IPA Physician would not be subject to interest
thereon, or (iii) in the case of monthly capitation payments to providers,
within the first five (5) days of the applicable month. IPA shall be obligated
to pay all interest and any other penalties associated with any failure to
comply with all laws and regulations applicable to IPA relating to prompt
payment of claims, if any. Should IPA fail to comply with such laws and
regulations, WellCare may withhold amounts included within the Compensation
necessary to reimburse WellCare (i) for the payment of claims paid directly by
WellCare for IPA Services provided to IPA Members and (ii) for any interest and
penalties associated with such claims.
(b) WellCare and IPA each confirm that the manner of calculating
reductions in hospital utilization and the payments to the PC therefor under the
Prior Agreements, as set forth in Attachment 4.1(b), are complete and accurate
and that the amounts paid to the PC through March 31, 1997, relating to
reductions in hospital utilization, as set forth in Attachment 4.1(b),
constitute full payment by WellCare of any and all obligations relating to
reductions in hospital utilization under the Prior Agreements. WellCare waives
any claim that it may have overpaid IPA relating to those payments.
(c) The parties acknowledge that for the period since April 1, 1997, PC
has not been entitled to any further compensation for reductions in hospital
utilization, but in lieu thereof has been entitled to the monthly payments set
forth on Attachment 4.1(3).
(d) IPA and WellCare acknowledge that IPA is not entitled to any
compensation for reduction in hospital utilization. In lieu thereof, the
Compensation, however, shall include the monthly amount (the "Hospital Piece")
set forth in Section 3 of Attachment 4.1 for the period from the Effective Date
through February 28, 1999. Thereafter, the Compensation shall no longer include
the Hospital Piece but the parties shall negotiate in good faith to replace the
Hospital Piece with Compensation based upon quality and utilization, consistent
with the parameters set forth in Section 4 of Attachment 4.1.
(e) WellCare shall perform all claims processing on behalf of IPA, at
WellCare's sole cost and expense, in connection with IPA Services rendered in
accordance with this Agreement.
(f) IPA shall perform all claims adjudication of IPA Services rendered
in accordance with this Agreement.
4.2 Adjustments to Compensation Exhibit. (a) For so long as Members make up
fifty percent (50%) or more in the aggregate of the Enrolled Population, within
thirty (30) days of the effective date of any new contract or renewal or change
in payment terms of an existing contract between IPA and a third-party payor
other than WellCare, IPA shall certify in writing to WellCare
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that the payment terms of such contract are not more favorable to such
third-party payor than the Compensation is to WellCare or shall certify that
such payment terms are more favorable to such third-party payor than the
Compensation is to WellCare. Such determination shall take into account the
member composition of each Plan and the health care services to be provided by
IPA under each contract. By executing and delivering this Agreement, IPA
represents and warrants to WellCare that it is not, as of the effective date of
this Agreement, party to any contract with any other third-party payor on
payment terms more favorable to such third-party payor than the Compensation is
to WellCare.
(b) If WellCare shall dispute the representations made in any certificate
delivered under Section 4.2(a), in which IPA claims that the payment terms under
a contract with a third party are not more favorable to the third party than the
Compensation is to WellCare, WellCare may engage an actuary chosen upon the
mutual consent of WellCare and IPA, at WellCare's cost, to make such
determination, whose determination shall be binding upon the parties hereto.
(c) So long as Members make up fifty percent (50%) or more in the aggregate
of the Enrolled Population, if IPA contracts with any third-party payor on terms
more favorable to such third-party payor than the Compensation is to WellCare,
for such period as any such contract is in effect, the Compensation shall not
give effect to the CPI Adjustment (as defined in Attachment 4.1 hereto) in
accordance with Section 2(a) or (b) of Attachment 4.1 hereto.
