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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________ to ________________
Commission File Number: 0-23220
HEALTH POWER, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 31-1145640
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(State of Incorporation) (I.R.S. Employer Identification No.)
1209 Orange Street
Wilmington, Delaware 19801
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (302) 658-7581
Securities registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On March 5, 1997, the aggregate market value (based on the closing
sales price on that date) of the Common Stock held by nonaffiliates of the
Registrant was $6,429,585.
On March 5, 1997, the Registrant had 3,819,115 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
stockholders to be held on May 28, 1997, which proxy statement will be filed
within 120 days of December 31, 1996, are incorporated by reference into Part
III, Items 10, 11, 12, and 13, of this Report.
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HEALTH POWER, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
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GENERAL
Health Power, Inc. (the "Company" or "Health Power") is a holding
company which was incorporated under Delaware law on March 6, 1985. During 1996,
the Company had two operating subsidiaries, Health Power HMO, Inc., an Ohio
corporation ("Health Power HMO"), and CompManagement, Inc., an Ohio corporation
("CompManagement"). CompManagement Health Systems, Inc., an Ohio corporation and
a subsidiary of CompManagement ("CompManagement Health Systems"), began
providing its services as a managed care organization in March 1997.
Health Power HMO provides comprehensive managed health care services to
members of its health maintenance organization ("HMO"). Health Power has
historically focused on serving Medicaid recipients enrolled in the Aid to
Families with Dependent Children and Healthy Start ("ADC") programs and, to a
lesser extent, commercial members enrolled through employer groups. As of
December 31, 1996, Health Power HMO had approximately 46,716 members, of which
approximately 78% were ADC Medicaid recipients. Health Power HMO's provider
network consists of approximately 795 primary care physicians, 2,180
specialists, and 62 hospitals.
Health Power HMO operates in four service areas encompassing 19 Ohio
counties in and around the cities of Columbus, Dayton, Cincinnati, Cleveland,
and Youngstown. Health Power has been a leader in developing the HMO markets for
ADC Medicaid recipients in its service areas. It was the first HMO to offer
these services in the Columbus and Dayton markets and an early entrant in the
Cincinnati market.
CompManagement offers claims management and medical cost containment
services to employers with respect to their workers' compensation claims and, to
a lesser extent, their unemployment compensation claims. CompManagement provides
its services to approximately 10,000 employers located in all 88 Ohio counties.
CompManagement began business in September 1984, and was acquired by the Company
in July 1995. The acquisition was accounted for as a pooling of interests.
In November 1996, CompManagement Health Systems was certified as a
state-wide managed care organization (an "MCO") under Ohio's recently
implemented managed care workers' compensation system, and in March 1997, it
began providing its MCO services to employers. Prior to November 1996, this
entity was not operational. CompManagement Health Systems provides its MCO
services to approximately 17,000 employers located in all 88 Ohio counties. As
an MCO, CompManagement Health Systems provides, among other things, claims
review and processing for workers' compensation claims, bill review and payment
with respect to physician and hospital charges, quality assurance programs, and
medical management and cost containment services for employers with respect to
their workers' compensation claims. Because all workers' compensation claims are
reimbursed by the Ohio Bureau of Workers' Compensation ("BWC"), CompManagement
Health Systems does not assume any risk for the payment of medical or disability
benefits to employees with respect to their workers' compensation claims.
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The Company also has three other subsidiaries. Health Power TPA, Inc.,
an Ohio corporation ("Health Power TPA"), offers third party administrator
services to companies which self-insure their health care costs. Health Power
Life Insurance Agency, Inc., an Ohio corporation ("Health Power Life Agency"),
offers life insurance and other companion products as part of the benefit
package offered to commercial HMO members. Health Power TPA and Health Power
Life Agency have had insignificant operations to date. Health Power Management
Corporation, an Ohio corporation ("Health Power Management"), provides various
management and/or administrative services to the Company's other subsidiaries.
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
Financial information on industry segments as required by Item 101(b)
of Regulation S-K is set forth in Footnote 15 of the Notes to the Consolidated
Financial Statements, which footnote is part of the financial statements
contained in Item 8 of this Annual Report on Form 10-K, which footnote is
incorporated herein by reference.
HEALTH POWER HMO--HEALTH CARE SERVICES
OVERVIEW OF MANAGED HEALTH CARE
HMOs generally arrange for the provision of comprehensive health care
services, including physician and hospital care, to their members for a fixed,
prepaid premium regardless of frequency, extent, or type of the health care
services provided. Except in cases of medical emergency, the members receive
care from participating primary care physicians who provide all of the primary
care services and coordinate services with participating specialists and
hospitals. HMOs are frequently able to negotiate favorable rates with providers
due to their large membership base and to control medical expenses to a greater
extent than traditional health insurers. Typically, HMOs seek to enter into
arrangements with hospitals calling for discounted charges or fixed per diem
rates and with physicians for fixed monthly payments, regardless of the amount
of health care services which are actually required, known as "capitation
payments," or seek to contract with medical providers on a discounted
fee-for-service basis.
HMOs seek to combine quality health care with management controls
designed to encourage efficient and economical utilization of health care
services. Such controls include monitoring physician services, the level of
hospital care and lengths of stay, emergency room use, and the effective use of
hospital based medical services. HMOs generally receive fixed monthly premiums
for their members regardless of the health care services provided. Thus, HMOs
have an incentive to maintain the health of their members through preventive
medical programs while carefully monitoring expenses through the implementation
of various cost control strategies and effective management.
The three basic HMO organizational models are primarily distinguishable
by the relationship of the HMO with its physician network. Staff model HMOs
employ physicians directly at HMO-controlled facilities and compensate each
physician through salary and incentives. Network model HMOs, such as Health
Power HMO, contract with a limited number of physician groups to provide health
care services to each member on a capitated or a discounted fee-for-service
basis. Individual practice association model HMOs contract with individual
physicians, either directly or through a physicians' association, and each
physician is typically compensated on a capitated or a discounted
fee-for-service basis.
HMOs may be contrasted with indemnity health insurers, which generally
provide reimbursement under a fee-for-service system in which the charges of
physicians, hospitals, and
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other providers selected by the insured are in direct proportion to the quantity
and complexity of the services provided. HMOs also rely to a lesser extent on
member cost sharing or copayment features that are more characteristic of
traditional indemnity insurance. Preferred provider organizations ("PPOs") are
similar to indemnity plans but typically feature discounted fee-for-service
charges by selected providers and financial incentives for members to use
providers within the PPO system.
A growing number of hybrid managed care structures have evolved that
incorporate characteristics of HMOs, PPOs, and indemnity insurance. Employers
who offer these new structures give employees the option of enrolling in an HMO
or, at an increased cost to the employee, obtaining health care from a PPO or
other provider. Some of these "multiple option" HMO plans contain "point of
service" options that allow employees to choose providers either within the
HMO's network or outside such network at a higher out-of-pocket cost at the time
service is rendered. The HMO point of service plans have gained favor with some
large employer groups because they facilitate consolidation of health benefit
programs. While increasingly popular as a means of expanding employees' choices,
these alternatives may result in increased health care costs to employers and
employees to the extent that employees select a health care option without the
managed care feature of traditional HMOs.
MEMBERSHIP AND MARKETS
ADC Medicaid Membership
Health Power HMO offers health care services to ADC Medicaid recipients
in the six Ohio counties of Butler, Cuyahoga, Franklin, Hamilton, Mahoning, and
Montgomery. Health care services are offered to ADC Medicaid recipients pursuant
to a contract with the Ohio Department of Human Services ("ODHS"). Under this
contract, Health Power HMO is paid a fixed monthly capitation rate from ODHS for
each ADC Medicaid recipient enrolled in its HMO. The capitation rate is
established on an annual basis by ODHS, varies by county, and is based upon
certain rate setting methodology and data assumptions adopted by ODHS. As of
December 31, 1996, approximately 78% of Health Power HMO's members were ADC
Medicaid recipients. Health Power HMO's current contract with ODHS is for a
one-year term expiring in June 1997. For the years ended December 31, 1996,
1995, and 1994, ADC Medicaid revenues represented approximately 67%, 64%, and
65%, respectively, of the Company's consolidated revenues.
In all of the counties other than Mahoning, ADC Medicaid recipients are
required, or "mandated" by legislature, to enroll in a managed care plan. In
these counties, ADC Medicaid recipients either select Health Power HMO from
among several managed care plans offered to them or, if no selection is made,
they are assigned to a plan by ODHS. In Mahoning County, which is a
"non-mandated" or "voluntary" county, ADC Medicaid recipients join Health Power
HMO as an alternative to the traditional fee-for-service Medicaid program in
which recipients receive a Medicaid medical card that enables them to receive
medical services performed by participating providers. ADC Medicaid recipients
in voluntary counties may change the managed care plan selected by them or the
method in which they receive medical benefits (i.e., fee-for-service or managed
care) on a monthly basis. ADC Medicaid recipients in mandated counties may
change managed care plans only during the first month of enrollment or during
two "open enrollment" months during the year.
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Commercial Membership
Commercial members are individuals who join Health Power HMO through
their employer-sponsored health benefit plans. Premium rates are based on the
plan selected and are contained in the contract between Health Power HMO and
each employer. These contracts are generally for one-year terms. During a
designated annual "open enrollment period," or at the time of their employment,
employees may select their desired health care benefit program. Employees may be
disenrolled as a result of termination of employment or may disenroll
voluntarily during the open enrollment period.
During 1996, Health Power HMO offered health care services to employees
of the State of Ohio in its Columbus, Dayton, and Cincinnati service areas
pursuant to contracts with the Ohio Department of Administrative Services
("ODAS"). As of December 31, 1996, approximately 63% of Health Power HMO's
commercial members were employees of the State of Ohio or their dependents.
Health Power HMO's current one-year contracts with ODAS for the Columbus and
Cincinnati service areas expire in June 1997. Health Power HMO terminated its
contract with ODAS for its Dayton service area effective March 1, 1997. This
termination was part of the Company's turnaround efforts for its HMO business.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. For the years ended December 31, 1996, 1995, and 1994,
the revenues from this employer group represented approximately 14%, 16%, and
19%, respectively, of the Company's consolidated revenues.
Service Areas
Health Power HMO operates in four service areas encompassing 19 Ohio
counties in and around the cities of Columbus, Dayton, Cincinnati, Cleveland,
and Youngstown.
The Columbus service area encompasses the contiguous counties of
Delaware, Fairfield, Franklin, Licking, Madison, Pickaway, and Union, with
Franklin County being the only county in this group in which Health Power HMO is
permitted to offer its health care services to ADC Medicaid recipients. For the
years ended December 31, 1996, 1995, and 1994, the Columbus service area
operations accounted for 34%, 41%, and 44%, respectively, of the Company's
consolidated revenues.
The Dayton service area encompasses the contiguous counties of Butler,
Clark, Greene, Miami, and Montgomery, with Butler and Montgomery Counties being
the counties in this group in which Health Power HMO is permitted to offer its
health care services to ADC Medicaid recipients. For the years ended December
31, 1996, 1995, and 1994, the Dayton service area operations accounted for 18%,
21%, and 22%, respectively, of the Company's consolidated revenues.
The Cincinnati service area encompasses the contiguous counties of
Clermont, Hamilton, and Warren, with Hamilton County being the county in this
group in which Health Power HMO is permitted to offer its health care services
to ADC Medicaid recipients. For the years ended December 31, 1996, 1995, and
1994, the Cincinnati service area operations accounted for 38%, 29%, and 26%,
respectively, of the Company's consolidated revenues.
The Northeast service area encompasses the Northeast Ohio counties of
Cuyahoga, Lorain, Mahoning, and Summit, with Cuyahoga and Mahoning Counties
being the only counties in this group in which Health Power HMO is permitted to
offer its health care services to ADC Medicaid recipients. The expansion into
the Northeast area occurred during 1996. For the year
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ended December 31, 1996, revenues from the Northeast service area operations
were insignificant.
Membership Information
The following table sets forth the number of Health Power HMO's ADC
Medicaid and commercial members at December 31 for the years indicated and
member months for the years then ended:
<TABLE>
<CAPTION>
Membership
Percentage
as of December
December 31, 31, 1996
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1994 1995 1996
---- ---- ----
<S> <C> <C> <C> <C>
Columbus
ADC Medicaid members 11,140 11,014 10,990 66%
Commercial members 5,463 5,518 5,786 34%
Dayton
ADC Medicaid members 5,485 6,145 5,659 66%
Commercial members 2,394 2,574 2,856 34%
Cincinnati
ADC Medicaid members 8,095 10,643 18,102 92%
Commercial members 2,618 2,955 1,610 8%
Northeast(1)
ADC Medicaid members -- -- 1,688 99%
Commercial members -- -- 25 1%
All service areas
ADC Medicaid members 24,720 27,802 36,439 78%
Commercial members 10,475 11,047 10,277 22%
HMO member months(2)
ADC Medicaid 274,422 311,650 391,503 74%
Commercial 121,997 133,561 134,069 26%
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Total 396,419 445,211 525,572
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<FN>
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(1) Northeast service area began operations in 1996.
(2) Member months are the number of HMO members multiplied by the number of
months during which the members were enrolled in the HMO.
</TABLE>
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SERVICES AND PRODUCTS
Revenues from health care services consist of amounts earned under
contracts with ODHS for ADC Medicaid recipients and with commercial groups. The
following table sets forth the revenues from each of the foregoing and their
approximate percentage contribution to revenues during the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
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Revenues Percentage Revenues Percentage Revenues Percentage
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ADC Medicaid $44,246,928 74% $37,587,138 71% $34,901,001 69%
Commercial 15,167,341 26 15,602,926 29 15,563,480 31
----------- --- ----------- --- ----------- ---
Total $59,414,269 100% $53,190,064 100% $50,464,481 100%
=========== === =========== === =========== ===
</TABLE>
ADC Medicaid
Health Power HMO provides a comprehensive range of health care services
to ADC Medicaid members which are specified by ODHS. These services include
primary care physician, specialist, and hospital care, physical therapy, mental
health and substance abuse care, home health and skilled nursing care, pharmacy,
eye care, diagnostic laboratory tests, x-ray examinations, ambulance services,
and durable medical equipment. ADC Medicaid recipients do not pay any premiums,
deductibles, or copayments for any of their health care services. Health Power
HMO assumes the risk that the actual cost of health care services may exceed the
monthly capitation fee received from the state.
Commercial
Commercial members or their employers can select coverages available
from products which have varying levels of outpatient and inpatient copayments
and deductibles. Health Power HMO has a variety of plans available ranging from
a preferred basic plan, which provides basic health care coverages at a low
monthly cost but with higher deductible and copayments, to a high plan which
provides more comprehensive coverage at a higher monthly cost but with lower
deductibles and copayments. Health Power HMO also has a matrix product which
enables the employer to select benefits from a number of options, thereby
allowing the employer to custom design its own HMO benefit package. Health Power
HMO also markets a point of service option which allows members to utilize
out-of-network physicians in return for paying higher deductibles and copayments
at the point of service.
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PROVIDERS
Health Power HMO provides health care to its members through a provider
network consisting of primary care physicians, specialists, and hospitals. The
following table sets forth the total number of primary care physicians,
specialists, and hospitals in each of Health Power HMO's service areas as of
December 31, 1996.
<TABLE>
<CAPTION>
Service Area
----------------------------------------------------------
Columbus Dayton Cincinnati Northeast Total
-------- ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Primary Care Physicians 185 172 258 180 795
Specialists 629 417 828 306 2,180
Hospitals 13 10 20 19 62
</TABLE>
Upon enrollment, each member selects a primary care physician from the
list of physicians in Health Power HMO's physician network. Primary care
physicians include family practitioners, pediatricians, and internists. Primary
care physicians coordinate the health care requirements of the members, assume
overall responsibility for the care of members, and coordinate the nature and
extent of services provided to any member. These physicians provide preventive
and routine health care services and are responsible for making referrals to
specialists, hospitals, and other providers. Health care services provided
directly by the primary care physicians include the treatment of illnesses not
requiring referrals, periodic physician examinations, routine immunizations,
maternity and well child care, and other preventive health care services.
Specialists provide medical care to members when referred by the primary care
physician. Certain specialist services, such as outpatient laboratory tests and
x-ray examinations and self-referrals for obstetrics, do not require a referral.
The physician network and provider satisfaction are critical to the
successful functioning of an HMO. Management believes that the number of primary
care physicians and sites enhances the marketability of its health care program.
Health Power HMO devotes significant resources to recruiting, credentialing, and
educating physicians and their staffs. Furthermore, Health Power HMO operates
plans that integrate the physician into the decision-making process through a
structure of standing and ad hoc committees. The provider services department is
responsible for responding directly with physicians and their staff concerning
administrative inquiries to supplement the on-site provider relations program.
Health Power HMO has established a continual quality improvement committee
composed of physicians in each service area to work with physicians in
monitoring and developing medical policies. The councils are supported by the
provider relations staff through the health services department.
Health Power HMO has contracted with other entities to provide, among
other things, dental care, mental health and chemical dependency care, eye care,
home health care, skilled nursing care, diagnostic laboratory tests,
x-ray examinations, ambulance services, physical therapy, a 24-hour nurse line,
and durable medical equipment to its HMO members. Members of the HMO have access
to approximately 300 pharmacies in its four service areas and approximately
30,000 pharmacies throughout the United States pursuant to an agreement with
ValueRx Pharmacy Program, Inc.