ARTICLE V
INDEMNIFICATION; COOPERATIVE DEFENSE
5.1 Indemnification. (a) Each of the parties hereto shall indemnify the
other party and hold each other harmless against any and all claims, actions,
assessments, charges, and expenses, including court costs and reasonable
attorneys' fees, and against all liabilities, losses, damages of any nature, and
settlements, judgments, or awards, whether compensatory, extracontractual, or
punitive, (collectively, "Damages") that a party shall sustain or be put to by
reason of any act or omission of the other party or its agents, employees,
officers, and directors or any breach by the other party of the terms of this
Agreement.
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(b) Each party hereto entitled to indemnification under Section 5.1(a)
(each, an "Indemnified Party") hereby agrees to give the applicable party or
parties obligated to indemnify it under Section 5.1(a) (each, an "Indemnifying
Party") written notice of any event or assertion of which the Indemnified Party
obtains knowledge concerning any Damage and as to which the Indemnified Party
may request indemnification hereunder. The Indemnified Party shall cooperate
with the Indemnifying Party in determining the validity of any claim or
assertion requiring indemnity hereunder and in defending against third parties
with respect to the same. The defense of such litigation shall be within the
control of the Indemnifying Party, or, as the case may be, any Persons providing
indemnity and defense to such Indemnifying Party; provided, however, that an
Indemnifying Party's choice of counsel shall be reasonably satisfactory to the
Indemnified Party. The Indemnified Party may participate in the defense of any
claim or assertion requiring indemnity hereunder, and in such event, shall
cooperate fully in connection therewith. If an Indemnifying Party fails to
perform its obligations under this Article V, then the Indemnified Party may
directly assume the defense of the claim or assertion at issue, and such
Indemnifying Party shall promptly reimburse the Indemnified Party for all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), incurred in connection therewith. The Indemnified Party's failure to
give timely notice or to provide copies of documents or to furnish relevant data
in connection with any such third-party claim shall not constitute a defense (in
part or in whole) to any claim for indemnification by it. WellCare and IPA each
hereby agrees not to settle or compromise any such third-party suit, claim, or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
(c) This Article V shall continue to be of full force and effect,
notwithstanding the termination of this Agreement, until all claims and
liabilities relating to a Member have been asserted, satisfied and released.
5.2 Cooperative Defense. The parties recognize that, during the term of
this Agreement and for some period thereafter, certain risk management issues,
claims, or actions may arise that involve or could potentially involve the
parties and their respective employees and agents. The parties further recognize
the importance of cooperating with each other in good faith when such issues,
claims, or actions arise to the extent that such cooperation does not violate
any applicable laws, cause breach of any duties created by any policies of
insurance, or otherwise compromise the confidentiality of communications of
information regarding the issues, claims, or actions. The parties shall
cooperate in good faith, using their best efforts, to address such risk
management and claims handling issues in a manner that strongly encourages full
cooperation between the parties. This Section 5.2 shall survive the termination
of this Agreement.
ARTICLE VI
TERM AND TERMINATION
6.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date and shall continue for a period of ten (10) years therefrom,
unless terminated earlier pursuant to Section 6.2 hereof.
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6.2 Termination. This Agreement may be terminated as follows:
(a) By mutual written agreement between WellCare and IPA.
(b) Upon written notice by one party (the "Terminating Party") to the
other party (the "Terminated Party") of the Terminating Party's
intention to terminate this Agreement by reason of the Terminated
Party's material breach of this Agreement. An event of material
breach hereunder shall occur if either party to this Agreement
shall fail to keep, observe, pay or perform any material
covenant, obligation, agreement, term, or provision of this
Agreement and such condition is not remedied within sixty (60)
days after receipt by one party from the other party of such
written notice.
(c) Subject to the terms of any written waiver that a party may have
received from the other party, upon written notice by the
Terminating Party to the Terminated Party of the Terminating
Party's intention to terminate this Agreement by reason of the
Terminated Party (i) becoming insolvent, as defined in Section
101(32) of Title 11 of the United States Code as amended, (ii)
generally cannot, or is unable to, or shall admit in writing to
its inability to pay debts as such debts become due, (iii) making
an assignment for the benefit of creditors, (iv) petitioning or
applying to any tribunal for, or other wise seeking, consent to
or acquiescence the appointment of a custodian, receiver, or
trustee for it or a substantial part of its assets, (v)
commencing, consenting to, or acquiescing in any proceeding under
any bankruptcy, reorganization, arrangement, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in
effect, or (vi) having had any such petition or application filed
or any such proceeding shall have been commenced against it in
which an adjudication or appointment is made or order for relief
is entered and that remains undismissed or unstayed for a period
of sixty (60) days or more.