MEDICAL COST CONTROLS
Health Power HMO uses a number of methods and procedures to control and
manage medical costs. These include capitation and other fee arrangements with
providers, concurrent and utilization review of inpatient hospital services,
including advance approval procedures for elective hospital admissions, and
underwriting procedures.
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Capitation Arrangements
As of December 31, 1996, approximately 62% of Health Power HMO's
members were covered by primary care physicians who were capitated. Capitation
is a method of compensation to providers in which payments by the HMO for health
care services are based on a fixed monthly amount for each person served by such
providers regardless of the actual number or nature of services provided. The
primary benefits of the capitation system of payment are that it improves the
forecasting of medical expenses and introduces an element of risk sharing
between the HMO and the primary care physicians who are responsible for
coordinating care with specialists, hospitals, and for other ancillary services.
Health Power HMO's arrangements with other providers for vision, dental, and
mental health and chemical dependency services are also capitated.
Health Power HMO provides incentives to capitated primary care
physicians to promote appropriate utilization and control of hospital and
ancillary medical costs. Risk-sharing funds are established using budgeted
amounts and shared with primary care physicians based upon actual utilization
and health care cost experience. Health Power HMO generally withholds 20% of
fees due commercial primary care physicians and 10% of fees due ADC Medicaid
primary care physicians as a reserve for potential excessive utilization. The
balances in these reserve accounts are retained by Health Power HMO or remitted
to the primary care physicians at the end of the year based upon the performance
of the combined physician groups for such year. For 1996, all such amounts were
retained by Health Power HMO. Health Power HMO annually reviews the capitation
fee paid to primary care physicians and makes adjustments as necessary. Among
the factors considered in capitation adjustments are utilization patterns and
competitive market conditions.
Other Fee Arrangements
Health Power HMO presently reimburses primary care physicians
representing approximately 38% of the HMO's total membership on an agreed-upon
fee schedule. Despite the success of its capitation program, Health Power HMO
has concluded that a significant number of primary care physicians prefer the
fee schedule arrangement over capitation payments, and in order to attract more
primary care physicians to its provider network, Health Power HMO offers fee
schedule arrangements. Consistent with its capitation arrangements, Health Power
HMO may withhold a portion of such fees to cover payments for fees to
specialists and hospital costs in excess of such physician's budgeted amounts.
Health Power HMO's primary care physicians coordinate care for members
with specialists participating in Health Power HMO's network. Health Power HMO's
provider arrangements with specialists provide for payment for commercial
services at fixed rates. Specialists' services to ADC Medicaid members are paid
at rates established by ODHS. In order to encourage cost effective utilization
of specialists' services, amounts paid to specialists in the aggregate that are
in excess of budgeted amounts may be deducted from such primary care physician's
capitation withhold (commercial members). For ADC Medicaid members, specialist
payments for most capitated primary care providers are included in their monthly
capitation payment.
With the exception of emergencies, all inpatient hospital services paid
by Health Power HMO on behalf of the physicians are provided pursuant to
contracts with various hospitals under a variety of arrangements, including
discounted charges and per diem arrangements, and require advance approval from
the patient's primary care physician and Health Power HMO's medical department.
Emergencies which require medical care by physicians or hospitals not under
contract with Health Power HMO are paid for by Health Power HMO. In order to
encourage cost effective utilization of hospital services, if the aggregate
amount of hospital costs exceed
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budgeted amounts, the excess attributable to a particular primary care physician
may be deducted from such physician's capitation withhold.
In order to obtain high quality services at cost-effective rates,
Health Power HMO has contracted with other providers for, among other things,
physical therapy, home health care, skilled nursing care, pharmacy, diagnostic
laboratory tests, x-ray examinations, ambulance services, and durable medical
equipment.
Utilization Review
Health Power HMO believes that its ability to effectively manage the
appropriateness of services in the most cost-effective setting is a key
component of its operations. Health Power HMO seeks to manage medical costs by
monitoring for inappropriate services. In addition to approval by a member's
primary care physician, all elective hospital admissions must be approved in
advance by Health Power HMO's utilization management department. When members
are admitted to a hospital, Health Power HMO proactively and concurrently
reviews all hospital admissions and coordinates with the admitting physician the
medical necessity and appropriateness of hospital procedures and length of stay.
Health Power HMO also coordinates arrangements for alternative care for members
as they progress through the continuum of care. Health Power HMO conducts
retrospective review of patient records after services are complete to determine
appropriateness of hospital services and charges.
Underwriting
Health Power HMO's commercial underwriting practices are designed to
provide appropriate premium rates and benefits for employer groups. Health Power
HMO also monitors actual experience with each employer group and attempts to
make appropriate premium rate adjustments when contracts are renewed with the
employer.
With respect to commercial members, Health Power HMO establishes
premiums primarily pursuant to a "community rating system by class" which
generally means that it charges the same amount of premium per member within a
geographic area actuarially modified for each employer group based upon the age
and sex of its employees. In order to assure appropriately balanced risk
selection, management has developed underwriting criteria which establish
minimum requirements for each employer group to meet before qualifying for
coverage with Health Power HMO and tailors the benefit coverage to each employer
group. Since 1990, Health Power HMO has utilized the services of an independent
actuary to assist it in establishing its membership premiums for commercial
members and appropriate reserves for medical claims incurred but not yet
reported to Health Power HMO.
Because of its contractual arrangement with ODHS which requires Health
Power HMO to provide health care services to any ADC Medicaid recipient who
selects its HMO, traditional underwriting guidelines do not apply to the ADC
Medicaid program.
MARKETING
In mandatory counties (such as Butler, Cuyahoga, Franklin, Hamilton,
and Montgomery), Health Power HMO and all other managed care plans are
prohibited from directly marketing to potential enrollees. Instead, potential
enrollees contact or visit enrollment information centers ("EICs") located in a
mandatory county. EIC staff members review with enrollees information about each
plan's performance (i.e., consumer satisfaction surveys), provider network, and
any plan-specific advantages. Enrollees are also able to view a video about
Health Power HMO and the other managed care plans operating in the mandatory
county.
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In voluntary counties (such as Mahoning), Health Power HMO may (and
does) directly market to potential enrollees. Health Power HMO markets its HMO
directly to ADC recipients through a variety of methods, all of which require
prior approval of ODHS. Health Power HMO markets its programs to ADC Medicaid
recipients as an alternative to the traditional fee-for-service Medicaid program
in which recipients receive a Medicaid medical card that enables them to receive
medical services performed by participating physicians, hospitals, and other
health care providers. Because ADC Medicaid recipients may change the method of
receiving medical benefits on a monthly basis, Health Power HMO's
representatives are responsible for monitoring member satisfaction after initial
enrollment. Unless a member loses ADC Medicaid eligibility or chooses to
disenroll, ADC Medicaid members are automatically renewed in Health Power HMO's
program on a monthly basis.
Health Power HMO's commercial programs are marketed through a
combination of its own sales force of four representatives and independent
agents and brokers. Health Power HMO markets its plans to private employers as
well as to federal, state, and municipal public employer groups. Employers who
offer Health Power's HMO to their employees generally do so as an option to
traditional coverage rather than as a required replacement. Therefore, marketing
Health Power's HMO commercial programs requires a two-part sale. The employer
must first decide to offer Health Power's HMO. The employee then chooses among
Health Power's HMO, traditional health care insurance, and other options,
including other HMOs. Each year employers conduct an open enrollment during
which their employees may change health care plans. Health Power HMO utilizes
various techniques to retain members and to attract additional members during
open enrollment periods, including work-site presentations, direct mail, and
local advertising.
Health Power HMO has a member services department which directly
communicates with members concerning their health care and service needs. Health
Power HMO conducts annual surveys questioning members about their level of
satisfaction with the services they receive and satisfaction with primary care
physicians. Health Power HMO has also established member advisory groups in
each of its service areas, composed of members selected at random, to provide
information to Health Power HMO concerning services to members. Management
reviews any problems that are presented by members concerning the delivery of
medical care and receives periodic reports summarizing member grievances.
QUALITY IMPROVEMENT
Health Power has developed policies and procedures to ensure that the
health care services provided by its HMO meet the professional standards of care
established by the medical community. During 1996, Health Power HMO received a
one-year accreditation from the National Committee for Quality Assurance
("NCQA"). This accreditation is granted to HMOs which are found to have
comprehensive functioning continual quality improvement programs and which
satisfy all NCQA standards for accreditation.
Health Power HMO's methods for evaluating the quality and
appropriateness of medical care include performing periodic medical care
evaluation studies, analyzing the monthly utilization of certain services,
conducting periodic member satisfaction studies and reviewing and responding to
member and physician grievances. Health Power HMO also compiles statistical
information and publishes monthly departmental summary reports concerning the
utilization of various services, including emergency room care, member service
activity, provider service activity, claims related volume, outpatient care,
out-of-area services, hospital services and physician visits. Under-utilization
as well as over-utilization are evaluated in an effort to control the provision
of quality care to Health Power HMO's members.
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As part of its continual quality improvement program, Health Power HMO
has established peer review procedures which are carried out by a quality
improvement committee consisting of members of the physician groups in each
service area. This committee reviews and evaluates the quality of health care
delivered by the physician groups and study the various tests and procedures
performed by physicians for specific diagnoses. Health Power HMO also reviews
the effectiveness of the physician group continual quality improvement committee
on a periodic basis. In addition, when a new physician group applies to become a
provider, Health Power HMO has a thorough credentialing procedure. Health Power
HMO evaluates the quality of the group's medical facility, medical records,
laboratory and x-ray facilities and capacity to handle membership demands,
performs an on-site inspection, and reviews malpractice complaints and relations
with area hospitals. Once a physician group is selected, it is periodically
reviewed in an attempt to ensure that members are receiving quality medical care
and appropriate access.
RISK MANAGEMENT AND INSURANCE
Health Power HMO has reinsurance to limit its risks for hospital costs
with respect to its ADC Medicaid members. This reinsurance provides that during
each 12-month period, the reinsurer will pay 85% of hospital costs for each ADC
Medicaid member above a stop-loss attachment amount of $50,000.
Health Power HMO also has reinsurance to limit its risks for commercial
members' hospital costs exceeding certain amounts. The percentage of the
hospital costs paid by reinsurance depends on whether the hospital has a
provider agreement with Health Power HMO which provides for fixed charges for
members for specified services (a "fixed fee hospital"), the type of services
provided and the age of the member. Health Power HMO's commercial reinsurance
arrangements provide, during each 12-month period, for coverage of the excess
loss on hospital costs according to the following table:
<TABLE>
<CAPTION>
Fixed Fee Other
Type of Service Hospital Hospital
--------------- -------- --------
<S> <C> <C>
Organ and bone marrow transplant therapy 80% 50%
All other services when member is under one year of age 90% 70%
All other services when member is over one year of age 90% 80%
</TABLE>
The excess loss on hospital costs is calculated by subtracting the
deductible, currently $75,000, to be paid by Health Power HMO from the "eligible
hospital services." Eligible hospital services are limited to the average daily
maximum set forth below per member, which limitation does not include operating
room charges or post-operative charges on the day of a surgical procedure, and
which are further limited to a maximum reinsurance amount.
<TABLE>
<CAPTION>
Daily Maximum
-------------
<S> <C> <C>
1 to 60 days $2,500
61 to 180 days $1,500
181 days and beyond $1,200
</TABLE>
The maximum lifetime reinsurance indemnity for each member is $2,000,000.
In addition, Health Power HMO has various types of liability insurance
to limit the ordinary risks of being engaged in the HMO business. Health Power
HMO requires each of its physician groups and contracting hospitals to have
medical malpractice insurance. Additionally, Health Power HMO carries its own
medical malpractice insurance. In the ordinary course of its business, Health
Power HMO may be subject to claims for which it may not be fully insured,
- 11 -
<PAGE> 13
such as claims resulting from decisions regarding providers, claims resulting
from decisions regarding medical circumstances or necessity of treatment,
including failure to approve medical procedures or hospital admissions, claims
against Health Power HMO for malpractice by providers in its network, claims for
failure to provide coverage or for wrongful termination of coverage, claims
resulting from other issues with employer groups, members, or providers, and
other general liability claims. There is a risk that claims could exceed or not
be covered by insurance.
COMPETITION
The health care industry is highly competitive. Health Power HMO faces
substantial competition in each of its service areas from many types of
competitors, including other for-profit and not-for-profit HMOs, PPOs,
self-funded plans, and traditional indemnity insurance carriers, many of which
have substantially larger enrollments and greater financial and other resources
than Health Power HMO. Health Power HMO believes that the principal competitive
factors affecting its ability to retain and increase membership include its
provider network, the cost of health benefit plans offered, geographic areas
served, reputation, financial stability, quality of staff, comprehensiveness of
benefit coverage, diversity of product offerings, and market presence. The
relative importance of each of these factors and Health Power HMO's key
competitors vary by customer type and by market. In addition, a number of Health
Power HMO's competitors offer diverse products, many of which are similar to
those that Health Power HMO is currently offering or may be offering in the
future. Furthermore, premium rates charged by Health Power HMO's competitors may
have an impact on Health Power HMO's operations. The market for HMO and managed
care products has been subject to historical changes in profitability resulting
from increases in health care costs during periods when significant competition
or other market factors prevent corresponding increases in premiums. During the
last several years, competition in the commercial HMO market was intense, with
many health insurers and HMOs reducing their premium rates.
Health Power HMO will face varying levels of established competition if
it enters new markets or introduces new programs, products, and services. In
addition, new competitors may compete with Health Power HMO in the future.
Health Power HMO also competes with other managed care plans to enter
into contracts with independent physicians, physician groups and other
providers. Competitive factors influencing a physician's or other provider's
decision to contract with Health Power HMO include potential membership volume,
reimbursement rates, timeliness of reimbursement and administrative service
capabilities.
COMPMANAGEMENT--CLAIMS MANAGEMENT
OHIO'S WORKERS' AND UNEMPLOYMENT COMPENSATION SYSTEMS
The following is intended to provide a summary description of the Ohio
workers' and unemployment compensation systems.
Ohio's workers' compensation system is a no-fault state insurance
program whereby injured workers are provided with medical and disability
benefits. Ohio law requires all employers, with certain exceptions, to provide
their employees with workers' compensation coverage. Ohio's system is
administered by the Ohio Bureau of Workers' Compensation (the "BWC"), which is
responsible for managing the state insurance fund, determining premium rates and
manual classifications, collecting premiums from employers, and paying benefits
to or on behalf of injured workers. In determining the premium rates, the BWC
first classifies occupations or industries with respect to their degree of
hazard and then determines the risk of
- 12 -
<PAGE> 14
the different classes. The workers' compensation program is funded by premiums
paid by employers into the state insurance fund, which premiums are based upon
the classification of an employer's employees and such employer's specific risk
experience. If certain conditions are satisfied, similar types of employers may
participate in plans that group, for rating purposes, such employers in pools
that spread each employer's risk among all of the employers participating in
that group. Under these "group rating plans," the premium rates are based upon
the risk experience of the group and not the individual employer participating
in that group. Employers which generally have 500 or more employees in Ohio and
have sufficient financial capabilities may be granted status by the BWC as a
self-insuring employer, which means that such employers are not required to pay
premiums into the state insurance fund, but instead pay the same compensation,
medical, and disability benefits as required by the Ohio workers' compensation
program directly to or for the benefit of their injured workers.
The Ohio workers' compensation system is currently undergoing
substantial change. Effective March 1, 1997, the BWC began implementing a
managed care system for workers' compensation claims known as the Health
Partnership Program (the "HPP"). This program applies to all Ohio employers
other than self-insured employers. The BWC has also implemented a similar
program for self-insured employers known as the Qualified Health Plan.
Under the HPP, participating employers are required to select a
BWC-certified managed care organization (an "MCO"), or have such an MCO assigned
to them by the BWC, to manage their workers' compensation claims. The MCO is
primarily responsible to provide medical management and cost containment
services for employers with respect to their workers' compensation claims. In
order to receive BWC certification, an MCO is required to have, among other
things, a network of healthcare providers, a quality assurance program, and
certain information system capabilities. The MCO provides, among other things,
utilization review services, medical case management services, dispute
resolution, rehabilitation, peer review, and quality assurance programs with
respect to workers' compensation claims.
Ohio's unemployment compensation system provides compensation benefits
to workers who are laid off or involuntarily separated from employment without
just cause. This system is administered by the Ohio Bureau of Employment
Services (the "OBES"), which is responsible for managing the unemployment
compensation fund, determining contribution rates, collecting contributions from
employers, maintaining each employer's account, determining eligibility for
benefits, and paying benefits to eligible unemployed workers. Contribution rates
are determined each year by the OBES and then assigned to the individual
employers. Employers are assigned the standard contribution rate (an amount
equal to a specified percentage of wages as determined by the OBES) or the
average contribution rate for its industry, whichever is greater, until they
become eligible for an experience rate. Thereafter, the annual contribution rate
is based upon the specific experience of each employer. The unemployment
compensation program is funded by contributions paid by employers into the
unemployment compensation fund.
SERVICES
CompManagement provides claims management and medical cost containment
services to employers with respect to their workers' and unemployment
compensation claims. In the area of workers' compensation, such services include
the review and processing of an employer's workers' compensation claims, the
design of individual programs to improve an employer's experience ratings,
representation of employers before the Ohio Industrial Commission and the BWC,
the performance of risk analysis for an employer's experience rating, the review
of premium audits on behalf of employers, and analysis of employers for
inclusion in group rating plans. CompManagement also acts as a third party
administrator ("TPA") of workers' compensation claims for self-insured
employers. Each employer selects the types of services
- 13 -
<PAGE> 15
it desires and then enters into a contract with CompManagement to provide such
services. These contracts are typically for a one-year period.
In the area of unemployment compensation, CompManagement's services are
similar to its services in the area of workers' compensation. Such services
include the review and processing of an employer's unemployment compensation
claims and representation of employers before the OBES. Each employer selects
the types of services it desires and then enters into a contract with
CompManagement to provide such services. These contracts are typically for a one
year period.
CompManagement currently provides its services to approximately 10,000
employers located in all 88 Ohio counties. A substantial number of these
employers have entered into contracts with CompManagement because of their
participation in group rating plans, discussed above, sponsored by trade
associations of which such employers are members. Fees from employers
participating in one of these group rating plans accounted for approximately
56%, 28%, and 18% of CompManagement's revenues for 1996, 1995, and 1994,
respectively.
CompManagement Health Systems provides its MCO services to
approximately 17,000 employers located in all 88 Ohio counties. In addition,
CompManagement Health Systems has also entered into contractual arrangements
with other MCOs pursuant to which it provides various MCO administrative
services to such MCOs. As an MCO, CompManagement Health Services provides the
following types of services: receiving and processing new workers' compensation
claims; reporting injury and claim activity to the Bureau; reviewing and
processing bills submitted by physicians and hospitals; paying physician and
hospital bills once funds are received from the BWC; providing quality assurance
programs; educating participating employers on the HPP program; providing
utilization review programs; providing medical case management programs;
providing a dispute resolution system for participants; providing rehabilitation
programs; and providing a peer review system. Because all workers' compensation
claims are reimbursed by the BWC, CompManagement Health Systems does not assume
any risk for the payment of medical or disability benefits to employees with
respect to their claims.
MARKETING
CompManagement markets its services through both its own sales force of
three persons who directly contact prospective and existing employer groups and
its relationships with over 500 insurance agents and brokers. CompManagement has
service center locations in Akron, Cincinnati, Cleveland, and Toledo, in
addition to its Dublin, Ohio offices.
CompManagement Health Systems primarily markets its MCO through its
relationship with CompManagement, as well as its relationship with over 500
insurance agents and brokers. In addition, employers who do not select an MCO
have one assigned to them by the BWC. In 1997, approximately 2,400 employees
were assigned to CompManagement Health Systems' MCO.
COMPETITION
Claims management for workers' compensation and unemployment
compensation claims is a highly competitive industry, with most of the market
share concentrated among a few companies, including CompManagement. The
principal competitive factors are types of services offered and responsive to
customer needs. CompManagement's strategy is to effectively compete on the basis
of quality and outstanding customer service, while offering a full range of
services.
- 14 -
<PAGE> 16
Although newly implemented, managed care of workers' compensation
claims is a highly competitive industry. Initially, 29 MCOs received state-wide
certification and a total of 52 MCOs received county or state certification
under the HPP program. CompManagement Health Systems competes with both
state-wide certified MCOs as well as county-certified MCOs. CompManagement
Health Systems believes that the principal competitive factors affecting its
ability to retain and attract new employers include its reputation,
relationship with its insurance agents and brokers, geographic areas served,
financial stability, provider network, and responsiveness to customer needs.
CompManagement Health Services' strategy is to effectively compete on the basis
of quality and outstanding service. Many of its competitors have greater
financial and other resources than CompManagement Health Systems.
GOVERNMENT REGULATION
Government Regulations
Ohio law governs all aspects of an Ohio HMO's business, including
financial condition, solicitation of subscribers, contracts with health care
providers, subscriber participation and the scope of benefits provided. In Ohio,
myriad statutes and regulations subject HMOs to concurrent regulation by the
Ohio Department of Health ("ODH"), ODI, and, for those HMOs participating in the
Ohio ADC Medicaid program, ODHS. The Company believes that its HMO is currently
in material compliance with all laws, regulations, and certification
requirements applicable to it. However, in December 1996, Health Power HMO was
placed under supervision by ODI for its failure to satisfy Ohio's statutory net
worth requirements for HMOs. Health Power HMO was released from supervision on
March 20, 1997, after it satisfied ODI's requirements of supervision.
An HMO may not commence or continue operations in the State of Ohio
without a certificate of authority. The certificate of authority application
procedure requires, among other things, satisfying the Director of Health of ODH
(the "Director of Health") and the Superintendent of Insurance of ODI (the
"Superintendent of Insurance") as to the adequacy of the HMO's organizational
structure, financial resources, utilization review, quality assurance programs,
and complaint procedures. In addition to the application for a certificate of
authority, each HMO operating in Ohio must deposit a bond of cash, securities,
or, with approval, corporate surety with the Superintendent of Insurance. Health
Power HMO holds a certificate of authority to operate an HMO in Ohio.
Ohio HMOs must file annual reports with both the Director of Health and
the Superintendent of Insurance, containing similar information as is required
in the application for the certificate of authority, including: audited
financial statements, summary of utilization review, description of enrollee
population and composition, written complaints and their disposition, and
disclosure of the organization's officers or partners. In addition, HMOs
participating in the Ohio ADC Medicaid program must file annual and quarterly
cost reports with ODHS. The Director of Health and the Superintendent of
Insurance must also conduct periodic reviews of each HMO.
Ohio statutes require Ohio HMOs to maintain a certain minimum total
admitted assets, with only certain assets and liabilities of the HMO considered
in calculating such minimum total admitted assets. In addition, Ohio law
requires HMOs to maintain statutory net worth in an amount such that admitted
assets are equal to at least 110% of liabilities. On December 5, 1996, Health
Power HMO was placed under supervision by ODI because of its failure to satisfy
this statutory net worth requirement. On March 20, 1997, Health Power HMO was
released from supervision after it satisfied ODI's requirements of supervision.
- 15 -
<PAGE> 17
Ohio law requires each HMO to deposit $250,000 with ODI. Finally,
each HMO participating in the Ohio ADC Medicaid program are required to
maintain a deposit with ODHS of $200,000. See Item 8. Financial Statements and
Supplementary Data, Note 4 of the Notes to the Consolidated Financial
Statements.
HMOs are included in the definition of "insurers" for purposes of the
Ohio Insurance Holding Company Systems Act (the "Holding Company Act"), and as
such, are subject to regulation under the Holding Company Act. Generally, the
Holding Company Act requires HMOs to register with ODI and furnish information
concerning the operations of companies within the holding company system that
may materially affect the operations, management, or financial condition of the
HMO. Pursuant to these laws, ODI may examine the HMO at any time, require
disclosure of material transactions involving the HMO and the other members of
the holding company system, and require prior notice and an opportunity to
disapprove of certain "extraordinary" transactions, including, but not limited
to, extraordinary dividends. Pursuant to these laws, all transactions within the
holding company system affecting the HMO must be fair and equitable. In
addition, approval of ODI is required prior to the consummation of transactions
affecting the control of the HMO.
ODI regulations require ODI approval if dividends or distributions of
an HMO within a 12-month period were to exceed 15% of the HMO's statutory net
worth as of the end of the preceding fiscal year. Additionally, each HMO must
demonstrate its financial soundness to the Superintendent of Insurance and
submit to monitoring of its financial condition by ODI.
Pursuant to Ohio regulations, each HMO must notify the Superintendent
of Insurance of any major modification of its operations that affects, among
other things, the HMO's solvency, the health care services the HMO provides or
the manner in which the HMO conducts its business. If the modification is the
result of action by the HMO, the modification is subject to prior approval by
the Superintendent of Insurance.
Health Power HMO is not a federally qualified HMO. Federally qualified
HMOs must file periodic financial disclosure reports with, and are subject to
continuous oversight and periodic review by, the United States Department of
Health and Human Services and the United States Health Care Financing
Administration ("HCFA"). Subject to certain exceptions, federally qualified HMOs
are required to set their premiums according to principles of community rating
and to offer a minimum level of benefits which typically exceeds the level of
benefits required by state regulation. Historically, the primary benefits of
obtaining federal qualification were that it enabled an HMO to offer health care
services to Medicare recipients and to be exempt from federal (and possibly
state) enrollment mix requirements. However, non-federally qualified HMOs are
now permitted to offer health care services to Medicare recipients. Health
Power's management periodically reviews whether or not federal qualification
would yield tangible benefits that would make the effort and expense of
obtaining federal qualification worthwhile to the Company.
CompManagement's business is not subject to specific government
regulation or oversight. However, its business is substantially dependent on the
operation of Ohio's workers' and unemployment compensation systems.
CompManagement Health Systems is certified by the BWC to operate a
state-wide MCO and is subject to regulation by the BWC as an MCO. In order to
receive BWC certification, an MCO must demonstrate that it has, among other
things, a satisfactory network of healthcare providers in each of its service
area, a quality assurance program, and certain information system capabilities.
- 16 -
<PAGE> 18
Health Power TPA is licensed by ODI and is subject to regulation as a
TPA. Health Power Life Agency is licensed by ODI and is subject to regulation as
an insurance agency. The Company believes that these entities are presently in
compliance with all laws, regulations, and certification requirements applicable
to them.
Medicaid
Medicaid is a cooperative state and federal program which provides
health care services to low income individuals in the United States. Medicaid is
divided into several types of programs, including Aid to Families with Dependent
Children and Healthy Start, blind and disabled persons, and persons requiring
nursing home care (who may also be concurrently receiving Medicare benefits).
Medicaid is sponsored by individual state governments, such as Ohio, which
obtain significant financial support from the federal government in the form of
matching funds. Ohio's Medicaid program is supervised and regulated by ODHS.
Currently, only ADC Medicaid recipients are eligible to receive Medicaid medical
benefits through a participating HMO.
Health Power HMO participates in Ohio's ADC Medicaid program through a
provider agreement with ODHS. ODHS may enter into provider agreements for the
provision of Medicaid services with HMOs that meet ODHS's definition of an HMO
and that comply with certain other rules. As a participant in Ohio's ADC
Medicaid program, Health Power HMO must comply with specific rules established
for such participation. These rules contain specific requirements, including
eligibility, enrollment, disenrollment, covered services, eligible providers,
subcontractors, recordkeeping, reporting, quality assurance, and marketing. An
HMO's compliance with these requirements is subject to monitoring by ODHS or its
designee, the State of Ohio's auditor's office, and the United States Department
of Human Services. The process by which ODHS evaluates an HMO's compliance with
the quality assurance standards is an annual comprehensive quality assurance
evaluation by a third party reviewing organization. In addition, the HMO must
submit quarterly utilization reports. The most recent evaluations of Health
Power HMO's HMO indicated that it was in compliance with ODHS quality assurance
standards.
In voluntary counties, Ohio and federal regulations require HMOs
participating in the ADC Medicaid program to derive, generally, at least 25% of
their membership residing in a single county, or group of contiguous counties
approved as a single service area, from non-Medicaid recipients. ODHS has the
authority to waive the state requirement for an HMO on an annual basis for up to
three years, provided that HCFA has also waived the federal enrollment mix
requirement for such HMO. HCFA has the authority to waive the federal
requirement for up to three years. Mahoning County is the only voluntary county
in which Health Power HMO offers its services to ADC Medicaid recipients, and it
currently has ODHS and HCFA waivers for this county. See also "-- Mandatory
Managed Care Counties for ADC Medicaid Recipients."
Mandatory Managed Care Counties for ADC Medicaid Recipients
In January 1995, the State of Ohio received a waiver from HCFA which
exempted the operation of Ohio's Medicaid program from many of the federal
regulations applicable to Medicaid, such as the enrollment mix requirement
described above. This waiver, however, was only applicable to the type of health
care program approved by the Ohio General Assembly. The legislation adopted by
the General Assembly grants authority to ODHS to "mandate" ADC Medicaid
recipients residing in certain Ohio counties to enroll in managed care plans in
order to receive medical services. Pursuant to this authority, ODHS has
designated seven counties (Franklin, Montgomery, Hamilton, Butler, Cuyahoga,
Summit, and Lucas) as mandatory counties. All ADC Medicaid recipients residing
in a mandatory county must enroll with a
- 17 -
<PAGE> 19
managed care plan in order to receive medical services. In a mandatory county,
all participating HMOs must accept all eligible ADC Medicaid recipients desiring
to enroll in such HMO, without restriction, in the order in which such
recipients apply to become enrollees of such HMO. Enrollment opportunities must
remain open and available as long as the enrollment maximums determined by ODHS
and found in the provider agreement with such HMO are not exceeded. Because of
this requirement, participating HMOs are not be subject to the federal and state
enrollment mix requirements, but instead, membership is limited as to the
maximum number of enrollees by the ODHS provider agreement.
EMPLOYEES
As of March 1, 1997, the Company had 204 full-time employees. Of these,
66 were employed in connection with Health Power HMO's operations, 101 were
employed in connection with CompManagement's operations, and 37 were employed in
connection with CompManagement Health Systems' operations. The employees of the
Company are not represented by a union. The Company considers its relations with
such employees to be good.
ITEM 2. PROPERTIES
- ------- ----------
The Company's subsidiary owns two three-story office buildings located
at 556 and 560 East Town Street, Columbus, Ohio, which are used as Health Power
HMO's principal office facilities. These facilities contain approximately
14,195 square feet of office space.
CompManagement currently leases approximately 39,000 square feet of
office space at 5777 Frantz Road, Dublin, Ohio. This lease will expire in
December 1997. CompManagement has entered into a lease for a building under
construction located in Dublin, Ohio, which it expects to occupy in October
1997. CompManagement will initially lease approximately 50,000 square feet of
office space in this new building. CompManagement also leases office space in
Akron, Cleveland, and Toledo, Ohio, which is used as service centers for its
operations.
Health Power HMO and CompManagement share office space which is leased
in Cincinnati, Ohio.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Neither the Company nor any of its subsidiaries are currently a party
to any material legal proceedings, nor, to the Company's knowledge, is any
material legal proceeding threatened against the Company or any of its
subsidiaries. On December 5, 1996, Health Power HMO was placed under
supervision by the Ohio Department of Insurance because of its failure to
satisfy Ohio's statutory net worth requirement for HMOs. On March 20, 1997,
Heath Power HMO was released from supervision after it satisfied the
Department's requirements for supervision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1996.
- 18 -
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company and their respective ages and
present positions with the Company are as follows:
<TABLE>
<CAPTION>
Officers Age Present Position(s) with the Company
-------- --- ------------------------------------
<S> <C> <C>
Dr. Bernard F. Master 55 Chairman of the Board and Chief Executive Officer
of the Company
Thomas E. Beaty, Jr. 59 President, Chief Operating Officer, and Treasurer
of the Company
Ronald J. Wurtz 54 Chief Financial Officer and Controller of the
Company
Robert J. Bossart 45 Chief Executive Officer of CompManagement and
CompManagement Health Systems
Jonathan R. Wagner 39 President of CompManagement
Richard T. Kurth 38 Executive Vice President of CompManagement
</TABLE>
Dr. Master has been the Chairman of the Board and Chief Executive
Officer of the Company since its formation in March 1985. Since 1966, Dr. Master
has been a practicing physician in Columbus, Ohio. Dr. Master is a senior
attending physician at Doctors Hospital, Columbus, Ohio, and a member of the
courtesy staff of Deaconess Hospital, Cincinnati, Ohio. Dr. Master is the sole
stockholder of a corporation which operates two medical clinics which are
providers for Health Power's HMO.
Mr. Beaty has been the President and Chief Operating Officer of the
Company since May 1990, and Treasurer of the Company since August 1996. He was
also the Treasurer of the Company from April 1992 to July 1995.
Mr. Wurtz has been the Controller of the Company since August 1990 and
has been Chief Financial Officer since June 1996. He also served as Chief
Financial Officer of the Company from November 1993 to July 1995.
Mr. Bossart has been an executive officer of CompManagement since its
formation in 1984 and the chief executive officer of CompManagement Health
Systems since September 1996.
Mr. Wagner has been an executive officer of CompManagement since its
formation in 1984.
Mr. Kurth has been an executive officer of CompManagement since its
formation in 1984.
- 19 -
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
The Company's shares of common stock are traded on the Nasdaq National
Market system under the symbol HPWR. The following table sets forth the range of
the reported high and low sales prices of the Company's common stock by calendar
quarter for 1995 and 1996:
<TABLE>
<CAPTION>
High Low
---- ---
For the quarter ended 1995:
<S> <C> <C>
March 31 $14.50 $13.25
June 30 $16.00 $13.25
September 30 $12.00 $10.50
December 31 $10.50 $ 7.25
For the quarter ended 1996:
March 31 $ 9.75 $ 8.50
June 30 $11.50 $ 6.50
September 30 $ 8.00 $ 6.00
December 31 $ 5.75 $ 1.94
</TABLE>
The Company has not paid any dividends on its shares of common stock to
date, and it intends to retain its earnings to finance the development and
expansion of its business for the foreseeable future. The approval of ODI is
required if dividends or distributions of an HMO, such as the Company's, within
a 12-month period would exceed 15% of the HMO's statutory net worth as of the
end of the preceding fiscal year.