(d) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement by reason of (i) IPA's material breach
of any other agreement currently in force with WellCare, or (ii)
Primergy's material breach of any agreement with WellCare
currently in force. An event of material breach thereunder shall
occur if IPA and/or Primergy, as the case may be, shall fail to
keep, observe, pay or perform any material covenant, obligation,
agreement, term, or provision under any such agreement or
obligation and such condition is not remedied within the cure
period set forth therein and if no cure period is set forth
therein, within sixty (60) days after receipt by the appropriate
party from WellCare of such written notice.
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(e) Upon written notice by WellCare to IPA of WellCare's intention to
terminate this Agreement effective sixty (60) days thereafter by
reason of the Change of Ownership. Change of Ownership shall
include the sale, exchange, assignment, transfer, issuance or
other conveyance or disposition, other than to FPA, of (i) more
than fifty percent (50%) of all of either IPA's or Primergy's
issued and outstanding shares of common stock at the time thereof
or (ii) of substantially all of IPA's or Primergy's assets;
provided such event occurs prior to the date on which the Option
is exercised by FPA or following an Option Termination Event.
6.3 Effect of Option Termination Event. Upon the occurrence of an Option
Termination Event, Wellcare and IPA each hereby agree to attempt in good faith
to negotiate an amendment to this Agreement to properly incorporate the effects
that such event has on the terms and conditions set forth herein. If the terms
and conditions to be set forth in such amendment have not been agreed to within
one hundred twenty (120) days of the Option Termination Event, this Agreement
may be terminated by either party at any time after such period; provided the
parties have not yet agreed to such amendment.
6.4 Effect of Termination of this Agreement. If either party terminates
this Agreement, IPA shall advise the IPA Physicians of the notice of termination
and the provider agreement entered into with WellCare pursuant to Section 3.23
hereof shall be effective as of the date of termination of this Agreement and
shall govern the rights and obligations of each IPA Physician to provide IPA
Services to IPA Members.
6.5 Termination and Suspension of IPA Physicians by IPA. Each party shall
notify the other party immediately upon its receipt of notice of any
circumstance that would constitute termination for "Good Reason" or "Immediate
Cause" as defined in Section 6.6 hereof or any termination or suspension from
the IPA Physician network.
6.6 Termination and Suspension of IPA Physicians by WellCare.
(a) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith for "Good Reason" upon sixty (60) days' prior written notice to such
IPA Physician; provided, however, if such IPA Physician shall have requested a
hearing in accordance with this Section 6.6(a), termination by WellCare for
"Good Reason" shall be effective thirty (30) days after receipt by WellCare of
the hearing panel's decision of termination; provided, further, that if such
hearing panel renders a decision to reinstate such IPA Physician, such notice of
termination shall be void and shall have no effect as to this Agreement.
WellCare agrees to notify IPA directly of any dispute that arises between
WellCare and an IPA Physician. "Good Reason" shall include but not be limited
to:
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(i) suspension of such IPA Physician's license, certificate, Drug
Enforcement Agency authorization to issue prescriptions or other legal
credential authorizing IPA Physician to provide medical services;
(ii) if such IPA Physician is a Medicaid/Medicare provider, he or she
is suspended from either or both of these programs;
(iii) the indictment or arrest for a felony of such IPA Physician or
for any criminal charge related to the rendering of medical services;
(iv) the cancellation or termination of the professional liability
insurance required by this Agreement with respect to such IPA Physician
without replacement coverage having been obtained;
(v) the failure of such IPA Physician to maintain admitting privileges
with one or more Participating Hospitals, except as otherwise agreed to by
WellCare;
(vi) the failure of such IPA Physician to comply with any Policy or
Procedure or other requirements or is not supportive of the purposes an
intent of this Agreement; provided such IPA Physician has not cured any
such failure within thirty (30) days from its receipt of notification from
WellCare;
(vii) if such IPA Physician becomes insolvent, bankrupt, files a
voluntary petition in bankruptcy, makes an assignment for the benefit of
creditors, or consents to the appointment of a trustee or receiver;
(viii) if IPA has a right to terminate an IPA Physician under the
provider agreement between IPA and such IPA Physician.
(ix) if such IPA Physician has engaged in conduct that poses an
immediate and material threat to the safety and/or well-being of any
patient to whom such IPA Physician has rendered or intends to render care.
In addition, "Good Reason" shall expressly not include the occurrence of any of
the following events by such IPA Physician: (i) such IPA Physician's having
advocated on behalf of a Member; (ii) such IPA Physician's having filed a
complaint against WellCare; (iii) IPA Physician's having appealed a decision of
WellCare; (iv) such IPA Physician's having provided information or filed a
report under New York Public Health Law Section 4406-c regarding prohibitions by
plans; or (v) such IPA Physician's having requested a hearing or review pursuant
to this Section 6.6(a).
(b) Any notice of termination under Section 6.6(a) shall include (i)
the reasons for the proposed termination; (ii) notice that such IPA Physician
has the right to request a hearing or review, at such IPA Physician's
discretion, before a panel appointed by WellCare, which panel shall be composed
of persons meeting the standards set forth in Section 4406-d of the New York
Public Health Law; (iii) a time limit not less than thirty (30) days within
which such IPA Physician may request such a hearing; (iv) a time limit for a
hearing date that shall be held within thirty (30) days after the date of
receipt of a request for a hearing. The hearing process shall be consistent with
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the provisions of Section 4406-d of the New York Public Health Law.
(c) In the event WellCare shall provide notice of termination for Good
Reason under Paragraphs (i), (ii), (iii), (iv), (v), (vii), or (ix) of Section
6.6(a) or for a similar occurrence or act, WellCare shall have the right to
suspend such IPA Physician from providing any IPA Services to IPA Members in
connection herewith during the period commencing with any notice given by
WellCare and the date of termination or reinstatement.
(d) WellCare may terminate any IPA Physician and thereby prohibit such
IPA Physician from providing any IPA Services to any IPA Members in connection
herewith immediately and without prior notice for "Immediate Cause." "Immediate
Cause" shall mean (i) a determination by WellCare in its sole discretion that
such IPA Physician shall have engaged in fraud, theft, embezzlement or other
financial misconduct; or (ii) a final disciplinary action by a state licensing
board or other governmental agency, the effect of which is to impair such IPA
Physician's ability to practice medicine.
6.7 Effect of Termination of IPA Physician or Agreement - Continuation of
Care. IPA shall require each IPA Physician to agree that, upon the effective
date of termination of this Agreement pursuant to Section 6.2 hereof or
termination of a Physician pursuant to Section 6.6(a) hereof, except as
otherwise required by federal or state law regulation, or regulatory agency, he
or she shall continue to provide necessary medical services to IPA Members who
retain eligibility and enrollment under an IPA Member Benefit Plan (i) pursuant
to the provider contracts entered into by such IPA Physician and WellCare in
accordance with Section 3.23 hereof, (ii) if such IPA Physician has not entered
into such contract, the earlier of (x) ninety (90) days from the date of notice
to such IPA Member of the IPA's disaffiliation with WellCare, (y) if such IPA
Member has entered the second trimester of pregnancy at the time of such IPA
Physician's disaffiliation with WellCare, for a transitional period that
includes the provision of post-partum care directly related to the delivery, and
(z) until WellCare, at its discretion upon the consent of such IPA Member, makes
reasonable and medically appropriate provision for the assumption of such care
by another provider, or (iii) until such time as WellCare coverage of such
individuals is lawfully and effectively terminated so that WellCare's obligation
to such individuals is recognized as ended by the applicable law and regulatory
authorities. Additionally, IPA shall require each IPA Physician to agree to
abide by the Policies and Procedures during any such transitional period other
than pursuant to a WellCare provider agreement. WellCare shall pay IPA
Physicians for IPA Services rendered pursuant to this Section 6.7. This Section
6.7 shall survive the expiration or earlier termination of this Agreement.