As of March 5, 1997, there were 87 stockholders of record of the
Company's common stock and approximately 2,000 beneficial owners of such stock,
and the last sales price per share on that date, as reported by the Nasdaq
National Market system, was $3.88.
- 20 -
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data,
operating statistics, and membership data for the Company as of and for each of
the years in the five-year period ended December 31, 1996. All periods in the
table have been restated to reflect the acquisition of CompManagement, which was
accounted for as a pooling of interests.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands of dollars, except per share data, operating statistics and
membership data
STATEMENT OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C>
ADC Medicaid............................ $44,247 $37,587 $34,901 $28,915 $23,149
Commercial.............................. 15,167 15,603 15,563 14,961 11,127
Contract................................ 6,672 5,571 3,547 1,774 1,216
------- ------- ------- ------- -------
Total revenues.......................... 66,086 58,761 54,011 45,650 35,492
------- ------- ------- ------- -------
Expenses:
HMO health care costs................... 57,288 46,242 39,186 35,276 27,954
Selling, general and administrative..... 15,888 13,595 10,349 7,695 6,420
Membership acquisition.................. 5,000 --- --- --- ---
------- ------- ------- ------- -------
Total expenses.......................... 78,176 59,837 49,535 42,971 34,374
------- ------- ------- ------- -------
Income (loss) from operations............. (12,090) (1,076) 4,476 2,680 1,118
Interest income and other, net............ 834 1,158 737 231 144
------- ------- ------- ------- -------
Income (loss) before income tax expense
(benefit) and cumulative effect
of accounting change................... (11,256) 82 5,213 2,911 1,262
Income tax expense (benefit).............. (1,773) (14) 2,031 1,256 550
------- ------- ------- ------- -------
Income (loss) before cumulative effect
of accounting change.................... (9,483) 96 3,182 1,655 712
Cumulative effect of accounting change(1). --- --- --- --- 1,260
-------- ------- ------- ------- -------
Net income (loss)......................... $(9,483) $ 96 $ 3,182 $ 1,655 $ 1,972
======= ======= ======= ======= =======
PER SHARE OF COMMON STOCK:
Income (loss) before cumulative effect
of accounting change................... $ (2.49) $ 0.03 $ 0.88 $ 0.58 $ 0.25
Cumulative effect of accounting change(1). --- --- --- --- 0.45
------- ------- ------- ------- -------
Net income (loss)......................... $ (2.49) $ 0.03 $ 0.88 $ 0.58 $ 0.70
======= ======= ======= ======= =======
Weighted average shares outstanding....... 3,810 3,810 3,634 2,857 2,833
BALANCE SHEET DATA:
Working capital (deficit)................. $ 1,582 $10,920 $12,884 $ 569 $ (410)
Total assets.............................. 21,069 25,723 23,172 11,574 9,363
Long-term debt, including current portion. --- --- --- 353 327
Stockholders' equity (deficit)............ 4,519 14,002 13,754 1,691 (48)
HMO OPERATING STATISTICS:
HMO medical loss ratio (2)................ 96.4% 86.9% 77.7% 80.4% 81.6%
HMO administrative ratio(3)............... 16.2% 17.0% 13.8% 13.4% 14.9%
HMO MEMBERSHIP DATA:
ADC Medicaid.............................. 36,439 27,802 24,720 20,503 17,729
Commercial................................ 10,277 11,047 10,475 10,367 10,025
------- ------- ------- ------- -------
Total..................................... 46,716 38,849 35,195 30,870 27,754
======= ======= ======= ======= =======
<FN>
- ------------------------------
(1) Accounting change relates to adoption of SFAS No. 109, "Accounting for Income Taxes." See Notes 1 and 7 of the
Notes to the Consolidated Financial Statements.
(2) HMO health care costs calculated as a percentage of ADC Medicaid and commercial revenues.
(3) HMO selling, general and administrative expenses calculated as a percentage of ADC Medicaid and commercial
revenues.
</TABLE>
- 21 -
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GENERAL
During 1996, the Company's operating subsidiaries were Health Power HMO
and CompManagement. As further discussed below, CompManagement Health Systems
began providing its MCO services to employers in March 1997. See "1996
Developments- CompManagement Health Systems."
Health Power HMO provides comprehensive managed health care services to
members of its HMO in four service areas encompassing 19 Ohio counties in and
around the cities of Columbus, Dayton, Cincinnati, Cleveland and Youngstown.
Health Power HMO has historically focused on serving ADC Medicaid recipients
and, to a lesser extent, commercial members enrolled through employer groups.
The Company acquired CompManagement on July 21, 1995. The acquisition
was accounted for as a pooling of interests. CompManagement, which began
business in September 1984, provides claims management and medical cost
containment services to employers with respect to their workers' and
unemployment compensation claims. CompManagement provides its services to
approximately 10,000 employers located in all 88 Ohio counties.
This discussion should be read in conjunction with the consolidated
financial statements, notes, and tables included elsewhere in this report. The
Company cautions readers that any forward looking statements contained in this
report involve risks and uncertainties and are subject to change based on
various factors.
1996 DEVELOPMENTS
Supervision by the Ohio Department of Insurance
On December 5, 1996, Health Power HMO was placed under supervision by
ODI because of its failure to satisfy Ohio's statutory net worth requirements
for HMOs. On March 20, 1997, Health Power HMO was released from supervision
after it satisfied ODI's requirements for supervision.
CompManagement Health Systems
In November 1996, CompManagement Health Systems was certified as a
state-wide MCO under Ohio's recently implemented managed care workers'
compensation system, and in March 1997, it began providing its MCO services to
employers. CompManagement Health Systems provides its MCO services to
approximately 17,000 employers located in all 88 Ohio counties. As an MCO,
CompManagement Health Systems provides, among other things, claims review and
processing for workers' compensation claims, bill review and payment with
respect to physician and hospital charges, quality assurance programs, and
medical management and cost containment services for employers with respect to
their workers' compensation claims. Because all workers' compensation claims are
reimbursed by the BWC, CompManagement Health Systems does not assume any risk
for the payment of medical or disability benefits to employees with respect to
their workers' compensation claims.
- 22 -
<PAGE> 24
NCQA Accreditation
In November 1996, Health Power HMO received one-year accreditation from
NCQA. This accreditation is granted to HMOs which are found to have
comprehensive functioning continual quality improvement programs and which
satisfy all NCQA standards for accreditation.
Transaction with ChoiceCare
Health Power HMO acquired certain contract rights from ChoiceCare
Health Plans, Inc., an Ohio corporation ("ChoiceCare"), which enabled
approximately 12,000 Hamilton County ADC Medicaid recipients previously served
by ChoiceCare to be automatically enrolled in Health Power HMO as of July 1,
1996. The purchase price for the contract rights was $5.0 million. The Results
of Operations set forth below reflect the acquisition of such contract rights
and the enrollment of the ADC Medicaid recipients previously served by
ChoiceCare.
Private Label Product
In July 1996, Health Power HMO and Health Power Management entered into
agreements with MedOhio Health, Inc. and MedOhio Health Plan, Inc.
(collectively, "MedOhio Health") to offer and manage a private label managed
care product known as the "University Healthcare Plan". Health Power HMO began
offering the University Healthcare Plan to Franklin County ADC Medicaid
recipients during the first quarter of 1997. As part of this transaction,
MedOhio Health was granted an option to purchase 25,000 shares of Common Stock
of the Company. See Item 8. Financial Statements and Supplemental Data, Note
11(d) of the Notes to the Consolidated Financial Statements.
Northeast Service Area Expansion
In July 1996, Health Power HMO became authorized to offer its managed
health care services in Cuyahoga, Lorain, Mahoning, and Summit Counties, Ohio.
Health Power HMO is authorized to serve commercial members in all four of these
counties and ADC Medicaid recipients in Cuyahoga and Mahoning Counties. Health
Power HMO begin offering its managed health care services in these counties
during the third quarter of 1996.
RESULTS OF OPERATIONS
1996 Compared to 1995
The Company's revenues increased $7.3 million, or 12.5%, to $66.1
million during 1996, from $58.8 million for 1995. This increase was due to
growth in the number of employers contracting with CompManagement and to growth
in HMO membership, which more than offset reductions in HMO revenue per member
months. CompManagement's revenues increased $1.1 million, or 19.8%, to $6.7
million during 1996, as compared to the prior year, as a result of an increase
in the number of employers contracting for its services, and in particular,
employers participating in group rating plans. Health Power HMO's revenues
increased $6.2 million, or 11.7%, to $59.4 million during 1996, from $53.2
million for 1995. Health Power HMO's ADC Medicaid revenues increased 17.7%
during 1996, as compared to the prior year, primarily as a result of a 25.6%
increase in member months which was primarily due to the enrollment of the ADC
Medicaid recipients previously served by ChoiceCare, which more than offset a
6.3% decrease in the revenue per member months. Health Power HMO's commercial
revenues decreased 2.8% during 1996, as compared to the prior year, primarily as
a result of a 3.2% decrease in the revenue per member month. The decrease in the
ADC Medicaid revenue per member month resulted from the July 1, 1996 capitation
rate reduction
- 23 -
<PAGE> 25
of approximately 12% from ODHS, discussed below. The decrease in the commercial
revenue per member month was the result of a competitive and price sensitive
commercial marketplace.
Health Power HMO's health care costs increased $11.0 million, or 23.9%,
to $57.3 million during 1996, from $46.2 million for 1995. The 1996 results
included a fourth quarter adjustment in which Health Power HMO decreased its
health care costs by approximately $1.0 million to record retention of
risk-sharing funds previously accrued for payment to its primary care
physicians. Health care costs, stated as a percentage of Health Power HMO's
revenues (the "HMO medical loss ratio"), were 96.4% for 1996, as compared to
86.9% for 1995. The increase in the HMO medical loss ratio was primarily due to
increases in per member health care costs of 14.0% and 2.6% for commercial and
ADC Medicaid business, respectively, during 1996, as compared to the prior year,
along with the aforementioned 3.2% decrease in per member commercial revenue and
the 6.3% decrease in per member ADC Medicaid revenue during the same period. The
decrease in the commercial per member revenue was attributable to rate decreases
based upon the competitive and price sensitive commercial marketplace during
1996. The decrease in the ADC Medicaid per member revenue was attributable to
decreases in the capitation rates from ODHS. The capitation rates from ODHS are
fixed in advance of each year's agreement, and Health Power HMO is unable to
adjust such rates during the contract term. ODHS bases its rates, in part, on
its estimates of ADC Medicaid health care costs increases. During 1996, Health
Power HMO experienced health care cost increases at rates in excess of the ODHS
cost estimates. As further discussed below, Health Power HMO is attempting to
control its health care costs by renegotiating existing provider contracts at
more favorable rates and not renewing unprofitable commercial accounts.
The Company's selling, general and administrative ("SGA") expenses
increased $2.3 million, or 16.9%, to $15.9 million for 1996, from $13.6 million
for 1995. CompManagement's SGA expenses increased $1.7 million, or 38.3%, to
$6.3 million for 1996, from $4.5 million for 1995. This increase was primarily
the result of expenses incurred by CompManagement Health Systems in connection
with the development of its MCO operations and increases in CompManagement's
selling commissions. Because CompManagement Health Systems did not generate any
revenues in 1996, its SGA expenses have been included with such expenses for
CompManagement for 1996 presentation purposes. See "1996
Developments-CompManagement Health Systems." Health Power HMO's SGA expenses
increased $0.6 million, or 6.1%, to $9.6 million for 1996, from $9.1 million for
1995. This increase was primarily the result of expenses incurred in connection
with obtaining NCQA accreditation and expansion into the Northeast service area.
See "1996 Developments-NCQA Accreditation" and "-Northeast Service Area
Expansion." These SGA expenses, stated as a percentage of Health Power HMO's
revenues (the "HMO administrative ratio"), were 16.2% for 1996, as compared to
17.0% for 1995. The improvement in the HMO administrative ratio was due to the
achievement of certain operating efficiencies as fixed overhead costs and
expenses were allocated over a larger membership base due to the increase in
membership resulting from the ChoiceCare transaction. See "1996
Developments--Transaction with ChoiceCare." At the direction of ODI, the
Company changed its method of allocating SGA expenses among its subsidiaries
for 1996 from the method used in 1995. The 1995 HMO administrative ratio and
the 1995 SGA expenses of Health Power HMO have been revised to be comparable to
those of 1996. This change resulted in the 1995 HMO administrative ratio being
17.0% instead of the previously reported 14.8%, and the 1995 SGA expenses of
Health Power HMO being $9.1 million instead of the previously reported $7.9
million.
As previously discussed, Health Power HMO acquired certain contract
rights from ChoiceCare for a purchase price of $5.0 million. See "1996
Developments-Transaction with ChoiceCare." Because of the nature of the
intangible asset acquired, the Company elected to write-off the entire purchase
price in 1996.
The Company's interest income and other decreased $0.3 million to $0.8
million for 1996, from $1.2 million for 1995. This decrease resulted primarily
from an decrease in the
- 24 -
<PAGE> 26
average available investable cash balance combined with reduced interest yields.
The decrease in the average available investable cash balance was primarily the
result of the payment of the $5.0 million purchase price for the acquisition of
the ChoiceCare contract rights at the end of the second quarter of 1996 and the
operating losses sustained during the year.
The Company had an income tax benefit of $1.8 million for 1996, as
compared to an income tax benefit of $14,000 for 1995. This tax benefit was the
result of a loss from operations of $12.1 million.
As a result of the foregoing, the Company sustained a net loss of $9.5
million as compared to net income of $96,000 for 1995.
Health Power HMO's operating results have been and will continue to be
adversely affected by capitation rate reductions from ODHS. As of July 1, 1996,
the per member capitation rates from ODHS were reduced by approximately 12% from
the prior year's rates. The 1996 rate reduction followed a 5% capitation rate
reduction in 1995. The current reduced rates will remain in effect until June
30, 1997. Health Power HMO also incurred substantial expenses during 1996 in
connection with establishing its presence in the Northeast service area and in
obtaining NCQA accreditation. As previously discussed, Health Power HMO began
offering its managed care services in the Northeast service area during the
third quarter of 1996 and received a one-year NCQA accreditation in November
1996. See "1996 Developments-Northeast Service Area Expansion" and "-NCQA
Accreditation." The Company will continue to incur expenses in 1997 in support
of these activities. The Company's management believes that these activities are
necessary to position Health Power HMO for continued growth. However, these
activities adversely impacted 1996 earnings, and there can be no assurance that
such activities will result in future growth.
During the second half of 1996, the Company's management developed and
implemented a plan of action to turn around its HMO business. Among the actions
implemented, Health Power HMO renegotiated its existing provider contracts at
more favorable rates; unprofitable commercial accounts were not renewed or, if
renewed, at increased rates; the Company's Dayton and Miamisburg offices were
closed and their operations were consolidated in the Company's Columbus office;
and the Company's HMO staff was reduced.
While the reduced capitation rates, substantial expenditures for the
establishment of the Northeast service area and the obtainment of NCQA
accreditation, and the write-off of the contract rights acquired from
ChoiceCare, all as discussed above, had an adverse effect on the net income of
the Company for 1996, management believes that its turnaround efforts in its
HMO business and the profitable operations of CompManagement will lead to
improved operating results. The Company likely will report losses into 1997.
The Company's management believes that the Company will return to profitable
operations during 1997; however, there can be no assurances as to when or if
this will occur.
1995 Compared to 1994
The Company's revenues increased $4.8 million, or 8.8%, to $58.8
million during 1995, from $54.0 million for 1994. This increase was due to
growth in the number of employers contracting with CompManagement and to growth
in HMO membership, which more than offset reductions in HMO revenue per member
months. CompManagement's revenues increased $2.0 million, or 57.1%, to $5.6
million during 1995, as compared to the prior year, as a result of an increase
in the number of employers contracting for its services, and in particular,
employers participating in group rating plans. Health Power HMO's revenues
increased $2.7 million, or 5.4%, to $53.2 million during 1995, from $50.5
million for 1994. The 1995 results included
- 25 -
<PAGE> 27
a fourth quarter adjustment in which Health Power HMO increased its estimate of
health care costs payable by approximately $0.4 million related to premium
deficiencies with respect to group contracts in effect at December 31, 1995.
Health Power HMO's ADC Medicaid revenues increased 7.7% during 1995, as compared
to the prior year, primarily as a result of a 13.6% increase in member months,
which more than offset a 5.2% decrease in the revenue per member month. Health
Power HMO's commercial revenues increased .3% during 1995, as compared to the
prior year, primarily as a result of a 9.5% increase in member months, which was
offset by a 8.4% decrease in the revenue per member month. The decrease in the
ADC Medicaid revenue per member month resulted from the March 1, 1995 capitation
rate reduction of approximately 5% from ODHS, discussed above. The decrease in
the commercial revenue per member month was the result of the competitive and
price sensitive commercial marketplace.
Health Power HMO's health care costs increased $7.1 million, or 18.0%,
to $46.2 million during 1995, from $39.2 million for 1994. The 1995 results
included a fourth quarter adjustment in which Health Power HMO decreased its
health care costs by approximately $0.6 million to record retention of
risk-sharing funds previously accrued for payment to its primary care
physicians. The HMO medical loss ratio was 86.9% for 1995, as compared to 77.7%
for 1994. The increase in the HMO medical loss ratio was primarily due to
increases in per member health care costs of 13.3% and 1.3% for commercial and
ADC Medicaid business, respectively, during 1995, as compared to the prior year,
along with the aforementioned 8.4% decrease in per member commercial revenue and
the 5.2% decrease in per member ADC Medicaid revenue during the same period.