ARTICLE VII
DISPUTE RESOLUTION
7.1 Negotiation. WellCare and IPA agree to attempt in good faith to resolve
any dispute arising out of or relating to this Agreement promptly by negotiation
between the parties. If any such matter is not resolved within forty-five (45)
days of a party's request for negotiation, either party may initiate an
arbitration proceeding in accordance with Section 7.2 below.
21
<PAGE>
7.2 Arbitration. If WellCare and IPA have not been able to resolve a
dispute by negotiation within forty-five (45) days pursuant to Section 7.1 as
set forth above, either party may submit such dispute to an arbitrator in New
York State subject to the commercial rules and regulations of the American
Arbitration Association. Both parties expressly covenant and agree that they
shall be bound by the decision of the arbitrator as a final determination of the
matter in dispute, subject to any right of appeal under New York law. WellCare
shall provide the Commissioner with notice of all issues submitted to
arbitration pursuant to this Section 7.2 and copies of all decisions related
thereto. Each party shall be solely responsible for its own expenses in
connection with the dispute resolution process; provided that the costs of the
arbitrator shall be divided equally between the parties hereto. Notwithstanding
anything in this Section 7.2, the parties hereto each hereby expressly
acknowledges that the Commissioner shall not be bound by any such arbitration
decision.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment. This Agreement or any part, article, subsection, Attachment,
or Exhibit of it, may be amended as follows:
(a) If necessary to comply with a requirement of any state or federal
agency having jurisdiction to regulate WellCare, by WellCare at
any time during the term of the Agreement (i) upon ten (10) days
prior written notice to IPA and (ii) if material, upon thirty
(30) days prior written notice to the Commissioner.
(b) Any and all other amendments to this Agreement or any part,
article, subsection or Attachment of it will only be effective in
the event that (i) they have been agreed to by both parties, (ii)
both the amendment and such agreement have been reduced to
writing, (iii) if such Amendments are material, they have been
approved by the Commissioner after they have been submitted
thereto at least thirty (30) days prior to the anticipated
effective date thereof.
8.2 Assignment. Subject to prior notice to and approval by the
Commissioner, (i) the terms, covenants, conditions, provisions, and agreements
herein contained shall be binding upon and inure to the benefits of the parties
hereto, and their successors and assigns and (ii) WellCare may assign its rights
and obligations under this Agreement, in whole or in part, to a parent,
subsidiary, or an affiliate of WellCare, any entity into which WellCare is
merged or consolidated, or any entity that purchases substantially all of the
stock or assets of WellCare without IPA's prior approval. In the event that all
or substantially all of the stock or assets of a party is acquired by a third
party, that third party shall be bound to terms, covenants, conditions,
provisions, and agreements contained
22
<PAGE>
herein. Except as expressly set forth in this Section 8.2, neither party may
assign, delegate, or otherwise transfer this Agreement without the prior written
consent of the other party and of the Commissioner.
8.3 Notices. All notices hereunder by either party to the other party shall
be in writing. All notices, demands, and requests shall be deemed given when
mailed, by registered or certified mail, postage paid, return receipt requested.
To WellCare: WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
Attention: President
To IPA: Ulster Health Care Alliance IPA, Inc.
400 Stockade Drive
Kingston, New York 12401
Attention: Chief Executive Officer
or to such other address or to such other person as may be designated by written
notice given during the term of this Agreement by one party to the other.
8.4 Independent Contractors. The relationship among WellCare and IPA and
the IPA Physicians is a contractual relationship among independent contractors.
Neither IPA nor any IPA Physician is an agent or employee of WellCare nor is
WellCare or any of its employees an agent or employee of IPA or any IPA
Physician.