Health Power HMO normally adjusts its commercial rating to include health care
cost increases, but also balances marketing decisions against marketplace
considerations. With respect to ADC Medicaid pricing, because Health Power HMO's
monthly per member capitation rate payment from ODHS is based, in part, on ODHS
estimates of ADC Medicaid health care cost increases, Health Power HMO is unable
to appropriately adjust its pricing if actual ADC Medicaid health care costs
increase at a rate in excess of the ODHS estimates.
The Company's SGA expenses increased $3.2 million, or 31.4%, to $13.6
million for 1995, from $10.3 million for 1994. CompManagement's SGA expenses
increased $1.2 million, or 34.3%, to $4.5 million for 1995, from $3.4 million
for 1994, primarily as a result of increases in selling commissions and other
expenses necessary to support the increase in the number of employers
contracting for its services. Health Power HMO's SGA expenses increased $2.1
million, or 30.0%, to $9.1 million for 1995, from $7.0 million for 1994. The
administrative ratio was 17.0% for 1995, as compared to 13.8% for 1994. The
increase in Health Power HMO's SGA expenses, as well as the increase in the HMO
administrative ratio, was primarily due to increased marketing and sales
expenditures, provider network expansion, physician credentialing, activities
associated with efforts to obtain NCQA accreditation, and costs associated with
the acquisition of CompManagement.
The Company's interest income and other increased $0.4 million to $1.2
million for 1995, from $0.7 million for 1994. This increase resulted primarily
from an increase in the average available investable cash balance combined with
improved interest yields.
The Company had an income tax benefit of $14,000 for 1995, as compared
to an income tax expense of $2.03 million for 1994. This tax benefit was the
result of a loss from operations of $1.08 million, adjustment of various state
and local tax accrual accounts, and the effect of certain tax-exempt income.
As a result of the foregoing, the Company's net income decreased $3.1
million to $96,000 during 1995, from $3.2 million for 1994.
- 26 -
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through internally generated funds
and net proceeds from the March 1994 public offering, and its principal sources
of cash have been premium revenues from Health Power HMO, contract revenues from
CompManagement, and investment income. The net proceeds from the March 1994
public offering were $8.6 million. The Company's principal capital needs are to
fund ongoing operations and to maintain necessary regulatory capital. At
December 31, 1996, the statutory net worth of Health Power HMO was ($0.5
million), which did not meet Ohio's minimum statutory net worth requirements.
See "1996 Developments-Supervision by the Ohio Department of Insurance."
At December 31, 1996, the Company had working capital of $1.6 million,
as compared to working capital of $10.9 million at December 31, 1995. At
December 31, 1996, cash and cash equivalents were $13.9 million, a decrease of
$5.6 million from $19.5 million at December 31, 1995. This decrease was
attributable primarily to a $9.4 million loss from operations and a $4.1 million
increase in the health care costs payable. The Company's cash and cash
equivalents do not include statutory cash deposits segregated as required by ODI
and ODHS. These deposits of $0.4 million as of December 31, 1996, are included
with other assets on the balance sheet.
Net cash used in operating activities was $5.1 million for 1996, as
compared to net cash provided by operating activities of $1.7 million during
1995. In general, changes from year to year in cash flow from operations are
primarily due to changes in net earnings, health care costs payable, and
deferred revenues. Many of these fluctuations are due to timing of cash receipts
or payments. Because premium payments received prior to the month of coverage
are recorded as deferred revenues, the extent of such receipts can cause
fluctuations in the total amount of cash from month-to-month.
As previously discussed, the Company will likely report losses into
1997, which will adversely impact the Company's liquidity. However, the
Company's management is implementing a plan of action to turn around its HMO
business. Among the actions taken which should improve operating results for
1997 are improved provider contracting and a substantial reduction in
unprofitable commercial accounts. However, the Company has experienced
capitation rate decreases with respect to its ADC Medicaid membership, which
affects the Company's ability to generate sufficient revenues to offset its
health care costs.
INFLATION
Historically, medical costs have risen at a higher rate than the
general rate of inflation. The Company believes that its cost containment
procedures and contractual arrangements with providers mitigate, but do not
wholly offset, the effects of medical cost inflation on its operating results.
The commercial marketplace was intensely competitive and price
sensitive during 1996, and Health Power HMO was generally unable to increase its
commercial premium rates commensurate with its medical cost increases in 1996.
The Company's management has implemented a plan of action which, among other
things, focuses on not renewing unprofitable commercial accounts or, if
renewing, at increased rates. However, there can be no assurance that this
action will result in mitigating the effects of medical cost inflation.
With respect to ADC Medicaid capitation rates, and as previously
discussed, in 1995, Health Power HMO received an approximate 5% capitation rate
reduction from ODHS with
- 27 -
<PAGE> 29
respect to its ADC Medicaid membership. In 1996, the Company received further
capitation rate reductions from ODHS, varying by service area, of approximately
12%. These further reduced rates will be in effect until June 30, 1997.
Because of the foregoing, the Company may be unable to offset the
adverse effects of inflationary medical cost increases to its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The Consolidated Financial Statements, including the Notes to
Consolidated Financial Statements and the Report of Independent Accountants,
appear following this page. Supplemental data is omitted because it is not
applicable to the Company.
- 28 -
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Health Power, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Health Power,
Inc., and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Health
Power, Inc., and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Columbus, Ohio
March 5, 1997,
except for Note 13
for which the date is
March 20, 1997
<PAGE> 31
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $13,928,640 $19,492,893
Accounts receivable 2,257,390 1,892,111
Prepaid expenses and other 151,732 146,532
Income taxes refundable 1,794,919 405,644
Deferred income taxes 703,511
----------- -----------
Total current assets 18,132,681 22,640,691
----------- -----------
Property and equipment, at cost:
Land 152,640 152,640
Buildings and leasehold improvements 1,252,654 1,231,514
Furniture, equipment and software 2,447,919 2,308,826
----------- -----------
3,853,213 3,692,980
Less accumulated depreciation 1,460,535 1,126,942
----------- -----------
2,392,678 2,566,038
----------- -----------
Deferred income taxes 1,747
Deposits and other assets 543,218 514,231
----------- -----------
Total assets $21,068,577 $25,722,707
=========== ===========
</TABLE>
CONTINUED
<PAGE> 32
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current liabilities:
Health care costs payable $ 10,896,149 $ 6,883,420
Capitation costs withheld and risk-sharing funds 437,303
Deferred revenues:
HMO 3,753,608 3,398,844
Consulting 1,028,944 304,961
Accounts payable 665,779 514,776
Accrued expenses and other current liabilities 205,516 181,458
------------ ------------
Total current liabilities 16,549,996 11,720,762
------------ ------------
Commitments and contingencies (Notes 6 and 7)
Stockholders' equity:
Preferred stock, par value of $.01 per share, 5,000,000 shares
authorized; none issued
Common stock, par value of $.01 per share, 10,000,000 shares
authorized; 3,810,331 shares issued and outstanding 38,104 38,104
Additional paid-in capital 10,711,292 10,711,292
Retained earnings (deficit) (6,230,815) 3,252,549
------------ ------------
Total stockholders' equity 4,518,581 14,001,945
------------ ------------
Total liabilities and stockholders' equity $ 21,068,577 $ 25,722,707
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 33
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Medicaid $ 44,246,928 $ 37,587,138 $ 34,901,001
Commercial 15,167,341 15,602,926 15,563,480
Contract 6,671,679 5,571,118 3,546,578
------------ ------------ ------------
66,085,948 58,761,182 54,011,059
------------ ------------ ------------
Expenses:
Health care costs 57,287,623 46,242,509 39,186,145
General and administrative 15,888,246 13,594,520 10,349,404
Membership acquisition 5,000,000
------------ ------------ ------------
78,175,869 59,837,029 49,535,549
------------ ------------ ------------
(Loss) income from operations (12,089,921) (1,075,847) 4,475,510
Interest income and other, net 833,723 1,158,298 737,882
------------ ------------ ------------
(Loss) income before income taxes (11,256,198) 82,451 5,213,392
Federal, state and local income tax benefit
(expense) 1,772,834 13,666 (2,031,145)
------------ ------------ ------------
Net (loss) income $ (9,483,364) $ 96,117 $ 3,182,247
============ ============ ============
Net (loss) income per common share $ (2.49) $ 0.03 $ 0.88
============ ============ ============
Weighted average shares outstanding 3,810,331 3,809,757 3,634,161
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 34
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON STOCK ADDITIONAL UNEARNED (ACCUMU- TOTAL STOCK-
------------------------- PAID-IN COMPENSA- LATED HOLDERS'
SHARES AMOUNT CAPITAL TION DEFICIT) EQUITY
------------------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,858,761 $ 28,588 $ 1,687,736 $ (12,822) $ (12,815) $ 1,690,687
Issuance of common stock-
initial public offering 915,060 9,151 8,605,823 8,614,974
Issuance of common stock-
incentive stock bonus
plan 35,458 354 318,768 319,122
Unearned compensation-
incentive stock bonus
plan (40,366) (40,366)
Net income 3,182,247 3,182,247
Pooled subsidiary cash
dividends (13,000) (13,000)
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 3,809,279 38,093 10,612,327 (53,188) 3,156,432 13,753,664
Issuance of common stock-
employee stock option
plan 1,052 11 11,561 11,572
Tax benefit on incentive stock
bonus plan 87,404 87,404
Earned compensation-
incentive stock bonus
plan 53,188 53,188
Net income 96,117 96,117
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 3,810,331 38,104 10,711,292 3,252,549 14,001,945
Net loss (9,483,364) (9,483,364)
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 3,810,331 $ 38,104 $ 10,711,292 $ $ (6,230,815) $ 4,518,581
========= ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 35
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(9,483,364) $ 96,117 $ 3,182,247
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating
activities:
Depreciation 359,855 202,242 111,101
Loss (gain) on disposal of property and
equipment 209,226 (751) 17,607
Incentive stock bonus plan 140,592 172,383
Changes in current assets and current liabilities:
Accounts and notes receivable (350,279) (634,086) 449,077
Prepaid expenses and other (5,200) 40,304 (82,246)
Income taxes refundable (1,389,275) (405,644)
Health care costs payable 4,111,797 (125,211) 215,120
Capitation costs withheld (437,303) (105,150) (19,114)
Deferred revenues 1,078,747 3,435,188 60,776
Accounts payable 151,003 293,411 (372,953)
Income taxes payable (719,756) 73,616
Accrued expenses and other liabilities (75,010) (476,306) 145,288
Deferred income taxes 705,258 (39,395) 111,318
----------- ----------- -----------
Net cash (used in) provided by operating
activities (5,124,545) 1,701,555 4,064,220
----------- ----------- -----------
Cash flows (used in) provided by investing activities:
Purchase of property and equipment, net (509,721) (2,360,380) (310,419)
Proceeds from sale of property and equipment 99,000
Deposits and other (28,987) (80,393) 3,528
----------- ----------- -----------
Net cash used in investing activities (439,708) (2,440,773) (306,891)
----------- ----------- -----------
</TABLE>
CONTINUED
<PAGE> 36
HEALTH POWER, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows provided by (used in) financing
activities:
Issuance of common stock for cash $ 11,572 $ 9,361,064
Deferred offering costs (328,719)
Repayment of debt obligations (453,028)
Cash paid for dividends (pooled subsidiary) (13,000)
------------ ------------
Net cash provided by financing activities 11,572 8,566,317
------------ ------------
Net (decrease) increase in cash
and cash equivalents $ (5,564,253) (727,646) 12,323,646
Cash and cash equivalents, beginning of year 19,492,893 20,220,539 7,896,893
------------ ------------ ------------
Cash and cash equivalents, end of year $ 13,928,640 $ 19,492,893 $ 20,220,539
============ ============ ============
Supplemental disclosures of cash flow information:
Income taxes paid $ 1,329,860 $ 1,842,270
============ ============
Issuance of common stock--incentive stock
bonus plan $ 319,122
============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 37
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. DESCRIPTION OF OPERATIONS: Health Power, Inc. (the Company) is a
Delaware holding company that operates Health Power HMO, Inc., a
health maintenance organization (HMO) in the Columbus, Cincinnati and
Dayton, Ohio, areas for Aid to Families With Dependent Children (ADC)
and Healthy Start Medicaid recipients as well as for commercial
members. On November 18, 1996 the HMO received a National Committee
for Quality Service Assurance (NCQA) certificate which expires
February 18, 1998. The Company also provides full-service workers' and
unemployment compensation consulting services through its
CompManagement, Inc. (CompManagement) subsidiary (see Note 2) to
employers in the state of Ohio. Effective March 1, 1997,
CompManagement Health Systems, Inc., a subsidiary of CompManagement,
will also begin operations as a managed care organization for the Ohio
Bureau of Workers' Compensation.
b. BASIS OF PRESENTATION: The accompanying consolidated financial
statements are presented in accordance with generally accepted
accounting principles (GAAP). The Company's HMO subsidiary is subject
to regulation by the Ohio Department of Insurance (the Department) and
is required to file separate financial statements with the Department
prepared in accordance with statutory accounting practices. Such
practices differ in certain respects from GAAP. Significant statutory
differences relate to certain assets designated as "nonadmitted"
(principally intercompany accounts), which are charged directly to
surplus and deferred federal income taxes and are not recognized for
statutory reporting purposes.
c. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All intercompany balances and transactions have been eliminated in
consolidation.
d. PER SHARE DATA: Earnings per common share have been computed by
dividing net income by the weighted average number of common shares
and common stock equivalents outstanding. Common stock equivalents
included in the computation represent shares issuable on assumed
exercise of stock options and stock warrants having exercise prices
less than the average market price of the common stock using the
treasury stock method.
e. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: It is the policy of the
Company to classify investments with original maturities of three
months or less as cash equivalents and original maturities greater
than three months but less than one year as short-term investments.
Cash equivalents at December 31, 1996 include $12,809,000 deposited in
an overnight sweep account and $1,472,844 invested in commercial paper
and a money market fund.
<PAGE> 38
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
f. PROPERTY, EQUIPMENT AND SOFTWARE: Depreciation and amortization of
property, equipment and software is computed using the straight-line
method over the estimated useful lives of the assets, ranging from 3
to 25 years.
Expenditures for major betterments are capitalized, and expenditures
for repairs and maintenance are charged to operations as incurred.
When property and equipment are retired or sold, the cost and related
accumulated depreciation and amortization are removed from the
accounts, with any gain or loss reflected in operations.
Depreciation expense amounted to $359,855, $202,242 and $111,101 in
1996, 1995 and 1994, respectively.
g. REVENUES: Commercial and Medicaid revenues consist primarily of
amounts earned under contracts with commercial groups and the Ohio
Department of Human Services (ODHS) for Medicaid recipients. Such
amounts are recognized when earned. Amounts received prior to the
month of service are recorded as deferred revenues. For the year ended
December 31, 1996, commercial group premiums from the State of Ohio
approximated 59% of the Company's commercial revenues. Effective
February 24, 1997, the Company gave notice to cancel its contract to
provide services for a commercial group in the Dayton area; therefore,
health care coverage for that group will cease on March 1, 1997. This
group accounted for approximately 15% of the HMO's commercial revenue
during 1996. Other commercial group coverage will continue as normal
in the Dayton area.
Contract revenues are derived from claims management, administrative
and consulting services, which are recorded as earned based on the
requirements and duration of the related contract. Revenue on certain
contracts has been deferred and is recognized into income on a pro
rata basis over the related contract periods, which typically range
between 3 and 12 months. Commission expense associated with these
contracts is also deferred and recognized into expense on a pro rata
basis over the related contract periods. For services related to group
rating contracts, fees are paid to the group's sponsor and netted
against contract revenues. For the year ended December 31, 1996,
contract revenue from a major client approximated 32% of the Company's
contract revenue.
h. HEALTH CARE COSTS: Health care costs include primary care and
physician-related costs and hospital costs. Primary care and
physician-related costs represent expenses incurred under contracts
and arrangements with health care providers in rendering services to
enrollees. Such costs include fee-for-service amounts and capitation
(a monthly fixed fee per enrollee) recognized in providing medical,
vision, pharmacy and other health care services.
Hospital costs are recognized when hospital services are provided to
enrollees and include stop-loss insurance coverage premiums, net of
recoveries (see Note 6).
<PAGE> 39
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Primary care and physician-related costs and hospital costs include
management's estimate of services provided but not reported at
year-end and expected future losses on contracts in effect at
year-end. The Company recognizes expected future contract losses when
it is probable that expected future health care costs and maintenance
costs under a group of existing contracts will exceed anticipated
future premiums and stop-loss insurance recoveries on those contracts.
The reserve for expected future contract losses is approximately
$266,175 and $398,000 as of December 31, 1996 and 1995, respectively,
and is included with health care costs payable on the accompanying
consolidated balance sheets. The methods of making such estimates and
for establishing the resulting liabilities are continually reviewed
and updated based on current circumstances, and any adjustments
resulting therefrom are currently reflected in operations. It is
reasonably possible that these circumstances may change in the near
term.
Stop-loss reinsurance premiums are reported as health care costs and
recoveries are reported as a reduction of health care costs.
Effective January 1, 1997, the HMO entered into an agreement to
outsource the claims adjudication and payment process and other
administrative functions related to the HMO's Medicaid and commercial
members with a third-party administrator. The administrative and claim
processing fees are subject to change on January 1 of each year,
beginning January 1, 1998.
i. INCOME TAXES: Deferred income tax assets and liabilities are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
j. ACQUISITION COSTS: The cost of acquiring new HMO members, consisting
principally of commissions and underwriting costs, is expensed as
incurred. Effective June 30, 1996, the HMO acquired by assignment from
ChoiceCare Health Plans, Inc., an Ohio corporation (ChoiceCare),
certain contract rights with respect to ChoiceCare's provider
agreement with the ODHS. Under that provider agreement, ChoiceCare
previously provided health care services to ADC and Healthy Start
Medicaid recipients residing in Hamilton County, Ohio. Through its
acquisition of such contract rights, approximately 12,000 ADC and
Health Start Medicaid recipients previously served by ChoiceCare were
enrolled in the Company's HMO effective July 1, 1996. The purchase
price for the contract rights assigned to the Company's HMO was $5
million and was charged to operations in 1996.
k. STOCK-BASED COMPENSATION: Compensation cost is measured under the
intrinsic value method. Pro forma disclosures of net income and
earnings per share are presented as if the fair value based method has
been applied (see Note 11).
<PAGE> 40
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
l. USE OF ESTIMATES: The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from those estimates.
m. RECLASSIFICATION: Certain 1995 and 1994 amounts have been reclassified
to conform with the 1996 presentation.
2. MERGER OF COMPMANAGEMENT, INC.:
On July 21, 1995, CompManagement was merged with and into the Company, and
634,878 shares of the Company's common stock were issued in exchange for
all the outstanding common stock of CompManagement. The merger has been
accounted for as a pooling of interests, and the financial statements have
been restated to include CompManagement.
Separate results of the combined entities for the six months ended June 30,
1995 are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
JUNE 30,
1995
<S> <C>
Revenues:
Health Power, Inc. $25,549,146
CompManagement, Inc. 2,578,267
-----------
$28,127,413
===========
Net income:
Health Power, Inc. $ 737,033
CompManagement, Inc. 356,681
-----------
$ 1,093,714
===========
</TABLE>
<PAGE> 41
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Primary care providers (Note 10) $ 561,046 $ 364,732
Reinsurance recoverable on paid
claims (Note 6) 739,487 899,635
Reinsurance recoverable on unpaid
claims (Note 6) 398,721 250,660
Premiums receivable 33,322 70,514
Contract receivables 425,846 309,870
Other 216,984 6,685
----------- -----------
2,357,406 1,902,096
----------- -----------
Less allowance for doubtful
accounts (118,016) (9,985)
----------- -----------
$ 2,257,390 $ 1,892,111
=========== ===========
</TABLE>
Accounts receivable from primary care providers primarily represent amounts
due for referral claims paid by the Company on behalf of capitated Medicaid
primary care providers.
4. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Certificates of deposit $420,381 $420,381
Deposits and other 122,837 93,850
-------- --------
$543,218 $514,231
======== ========
</TABLE>
Certificates of deposit represent amounts held on deposit under the terms
of the HMO's Certificate of Authority with the Ohio Department of Insurance
and the Ohio Department of Human Services.
<PAGE> 42
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. RISK-SHARING FUNDS AND CAPITATION COSTS WITHHELD:
The Company's HMO provides incentives to capitated primary care providers
to promote appropriate utilization and control of hospital and ancillary
medical costs. Risk-sharing funds are established using budgeted amounts
and shared with providers based on actual utilization and health care cost
experience.
The Company's HMO withholds 10%-20% of fees due certain commercial primary
care providers and 10% of fees due Medicaid primary care providers as a
reserve for potential excessive utilization. The balances in these reserve
accounts are retained by the Company or remitted to the providers at the
end of the year at the discretion of the Company.
During 1996, the Company elected not to remit any capitation costs withheld
and risk-sharing funds. In 1995, the Company's HMO remitted capitation
costs withheld and risk-sharing funds amounting to $437,303. The Company
retained $177,105 and $152,541 of capitation costs withheld from commercial
primary care providers in 1996 and 1995, respectively, and retained
$825,254 and $413,442 of capitation costs withheld from Medicaid primary
care providers in 1996 and 1995, respectively.
6. COMMITMENTS:
The Company's HMO maintains stop-loss insurance coverage for 85% of
inpatient hospital costs in excess of $50,000 ($40,000 prior to April 1,
1996 and $30,000 prior to April 1, 1995) per Medicaid member, per contract
year. The HMO also maintains stop-loss insurance coverage for varying
percentages (generally 80%) of inpatient hospital costs in excess of
$75,000 per commercial member, per contract year, subject to certain
limitations. These reinsurance contracts do not relieve the Company from
its obligations to commercial members, and failure of reinsurers to honor
their obligations could result in losses to the Company.
Stop-loss insurance premiums of $1,848,274, $1,500,957 and $1,507,576 are
included in health care costs for 1996, 1995 and 1994, respectively.
Stop-loss recoveries of $1,897,806, $1,248,179 and $1,294,189 are deducted
from health care costs for 1996, 1995 and 1994, respectively.
CompManagement is party to employment agreements with certain employees.
The agreements call for certain levels of commission expense to be paid by
CompManagement to these individuals for selected contract revenue earned
over a two-year period which ended in July 1996. Total commission expense
paid in 1996 and 1995 in connection with these agreements was approximately
$74,234 and $101,000, respectively.
<PAGE> 43
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES:
The Company and its subsidiaries file a consolidated federal income tax
return.
The benefit (provision) for income taxes in 1996, 1995 and 1994 consists of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current $ 2,374,360 $ (25,726) $(1,919,827)
Deferred (601,696) 39,392 (111,318)
----------- ----------- -----------
$ 1,772,664 $ 13,666 $(2,031,145)
=========== =========== ===========
</TABLE>
The significant components of the deferred tax benefit (expense) for the
years ended December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax (benefit) expense
from change in temporary
differences $ 1,855,353 $ 39,392 $ (111,318)
Establishment of valuation
allowance (2,457,049)
----------- ----------- -----------
$ (601,696) $ 39,392 $ (111,318)
=========== =========== ===========
</TABLE>
A reconciliation of the Company's effective income tax rate, as reflected
in the consolidated statement of operations, to the statutory federal tax
rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal income tax at the statutory
rate $ 3,795,723 $ (28,033) $(1,772,553)
State and local income taxes, net
of federal tax benefit 285,769 48,054 (255,456)
Tax-exempt interest 61,762 117,393
Acquisition costs (111,286)
Business meals (11,950) (11,237)
Establishment of valuation allowance (2,457,049)
Other 98,409 (1,225) (3,136)
----------- ----------- -----------
Effective tax benefit (expense) $ 1,772,664 $ 13,666 $(2,031,145)
=========== =========== ===========
</TABLE>
The components of the net deferred benefit (tax) asset as of December 31,
1996 and 1995 were as follows:
<PAGE> 44
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Health care costs payable $ 515,751 $ 635,402
Membership acquisition 1,707,133
Property and equipment 30,297
Related-party expenditures 14,105
Deferred contract revenue 61,651 93,093
Credits carryforward 216,799
Other 73,109
----------- -----------
2,574,443 772,897
----------- -----------
Deferred tax liabilities:
Property and equipment 63,141 28,550
Prepaid expenses 48,939 39,089
Other 5,314
----------- -----------
117,394 67,639
----------- -----------
Net deferred tax asset before
valuation allowance 2,457,049 705,258
----------- -----------
Less valuation allowance (2,457,049)
----------- -----------
Net deferred tax asset $ 0 $ 705,258
=========== ===========
</TABLE>
Due to the uncertain nature of their ultimate realization based upon past
levels of taxable income, the Company has established a full valuation
allowance on the net deferred tax asset at December 31, 1996. While the
need for this valuation allowance is subject to periodic review, if the
allowance is reduced, the tax benefits of these tax assets will be recorded
in future operations as a reduction of the Company's income tax expense.
At December 31, 1996, the Company had the following net federal investment
credits and tax credit carryforwards available:
<TABLE>
<CAPTION>
EXPIRATION DATES INVESTMENT CREDITS TAX CREDITS
---------------- ------------------ -----------
<S> <C> <C>
1997-1998 $38,139
No expiration $178,660
</TABLE>
<PAGE> 45
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. OHIO DEPARTMENT OF HUMAN SERVICES CONTRACTS:
The Company's Medicaid revenue is derived from a contract with the ODHS.
The Company's current contract with ODHS is for a one-year term through
June 30, 1997.
9. LEASES:
The Company has various operating leases for office space and equipment.
The leases have initial terms of up to five years, contain certain
escalation clauses, and provide for renewal options for up to 10 years.
Through June 30, 1995, the Company leased office space from an affiliate.
Rental expense was approximately $577,756, $549,824 and $583,800, for 1996,
1995 and 1994, respectively, which includes $60,460 and $140,425 paid to
affiliates for 1995 and 1994, respectively.
As of December 31, 1996, future minimum rental payments under the leases
are as follows:
<TABLE>
<S> <C>
1997 $714,081
1998 105,243
1999 83,991
2000 39,321
2001 16,775
--------
$959,411
========
</TABLE>
In December 1996, CompManagement entered into a 15-year building lease. The
agreement calls for lease payments of approximately $465,600 per year for
years 1 through 7 and $536,000 for years 8 through 15. The lease will be
accounted for as a capital lease, and the lease commencement date is
anticipated to occur during the third quarter of 1997.
10. RELATED-PARTY TRANSACTIONS:
The Company engages in transactions with medical centers and companies
controlled by certain shareholders and directors of the Company and its
subsidiaries, which are herein referred to as affiliates or affiliated
providers, as follows:
a. HEALTH CARE PROVIDERS: During 1996, 1995 and 1994, primary care and
physician-related costs amounted to $2,854,159, $2,127,691 and
$1,885,896, respectively, resulting from transactions between the
Company's HMO and affiliated providers. As of December 31, 1996 and
1995, such transactions resulted in the following assets and
liabilities:
<PAGE> 46
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accounts receivable--primary care
providers $150,026 $124,095
Capitation costs withheld 166,801
</TABLE>
b. COMMERCIAL REVENUE: Certain affiliated providers have contracted with
the Company's HMO to provide health care services to their employees
and dependents. The Company recognized commercial premiums from these
affiliated providers in the amounts of $137,223, $152,774 and $115,985
in 1996, 1995 and 1994, respectively.
Additionally, during 1995, the Company purchased land and buildings
that had previously been leased from an affiliate for $1,130,631.
11. STOCK OPTIONS AND AWARDS:
a. STOCK-BASED COMPENSATION PLANS: The Company sponsors the various
stock-based incentive compensation plans (the Plans). The Company
applies APB Opinion 25 and related interpretations in accounting for
the Plans. In 1995, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 Accounting for Stock-Based Compensation
(SFAS 123) which, if fully adopted by the Company, would change the
methods the Company applies in recognizing the cost of the Plans.
Adoption of the cost recognition provisions of SFAS 123 is optional,
and the Company has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Company adopted the cost
recognition provisions of SFAS 123 in 1995 are required by SFAS 123
and are presented below.
Under the Plans, the Company is authorized to issue shares of common
stock pursuant to "awards" granted in various forms, including
incentive stock options (intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended), nonqualified stock
options, and other similar stock-based awards to directors and
eligible employees of the Company for up to 340,000 common shares of
the Company. The Company granted stock options in 1995 and 1996 under
the Plans in the form of incentive stock options and nonqualified
stock options. In January 1997, the Company registered 35,000 shares
of common stock for the 1996 directors stock award plan.
b. EMPLOYEE AND DIRECTOR STOCK OPTIONS: The Company granted market price
stock options in 1995 and 1996 to employees and directors. The stock
options granted in 1995 and 1996 have terms of 10 years. The options
granted to directors were vested immediately on the grant date. The
options granted to employees vest at the rate of 25% per year on each
of the
<PAGE> 47
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
first four anniversaries of the date of grant. Options granted to
various executives vest 100% at the end of six years (subject to
acceleration to a two-year period depending on the performance of the
Company or at the discretion of the Compensation Committee). In
accordance with APB 25, the Company has not recognized any
compensation cost for these stock options granted in 1995 and 1996.
A summary of the status of the Company's stock options as of December
31, 1996 and 1995, and the changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year $146,334 $13.43 $ 71,341 $12.22
Granted 83,512 8.33 92,174 14.22
Exercised 0 0 1,052 11.00
Forfeited 25,231 12.26 16,129 12.75
Outstanding at the end of year 204,615 11.50 146,334 13.43
Exercisable at end of year 75,232 12.25 21,740 12.99
Weighted-average fair value of options granted
during year $ 4.73 $ 7.75
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1995 and 1996, respectively: no
dividend yield for all years; risk-free interest rates are different for
each grant and range from 5.44% to 7.06%; the expected lives of options are
estimated to be five years; and a volatility of 54.73% for all grants.
<PAGE> 48
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
<S> <C> <C> <C> <C> <C>
$ 7.00 to 10.00 79,012 9.34 $ 8.31 9,750 $ 7.33
$10.01 to 15.313 125,603 7.93 $13.50 65,482 $12.98
-------- ------
$ 7.00 to $15.313 204,615 8.45 $11.50 75,232 $12.25
</TABLE>
c. PROFORMA NET INCOME AND NET INCOME PER COMMON SHARE: Had the
compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and
net income per common share for 1995 and 1996 would approximate the
pro forma amounts below:
<TABLE>
<CAPTION>
AS AS
REPORTED PRO FORMA REPORTED PRO FORMA
12/31/96 12/31/96 12/31/95 12/31/95
<S> <C> <C> <C> <C>
Net (loss) income $(9,483,364) $(9,628,842) $96,117 $(26,724)
Net income per common share (2.49) (2.53) 0.03 (0.01)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior
to 1995.
d. MEDOHIO STOCK OPTIONS: During 1996, the Company entered into a
management agreement with Med Ohio Health, Inc. and Med Ohio Health
Plan, Inc. to offer a managed care product. In connection with this
agreement, MedOhio was granted the option to purchase 25,000 shares of
common stock of the Company. Each option has an exercise price of
$6.50 per share. This option vests based on performance over the
four-year period beginning with the year closing on June 30, 1997 and
ending with the year closing on June 30, 2000. At the end of each year
within this period, 6,250 options will vest if a predetermined number
of new members are added by MedOhio for the year (otherwise, the 6,250
options are forfeited).
<PAGE> 49
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Each of the 25,000 options has a fair value of $3.36 for purposes of
SFAS 123. The fair value of each stock option is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following assumptions: no dividend yield; a risk-free interest rate of
6.64%; an expected life of five years; and a volatility of 54.73%.
Based on the current status of the Company and Med Ohio's performance
(number of new members added) to date, the Company has made no
determination that it is likely that the 1996 options will vest. As a
consequence and in accordance with SFAS 123, the Company has not yet
recognized any expense for these options. All these options are
outstanding at December 31, 1996 (the first vesting has not yet ended)
and have a remaining contractual life of five and one-half years and
an exercise price of $6.50 per share.
e. STOCK INCENTIVE BONUS: The Company had an agreement with its president
to award shares of common stock as part of an incentive stock bonus
plan. During 1993, the president was awarded 35,458 shares of common
stock. Compensation expense was recognized as earned over a two-year
vesting period based on the estimated fair value of the shares
awarded.
12. EMPLOYEE BENEFITS PLANS:
The Company maintains 401(k) plans for its employees meeting certain age
requirements and completing one year of employment. The Company may make
discretionary contributions not to exceed 1% and 6% of the participant's
compensation for the plan year for Health Power HMO and CompManagement,
respectively. The Company's discretionary contributions to the 401(k) plans
were approximately $37,829, $40,221 and $32,600 for 1996, 1995 and 1994,
respectively.
13. AGREEMENTS WITH THE OHIO DEPARTMENT OF INSURANCE:
On December 5, 1996, due to the Company's HMO's statutory deficit, the
Department issued an order placing the HMO under supervision. The order
also placed certain financial and other restrictions on the HMO and
required the HMO to submit to the Department a corrective action plan, by
January 17, 1997, describing management's proposed actions to improve the
HMO's financial position.
On March 20, 1997, the Company's HMO was released from the order of
supervision by the Department. The release occurred after affiliates of the
HMO paid cash and transferred property in payment of, and pledged a
certificate of deposit as security for, amounts due to the HMO, which
actions satisfied the Department's requirements of supervision.
<PAGE> 50
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Payment of dividends by HMOs is subject to prior approval by the Department
when the fair market value of the divided or distribution, inclusive of any
other dividends or distributions made within the preceding 12 months, is in
excess of 15% of the HMO's total statutory net worth as of the preceding
December 31. At December 31, 1996, no dividends can be paid by the HMO to
the Company.
14. INITIAL PUBLIC OFFERING:
In March 1994, the Company issued 915,060 shares of common stock in
connection with an initial public offering. Net proceeds of the offering of
$8,614,974, after deducting $746,090 of costs incurred in connection with
the offering, were credited to stockholders' equity in 1994.