8.5 Material Agreements. WellCare, IPA, and Primergy, each hereby represent
and warrant that to such parties knowledge as of the date hereof, the agreements
listed on Attachment 6.2(d) are the only written or oral agreements between
either WellCare and IPA or WellCare and Primergy, as the case may be.
8.6 Impossibility of Performance. Neither party shall be deemed to be in
violation of this Agreement if it is prevented from performing any of its
obligations hereunder for any reasons beyond its control, including, but not
limited to, acts of God or of the public enemy, flood, or storm, strikes or
statutory regulations, rule or action of any federal, state or local government,
or any agency thereof.
8.7 Waiver of Breach. Any waiver by either party of a breach of any
provision of this Agreement shall not be deemed a waiver of any other breach of
the same or different provisions of this Agreement.
8.8 Governing Law. This Agreement shall be governed by the laws of the
State of New York.
23
<PAGE>
8.9 Compliance with Law. Notwithstanding any other provision of this
Agreement, the parties hereto shall each comply with the provisions of the
Managed Care Reform Act of 1996 (Chapter 705 of the Laws of 1996) and all other
applicable federal, state, and local laws, policies, and procedures governing
the provision of IPA Services to IPA Members.
8.10 Severability. If any provision in this Agreement is held to be
invalid, void, or unenforceable, the remaining provisions shall nevertheless
continue in full force and effect without being impaired or invalidated in any
way.
8.11 Headings. The headings of Articles and Sections contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.12 Confidentiality. Each party agrees that it will not disclose to any
other entity confidential information obtained regarding the operations of the
other contracting party obtained as a result of entry into this Agreement. In
addition, unless such information is a matter of public record:
IPA and IPA Physicians agree not to use participation in WellCare to
exchange or share any information relating to costs of doing
business, including operating costs, salaries, benefits and
material supply costs with other providers.
IPA and IPA Physicians agree not to discuss, disclose or otherwise
communicate any information relating to the prices paid by
WellCare to IPA or IPA Physicians for the provision of services
to WellCare IPA Members.
IPA or IPA Physicians agree not to use participation in WellCare to
discuss, disclose or otherwise communicate any information
relating to participation in any other health plans with WellCare
or any other health care provider.
8.13 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto, supersedes the Prior Agreements and no representations or
agreements, oral or otherwise, between the parties not embodied herein or
attached hereto shall be of any force and effect. Any additions or amendments to
this Agreement subsequent hereto shall be of no force and effect unless in
writing, unless effected pursuant to Section 8.1 hereof and signed by the
parties hereto.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
ULSTER HEALTH CARE WELLCARE OF NEW YORK, INC.
ALLIANCE IPA, INC.
By: /s/ Richard B. Weininger By: /s/ Joseph R. Papa
------------------------------- -----------------------
Name: Richard B. Weininger, M.D. Name: Joseph R. Papa
Title: President Title: President
ACKNOWLEDGED AND AGREED
AS TO SECTION 8.5 HEREOF:
PRIMERGY, INC.
By: /s/ Richard B. Weininger
-------------------------------
Name: Richard B. Weininger, M.D.
Title: CEO
25
<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 June 30, 1998 and the related Statement of Operations for the
period ended June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,460
<SECURITIES> 103
<RECEIVABLES> 11,584
<ALLOWANCES> 2,695
<INVENTORY> 0
<CURRENT-ASSETS> 20,489
<PP&E> 18,132
<DEPRECIATION> 7,185
<TOTAL-ASSETS> 48,507
<CURRENT-LIABILITIES> 29,217
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> (626)
<TOTAL-LIABILITY-AND-EQUITY> 48,507
<SALES> 73,025
<TOTAL-REVENUES> 74,041
<CGS> 0
<TOTAL-COSTS> 61,135
<OTHER-EXPENSES> 16,606
<LOSS-PROVISION> 971
<INTEREST-EXPENSE> 880
<INCOME-PRETAX> (3,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,700)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