In connection with the initial public offering, the Company issued warrants
to its underwriters to purchase 30,000 shares of common stock at an
exercise price of $13.20. None of the warrants has been exercised as of
December 31, 1996. The warrants expire on March 3, 1999.
<PAGE> 51
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. SEGMENTS:
The Company operates in two business segments, HMO and workers' and
unemployment compensation consulting services. Separate results of the
consolidated Company's segments for the period ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
CONSULTING
HMO SERVICES CONSOLIDATED
<S> <C> <C> <C>
Total revenues $ 59,506,577 $ 6,671,679 $ 66,178,256
============ ============ ============
Operating (loss) profit $(12,423,121) $ 394,700 $(12,028,421)
============ ============ ============
General corporate expenses (802,914)
Interest income and other, net 833,722
------------
Loss from continuing operations
before income taxes $(11,997,613)
============
Identifiable assets at December 31,
1996 $ 15,276,871 $ 2,560,220 $ 17,837,091
============ ============
Corporate assets 3,231,486
------------
Total assets at December 31, 1996 $ 21,068,577
============
</TABLE>
Operating (loss) profit is total revenue less operating expenses. In
computing operating (loss) profit, the following items are not included:
general corporate expenses, interest expense and income taxes. Depreciation
for the HMO and consulting services segments for the year ended December
31, 1996 was $15,617 and $73,618, respectively. Capital expenditures for
the two segments were $24,803 and $49,487, respectively.
Identifiable assets by industry are those assets that are used in the
Company's operations in each segment. Corporate assets are principally cash
and property, plant and equipment.
<PAGE> 52
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
16. SIGNIFICANT FOURTH-QUARTER ADJUSTMENTS:
During the fourth quarter, the Company made the following adjustments to
the financial statements:
The Company decreased its estimate of health care costs payable by
approximately $132,291 related to premium deficiencies on contracts in
effect at December 31, 1996.
The Company elected to retain certain capitation costs withheld from its
providers resulting in an approximate $1 million reduction in costs (see
Note 5).
The Health Power HMO subsidiary was declared to be exempt from Ohio
Franchise and Net Income Tax due to its status as an insurance company as
determined under the regulations of the Department. Therefore, the Company
was able to file refund claims with the Ohio Department of Treasury
resulting in additional income tax income of $684,455.
The Company established a 100% valuation allowance on the deferred tax
asset of $2,457,049.
17. PARENT COMPANY ONLY:
Condensed balance sheets of Health Power, Inc. (parent company only) as of
December 31, 1996 and 1995 and the condensed statements of operations and
cash flows for the years ended December 31, 1996, 1995 and 1994 are as
follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,472,844 $ 8,266,436
Accounts receivable, intercompany 455,287 314,573
Prepaid expenses and other 4,316 30,815
Deferred income taxes 610,418
----------- -----------
Total current assets 1,932,447 9,222,242
Investment in subsidiaries, on equity basis 2,586,135 4,749,406
Deferred income taxes 30,297
----------- -----------
Total assets $ 4,518,582 $14,001,945
=========== ===========
</TABLE>
<PAGE> 53
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current liabilities:
Accounts and notes payable, intercompany
Total current liabilities
Stockholders' equity $ 4,518,581 $14,001,945
----------- -----------
Total liabilities and stockholders' equity $ 4,518,581 $14,001,945
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income $ 179,907 $ 338,974 $ 253,140
General and administrative 14,500
----------- ----------- -----------
Income before income taxes, equity
in operations of subsidiaries
and cumulative effect of
accounting change 179,907 324,474 253,140
Federal, state and local income taxes
benefit (expense) 72,073 (100,969)
----------- ----------- -----------
Income before equity in operations
of subsidiaries and cumulative
effect of accounting change 179,907 396,547 152,171
Equity in the (loss) income of subsidiaries (9,663,271) (300,430) 3,030,076
----------- ----------- -----------
Net (loss) income $(9,483,364) $ 96,117 $ 3,182,247
=========== =========== ===========
</TABLE>
<PAGE> 54
HEALTH POWER, INC., AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(9,483,364) $ 96,117 $ 3,182,247
Adjustments to reconcile net (loss)
income to net cash provided
by (used in):
Incentive stock bonus plans 152,164 172,383
Equity in net (income) loss of
subsidiaries 9,663,271 300,430 (3,030,076)
Changes in current assets and
current liabilities:
Prepaid expenses and other 26,500 4,279 (35,095)
Accounts receivable, intercompany (140,714) (314,573)
Accounts payable, intercompany (1,010,233) 3,078
Deferred income taxes 640,715 (5,850) 130,218
Accrued expenses and other 106,373
----------- ----------- -----------
Net cash provided by (used in)
operating activities 706,408 (777,666) 529,128
----------- ----------- -----------
Cash flows from financing activities:
Repayment of debt obligations (100,000)
Issuance of common stock for cash, net
of offering costs 8,614,974
Capital infusion to HMO subsidiary (7,500,000)
----------- -----------
Net cash (used in) provided by
financing activities (7,500,000) 8,514,974
----------- -----------
Net (decrease) increase in cash
and cash equivalents (6,793,592) (777,666) 9,044,102
Cash and cash equivalents, beginning of
year 8,266,436 9,044,102
----------- ----------- -----------
Cash and cash equivalents, end of
year $ 1,472,844 $ 8,266,436 $ 9,044,102
=========== =========== ===========
</TABLE>
There were no cash dividends paid by the Company's consolidated subsidiaries to
the Company in 1996, 1995, or 1994.
<PAGE> 55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
- -------- ----------------------------------------------
Information required under this Item with respect to directors will be
contained in the Company's proxy statement to be filed within 120 days of
December 31, 1996, and is hereby incorporated herein by reference. Information
regarding the executive officers of the Company may be found under the caption
"Executive Officers of the Company" in Part I, and is also incorporated by
reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information required under this Item will be contained in the Company's
proxy statement to be filed within 120 days of December 31, 1996, and is hereby
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information required under this Item will be contained in the Company's
proxy statement to be filed within 120 days of December 31, 1996, and is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information required under this Item will be contained in the Company's
proxy statement to be filed within 120 days of December 31, 1996, and is hereby
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a)(1) Financial Statements
--------------------
The following financial statements of the Company are included
in Item 8:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994
Notes to Consolidated Financial Statements
</TABLE>
- 55 -
<PAGE> 56
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted because
they are not applicable or the required information is
included in the Company's consolidated financial statements or
notes thereto.
(a)(3) Listing of Exhibits
-------------------
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------------
<S> <C> <C>
3(a) Amended and Restated Certificate of Registration Statement on Form S-1,
Incorporation of Health Power, Inc. File No. 33-74124 (see Exhibit 3(a)
therein).
3(b) Amended and Restated By-Laws of Registration Statement on Form S-1,
Health Power, Inc. File No. 33-74124 (see Exhibit 3(b)
therein).
4 Form of stock certificate. Amendment No. 2 to Registration
Statement on Form S-1, File No. 33-
74124 (see Exhibit 4(b) therein).
10(a) Provider Agreement between the State Annual Report on Form 10-K for the
of Ohio, Department of Human Servic- fiscal year ended December 31,
es, and Health Power HMO, Inc., dated 1995, File No. 0-23220 (see Exhibit
December 29, 1995, as amended. 10(a) therein).
10(b) Form of Group Health Care Agreement Annual Report on Form 10-K for the
(Columbus, Dayton, and Cincinnati fiscal year ended December 31,
service areas) between the State of 1995, File No. 0-23220 (see Exhibit
Ohio, Department of Administrative 10(b) therein).
Services, and Health Power HMO, Inc.,
each effective July 1, 1995.
10(c) Form of Indemnification Agreement Registration Statement on Form S-1,
between Health Power, Inc. and each of File No. 33-74124 (see Exhibit 10(i)
its officers and directors. therein).
10(d) Primary Care Provider Agreement Registration Statement on Form S-1,
between Master Family Practice and File No. 33-74124 (see Exhibit 10(k)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
10(e) Primary Care Provider Agreement Registration Statement on Form S-1,
between Main Street MedCenter and File No. 33-74124 (see Exhibit 10(l)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
</TABLE>
- 56 -
<PAGE> 57
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------------
<S> <C> <C>
10(f) Primary Care Provider Agreement Annual Report on Form 10-K for the
between Over The Rhine Family Care, fiscal year ended December 31,
Inc. and Health Power of Columbus, 1995, File No. 0-23220 (see Exhibit
Inc., dated July 1, 1994. 10(f) therein).
10(g) Primary Care Provider Agreement Annual Report on Form 10-K for the
between Fairmont Family Practice and fiscal year ended December 31,
Health Power HMO, Inc., dated 1995, File No. 0-23220 (see Exhibit
December 1, 1995. 10(g) therein).
10(h) Primary Care Provider Agreement Registration Statement on Form S-1,
between Parsons Avenue Medical Clinic File No. 33-74124 (see Exhibit 10(o)
and Health Power of Columbus, Inc., therein).
dated January 19, 1984.
10(i) Primary Care Provider Agreement Registration Statement on Form S-1,
between Westland Family Practice File No. 33-74124 (see Exhibit 10(p)
Associates, Inc. and Health Power of therein).
Columbus, Inc., dated April 17, 1984.
10(j) Primary Care Provider Agreement Registration Statement on Form S-1,
between Schear Family Practice Center File No. 33-74124 (see Exhibit 10(q)
East and Health Power of Dayton, Inc., therein).
dated October 15, 1984.
10(k) Primary Care Provider Agreement Registration Statement on Form S-1,
between Schear Family Practice Center File No. 33-74124 (see Exhibit 10(r)
West and Health Power of Dayton, therein).
Inc., dated October 11, 1984.
10(l) Primary Care Provider Agreement Registration Statement on Form S-1,
between Needmore Medical Center and File No. 33-74124 (see Exhibit 10(s)
Health Power of Dayton, Inc., dated therein).
May 1, 1993.
10(m) Primary Care Provider Agreement Registration Statement on Form S-1,
between Child Care Consultants and File No. 33-74124 (see Exhibit 10(t)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
10(n)* Employment Agreement between Health Quarterly Report on Form 10-Q for
Power Management Corporation and the quarterly period ended March
Dr. Bernard F. Master, dated as of May 31, 1995, File No. 0-23220 (see
1, 1995. Exhibit 10(a) therein).
10(o)* Employment Agreement between Health Quarterly Report on Form 10-Q for
Power Management Corporation and the quarterly period ended June 30,
Thomas E. Beaty, Jr., dated as of May 1994, File No. 0-23220 (see Exhibit
1, 1994. (a)(3) therein).
</TABLE>
- 57 -
<PAGE> 58
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- --------------------------------
<S> <C> <C>
10(p)* Amendment to Employment Agreement Quarterly Report on Form 10-Q for
between Health Power Management the quarterly period ended March
Corporation and Thomas E. Beaty, Jr., 31, 1995, File No. 0-23220 (see
dated as of March 27, 1995. Exhibit 10(b) therein).
10(q)* Second Amendment to Employment Contained herein.
Agreement between Health Power
Management Corporation and Thomas
E. Beaty, Jr., effective May 1, 1996.
10(r)* Employment Agreement between Health Contained herein.
Power Management Corporation and
Ronald J. Wurtz, dated as of July 21,
1996.
10(s)* Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Robert J. the quarterly period ended June 30,
Bossart, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(c) therein).
10(t)* Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Robert J. Bossart, dated as of October
31, 1996.
10(u)* Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Jonathan the quarterly period ended June 30,
R. Wagner, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(d) therein).
10(v)* Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Jonathan R. Wagner, dated as of
October 31, 1996.
10(w)* Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Richard T. the quarterly period ended June 30,
Kurth, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(e) therein).
10(x)* Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Richard T. Kurth, dated as of October
31, 1996.
10(y)* Health Power, Inc. 1996 Directors Registration Statement on Form S-8,
Stock Award and Purchase Plan. File No. 333-20535 (see Exhibit 4(d)
therein).
10(z)* Health Power, Inc. 1985 Nonqualified Registration Statement on Form S-1,
Directors' Stock Option Plan, as File No. 33-74124 (see Exhibit
amended. 10(w) therein).
</TABLE>
- 58 -
<PAGE> 59
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- -------------------------------
<S> <C> <C>
10(aa)* Health Power, Inc. 1993 Directors Registration Statement on Form S-1,
Stock Option Plan. File No. 33-74124 (see Exhibit 10(x)
therein).
10(bb)* Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1993 Directors Stock Option Plan. fiscal year ended December 31,
1994, File No. 0-23220 (see Exhibit
10(t) therein).
10(cc)* Health Power, Inc. 1994 Stock Option Registration Statement on Form S-1,
Plan. File No. 33-74124 (see Exhibit 10(y)
therein).
10(dd)* Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Stock Option Plan. fiscal year ended December 31,
1994, File No. 0-23220 (see Exhibit
10(v) therein).
10(ee)* Health Power, Inc. 1994 Executive Quarterly Report on Form 10-Q for
Performance Stock Option Plan. the quarterly period ended June 30,
1994, File No. 0-23220 (see Exhibit
(a)(1) therein).
10(ff)* Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Executive Performance Stock fiscal year ended December 31,
Option Plan. 1994, File No. 0-23220 (see Exhibit
10(x) therein).
10(gg)* Amendment No. 2 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Executive Performance Stock fiscal year ended December 31,
Option Plan. 1995, File No. 0-23220 (see Exhibit
10(dd) therein).
11 Statement Regarding Computation of Contained herein.
Per Share Earnings.
21 Subsidiaries of Health Power, Inc. Contained herein.
23 Consent of Coopers & Lybrand L.L.P. Contained herein.
24(a) Powers of Attorney for Dr. Bernard F. Annual Report on Form 10-K for the
Master, Thomas E. Beaty, Jr., Dr. fiscal year ended December 31,
Elliott P. Feldman, Robert S. Garek, 1994, File No. 0-23220 (see Exhibit
Frank R. Nutis, and Dr. Burt E. 24 therein).
Schear.
24(b) Powers of Attorney for Robert J. Annual Report on Form 10-K for the
Bossart and Crystal A. Kuykendall. fiscal year ended December 31,
1995, File No. 0-23220 (see Exhibit
24(b) therein).
27 Financial Data Schedule Contained herein.
</TABLE>
- 59 -
<PAGE> 60
*Executive compensation plans and arrangements required to be filed
pursuant to Item 601(b)(10) of Regulation S-K.
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K on December 18, 1996, reporting
under items 5 and 7 of such report.
(c) Exhibits
--------
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) Financial Statement Schedules
-----------------------------
All financial statement schedules have been omitted because
they are not applicable or the required information is
included in the Company's consolidated financial statements or
notes thereto.
- 60 -
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
HEALTH POWER, INC.
Date: March 28, 1997 By /s/Dr. Bernard F. Master
------------------------
Dr. Bernard F. Master, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Dr. Bernard F. Master Chairman of the Board, March 28, 1997
- -------------------------- Chief Executive Officer,
Dr. Bernard F. Master and Director (principal
executive officer)
/s/Thomas E. Beaty, Jr. President, Chief Operating March 28, 1997
- -------------------------- Officer, Treasurer, and Director
Thomas E. Beaty, Jr.
/s/Ronald J. Wurtz Controller and Chief Financial March 28, 1997
- -------------------------- Officer (principal financial
Ronald J. Wurtz officer)
Dr. Elliott P. Feldman* Secretary and Director March 28, 1997
- --------------------------
Dr. Elliott P. Feldman
Robert J. Bossart* Director March 28, 1997
- --------------------------
Robert J. Bossart
Robert S. Garek* Director March 28, 1997
- --------------------------
Robert S. Garek
Crystal A. Kuykendall* Director March 28, 1997
- --------------------------
Crystal A. Kuykendall
Frank R. Nutis* Director March 28, 1997
- --------------------------
Frank R. Nutis
Dr. Burt E. Schear* Director March 28, 1997
- --------------------------
Dr. Burt E. Schear
</TABLE>
*The undersigned, Thomas E. Beaty, Jr., by signing his name hereto, does hereby
execute this Annual Report on Form 10-K for the Registrant's fiscal year ended
December 31, 1996, on behalf of each of the other above-named directors of the
Registrant pursuant to Powers of Attorney executed by such directors and filed
with the Securities and Exchange Commission as an exhibit to this report.
/s/ Thomas E. Beaty, Jr.
- --------------------------
Thomas E. Beaty, Jr., Attorney in Fact
- 61 -
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- --------------------------------
<S> <C> <C>
3(a) Amended and Restated Certificate of Registration Statement on Form S-1,
Incorporation of Health Power, Inc. File No. 33-74124 (see Exhibit 3(a)
therein).
3(b) Amended and Restated By-Laws of Registration Statement on Form S-1,
Health Power, Inc. File No. 33-74124 (see Exhibit 3(b)
therein).
4 Form of stock certificate. Amendment No. 2 to Registration
Statement on Form S-1, File No. 33-
74124 (see Exhibit 4(b) therein).
10(a) Provider Agreement between the State Annual Report on Form 10-K for the
of Ohio, Department of Human Servic- fiscal year ended December 31,
es, and Health Power HMO, Inc., dated 1995, File No. 0-23220 (see Exhibit
December 29, 1995, as amended. 10(a) therein).
10(b) Form of Group Health Care Agreement Annual Report on Form 10-K for the
(Columbus, Dayton, and Cincinnati fiscal year ended December 31,
service areas) between the State of 1995, File No. 0-23220 (see Exhibit
Ohio, Department of Administrative 10(b) therein).
Services, and Health Power HMO, Inc.,
each effective July 1, 1995.
10(c) Form of Indemnification Agreement Registration Statement on Form S-1,
between Health Power, Inc. and each of File No. 33-74124 (see Exhibit 10(i)
its officers and directors. therein).
10(d) Primary Care Provider Agreement Registration Statement on Form S-1,
between Master Family Practice and File No. 33-74124 (see Exhibit 10(k)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
10(e) Primary Care Provider Agreement Registration Statement on Form S-1,
between Main Street MedCenter and File No. 33-74124 (see Exhibit 10(l)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
10(f) Primary Care Provider Agreement Annual Report on Form 10-K for the
between Over The Rhine Family Care, fiscal year ended December 31,
Inc. and Health Power of Columbus, 1995, File No. 0-23220 (see Exhibit
Inc., dated July 1, 1994. 10(f) therein).
</TABLE>
- 62 -
<PAGE> 63
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- --------------------------------
<S> <C> <C>
10(g) Primary Care Provider Agreement Annual Report on Form 10-K for the
between Fairmont Family Practice and fiscal year ended December 31,
Health Power HMO, Inc., dated 1995, File No. 0-23220 (see Exhibit
December 1, 1995. 10(g) therein).
10(h) Primary Care Provider Agreement Registration Statement on Form S-1,
between Parsons Avenue Medical Clinic File No. 33-74124 (see Exhibit 10(o)
and Health Power of Columbus, Inc., therein).
dated January 19, 1984.
10(i) Primary Care Provider Agreement Registration Statement on Form S-1,
between Westland Family Practice File No. 33-74124 (see Exhibit 10(p)
Associates, Inc. and Health Power of therein).
Columbus, Inc., dated April 17, 1984.
10(j) Primary Care Provider Agreement Registration Statement on Form S-1,
between Schear Family Practice Center File No. 33-74124 (see Exhibit 10(q)
East and Health Power of Dayton, Inc., therein).
dated October 15, 1984.
10(k) Primary Care Provider Agreement Registration Statement on Form S-1,
between Schear Family Practice Center File No. 33-74124 (see Exhibit 10(r)
West and Health Power of Dayton, therein).
Inc., dated October 11, 1984.
10(l) Primary Care Provider Agreement Registration Statement on Form S-1,
between Needmore Medical Center and File No. 33-74124 (see Exhibit 10(s)
Health Power of Dayton, Inc., dated therein).
May 1, 1993.
10(m) Primary Care Provider Agreement Registration Statement on Form S-1,
between Child Care Consultants and File No. 33-74124 (see Exhibit 10(t)
Health Power of Columbus, Inc., dated therein).
August 1, 1990.
10(n) Employment Agreement between Health Quarterly Report on Form 10-Q for
Power Management Corporation and the quarterly period ended March
Dr. Bernard F. Master, dated as of May 31, 1995, File No. 0-23220 (see
1, 1995. Exhibit 10(a) therein).
10(o) Employment Agreement between Health Quarterly Report on Form 10-Q for
Power Management Corporation and the quarterly period ended June 30,
Thomas E. Beaty, Jr., dated as of May 1994, File No. 0-23220 (see Exhibit
1, 1994. (a)(3) therein).
10(p) Amendment to Employment Agreement Quarterly Report on Form 10-Q for
between Health Power Management the quarterly period ended March
Corporation and Thomas E. Beaty, Jr., 31, 1995, File No. 0-23220 (see
dated as of March 27, 1995. Exhibit 10(b) therein).
</TABLE>
- 63 -
<PAGE> 64
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- --------------------------------
<S> <C> <C>
10(q) Second Amendment to Employment Contained herein.
Agreement between Health Power
Management Corporation and Thomas
E. Beaty, Jr., effective May 1, 1996.
10(r) Employment Agreement between Health Contained herein.
Power Management Corporation and
Ronald J. Wurtz, dated as of July 21,
1996.
10(s) Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Robert J. the quarterly period ended June 30,
Bossart, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(c) therein).
10(t) Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Robert J. Bossart, dated as of October
31, 1996.
10(u) Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Jonathan the quarterly period ended June 30,
R. Wagner, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(d) therein).
10(v) Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Jonathan R. Wagner, dated as of
October 31, 1996.
10(w) Employment Agreement between Quarterly Report on Form 10-Q for
CompManagement, Inc. and Richard T. the quarterly period ended June 30,
Kurth, dated as of July 21, 1995. 1995, File No. 0-23220 (see Exhibit
10(e) therein).
10(x) Amendment to Employment Agreement Contained herein.
between CompManagement, Inc. and
Richard T. Kurth, dated as of October
31, 1996.
10(y) Health Power, Inc. 1996 Directors Registration Statement on Form S-8,
Stock Award and Purchase Plan. File No. 333-20535 (see Exhibit 4(d)
therein).
10(z) Health Power, Inc. 1985 Nonqualified Registration Statement on Form S-1,
Directors' Stock Option Plan, as File No. 33-74124 (see Exhibit
amended. 10(w) therein).
10(aa) Health Power, Inc. 1993 Directors Registration Statement on Form S-1,
Stock Option Plan. File No. 33-74124 (see Exhibit 10(x)
therein).
</TABLE>
- 64 -
<PAGE> 65
<TABLE>
<CAPTION>
If Incorporated by Reference,
Exhibit Document with which Exhibit was
No. Description of Exhibit Previously Filed with SEC
- ------- ---------------------- --------------------------------
<S> <C> <C>
10(bb) Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1993 Directors Stock Option Plan. fiscal year ended December 31,
1994, File No. 0-23220 (see Exhibit
10(t) therein).
10(cc) Health Power, Inc. 1994 Stock Option Registration Statement on Form S-1,
Plan. File No. 33-74124 (see Exhibit 10(y)
therein).
10(dd) Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Stock Option Plan. fiscal year ended December 31,
1994, File No. 0-23220 (see Exhibit
10(v) therein).
10(ee) Health Power, Inc. 1994 Executive Quarterly Report on Form 10-Q for
Performance Stock Option Plan. the quarterly period ended June 30,
1994, File No. 0-23220 (see Exhibit
(a)(1) therein).
10(ff) Amendment No. 1 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Executive Performance Stock fiscal year ended December 31,
Option Plan. 1994, File No. 0-23220 (see Exhibit
10(x) therein).
10(gg) Amendment No. 2 to Health Power, Annual Report on Form 10-K for the
Inc. 1994 Executive Performance Stock fiscal year ended December 31,
Option Plan. 1995, File No. 0-23220 (see Exhibit
10(dd) therein).
11 Statement Regarding Computation of Contained herein.
Per Share Earnings.
21 Subsidiaries of Health Power, Inc. Contained herein.
23 Consent of Coopers & Lybrand L.L.P. Contained herein.
24(a) Powers of Attorney for Dr. Bernard F. Annual Report on Form 10-K for the
Master, Thomas E. Beaty, Jr., Dr. fiscal year ended December 31,
Elliott P. Feldman, Robert S. Garek, 1994, File No. 0-23220 (see Exhibit
Frank R. Nutis, and Dr. Burt E. 24 therein).
Schear.
24(b) Powers of Attorney for Robert J. Annual Report on Form 10-K for the
Bossart and Crystal A. Kuykendall. fiscal year ended December 31,
1995, File No. 0-23220 (see Exhibit
24(b) therein).
27 Financial Data Schedule Contained herein.
</TABLE>
- 65 -
<PAGE> 1
Exhibit 10(q)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is made effective May 1, 1996, to the Employment
Agreement dated May 1, 1994, as amended as of March 27, 1995 (collectively, the
"Employment Agreement"), between Health Power Management Corporation, an Ohio
corporation (the "Company"), and Thomas E. Beaty, Jr. (the "Employee"), who
hereby agree as follows:
ss.1. The base salary set forth in ss.6(a) of the Employment Agreement
hereby is increased from $132,000 to $160,000 per annum.
ss.2. The automobile allowance set forth in ss.8(b) of the Employment
Agreement hereby is increased from $500 to $700 per month.
ss.3. For purposes of determining (a) the Employee's incentive cash
bonus for the 1996 Performance Year and (b) the number of Shares subject to the
Employee's Formula Vesting Options to receive accelerated treatment for the 1996
Performance Year, the Employee and the Company agree that for the 1996
Performance Year the Maximum Cash Bonus shall be $250,000 and the Ceiling Amount
shall be $1,000,000.
ss.4. The Employee and the Company agree that the performance goals to
be accomplished by the Employee or under his direction and management on behalf
of Health Power, Inc. and its subsidiaries for 1996 are attached hereto as
Exhibit A, which exhibit is incorporated herein by reference. It is understood
that the Company's Compensation Committee will assess the extent to which such
goals were achieved in connection with its determination of the number of Shares
subject to the Employee's Discretionary Vesting Options to receive accelerated
vesting treatment for the 1996 Performance Year.
ss.5. The Company shall not geographically relocate the Employee from
the Columbus, Ohio area without the prior consent of the Employee.
ss.6. All capitalized terms used in this amendment but not otherwise
defined herein shall have the respective meanings given those terms in the
Employment Agreement.
ss.7. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement
and this amendment, the provisions of this amendment shall control. Except as
notified by this amendment, the Employment Agreement shall continue in full
force and effect without change.
HEALTH POWER MANAGEMENT
CORPORATION
By /s/ Bernard F. Master, D.O. /s/ Thomas E. Beaty, Jr.
--------------------------- ------------------------
Bernard F. Master, D.O., THOMAS E. BEATY, JR.
Chairman
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<PAGE> 1
Exhibit 10(r)
EMPLOYMENT AGREEMENT
This agreement is made as of July 1, 1996, at Columbus, Ohio, between
Health Power Management Corporation, an Ohio corporation (the "Company"), and
Ronald J. Wurtz (the "Employee"), who hereby agree as follows:
ss.1. EMPLOYMENT AND TERM. The Company hereby continues the Employee's
employment, and the Employee hereby accepts such continued employment by the
Company, upon the terms and subject to the conditions set forth in this
agreement. The term of the Employee's employment by the Company as continued
pursuant to this agreement shall begin on the date of this agreement and shall
end, unless sooner terminated in accordance with the provisions of ss.9, below,
on June 30, 1997 (the "Initial Term"). The term of the Employee's employment
under this agreement shall be automatically renewed upon the same terms and
conditions contained in this agreement, or upon such other terms and conditions
to which the parties may mutually agree in writing, for successive one-year
periods (each a "Renewal Term"), commencing on the day following the termination
date of the Initial Term or the preceding Renewal Term (as applicable) and
ending, unless sooner terminated in accordance with the provisions of ss.9,
below, on the first anniversary of the applicable termination date.
ss.2. SERVICES. The Employee shall be responsible to perform the
services set forth in ss.3, below, and such other services as may be reasonably
assigned to the Employee from time to time by the Chief Executive Officer or the
President of the Company. The Employee shall report to the President of the
Company. The Employee shall devote his full business time, attention, energy,
and skill to the Company's business, provided that he shall be entitled to
attend business and trade conventions and meetings and to take vacations and
sick leaves as may be provided generally for the Company's personnel pursuant to
policies established by the Company's Board of Directors (the "Board"), its
Chief Executive Officer, or its President from time to time. The Employee shall
not engage in any business or investment activity (whether or not competitive
with the Company) which requires any substantial time on his part.
ss.3. RESPONSIBILITIES. The Employee shall be responsible for the
supervision, coordination, and administration of the accounting and financial
operations of the Company in accordance with the policies and operating
programs, budgets, procedures, and directions established or changed from time
to time by the Board or the Chief Executive Officer or the President of the
Company. Such responsibilities shall include, without limitation, supervising
the Company's accounting functions, operations, and management, developing and
implementing the Company's internal auditing methods, controls, and procedures,
developing and implementing the Company's financial and investment policies,
planning and developing the Company's operating budgets, developing and
implementing the Company's underwriting guidelines, supervising the payment of
medical claims and distributions to the Company's medical providers, supervising
and training employees involved in the foregoing operations, and participating
in the hiring and discharging of such employees.
ss.4. AUTHORITY. The Employee shall have such authority to act on
behalf of the Company as may be delegated to him from time to time by the
President.
ss.5. COMPENSATION. The Employee shall receive the following
compensation:
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<PAGE> 2
(a) A base salary of $83,512 per annum, or such other amount
as may be approved by the President from time to time, payable in
accordance with the Company's general policies for payment of
compensation to its salaried personnel; provided, however, that if the
Employee's employment is terminated pursuant to the provisions of ss.9,
below, the base salary shall cease as of the day of termination.
(b) A cash bonus, the amount of which shall be determined
under, and paid pursuant to, the Profit Sharing Plan maintained for the
benefit of the employees of Health Power, Inc., a Delaware corporation
("Health Power") and its subsidiaries (Health Power and its
subsidiaries, including the Company, are hereinafter collectively
referred to as the "Health Power Companies"). As a condition to
receiving such cash bonus, the Employee must be an employee of the
Company at the time of the distribution.
ss.6. PERFORMANCE REVIEW. On at least an annual basis, the President of
the Company shall meet with the Employee in order to review and evaluate the
Employee's performance.
ss.7. FRINGE BENEFITS. The Employee shall be entitled to fringe
benefits and perquisites as may be generally provided by the Company to its
salaried personnel pursuant to policies established from time to time by the
Board or the Chief Executive Officer or the President of the Company.
ss.8. SEVERANCE PAY. If the Employee's employment is terminated or not
renewed at the end of the Initial Term or any Renewal Term as a result of a
Change in Control (as defined below) of Health Power during the first three
years after the date of this agreement, the Employee shall receive the
following:
(a) Severance pay in the amount equal to 1 1/2 times his then
current base salary, payable over a one-year period in the same manner
as the base salary is paid.
(b) Fringe benefits as set forth in ss.7, above, until the
earlier of one year from the date of termination or the date any such
fringe benefit is provided by another employer.
(c) Payment or reimbursement of reasonable expenses incurred
by the Employee for executive outplacement services for no more than a
six-month period from the date of termination.
For purposes of this agreement, a Change in Control shall be deemed to
occur:
(i) When any "person" as defined in ss.3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in
ss.ss.13(d) and 14(d) thereof, including a "group" as defined in
ss.13(d) of the Exchange Act, but excluding Health Power and any
subsidiary of Health Power and any employee benefit plan sponsored or
maintained by Health Power or any subsidiary of Health Power (including
any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time) of securities of Health
Power representing 20% or more of the combined voting power of Health
Power's then outstanding securities;
(ii) When, during any period of 24 consecutive months during
the term of this agreement, the individuals who, at the beginning of
such period, constitute the Board (the "Incumbent Directors") cease for
any reason other than death to constitute at least a
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<PAGE> 3
majority thereof; provided, however, that a director who was not a
director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director)
if such director was elected by, or on the recommendation of or with
the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually (because they were
directors at the beginning of such 24-month period) or by prior
operation of this ss.9(ii); or
(iii) Upon the occurrence of a transaction requiring
stockholder approval for the acquisition of Health Power by an entity
other than Health Power or a subsidiary of Health Power through
purchase of assets, by merger or otherwise.
ss.9. TERMINATION OF EMPLOYMENT. The Employee's employment under this
agreement may be terminated:
(a) By the Employee with or without cause at the end of the
Initial Term or any Renewal Term upon giving not less than 90 days
advance written notice prior to the end of the Initial Term or the
Renewal Term then in effect, provided that the Employee shall continue
to perform all services under this agreement until the earlier of:
(i) The expiration date of such 90-day period; or
(ii) Any earlier date which may be specified by the
Company.
(b) By the Company with or without cause at the end of the
Initial Term or any Renewal Term upon giving not less than 90 days
advance written notice prior to the end of the Initial Term or the
Renewal Term then in effect, or by the Company upon the occurrence of
any one of the following events or at any time thereafter:
(i) The Employee's immediate discharge "for
cause," which includes, but is not limited to:
(A) Any act of habitual drunkenness;
(B) Controlled substance abuse;
(C) Dishonesty;
(D) Criminal conduct (excluding minor
traffic offenses);
(E) Failure of good behavior;
(F) Acts of violence or willful destruction
of Company property;
(G) Falsification of any Company records or
intentional withholding of any relevant information;
(H) Unethical or immoral behavior;
(I) Being intoxicated or using intoxicants
(drugs) not prescribed by a physician during working
hours;
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<PAGE> 4
(J) Theft, including unauthorized possession
of Company property;
(K) Conviction of any felony while employed
by the Company;
(L) Failure to operate the Company's
business in accordance with the policies, programs,
budgets, procedures and directions established from
time to time by the Company and failure to correct
such failure within 10 days after notice from the
Company to do so or, if it is impossible to correct
such failure within such 10 days, failure to commence
all possible actions to correct such failure within
such 10 days and thereafter to continue to pursue
such actions until correction of such failure, or
having corrected any such failure, fails to so
operate appropriately at any time in the future
(without the requirement of any additional notice
from the Company);
(M) Failure to fully perform and observe all
obligations and conditions to be performed and
observed by the Employee under this agreement, or
under any other agreement between the Employee and
the Company, and failure by the Employee to correct
such failure within 10 days after notice to do so or,
if it is impossible to correct such failure within
such 10 days, failure to commence all possible
actions to correct such failure within such 10 days
and thereafter to continue to pursue such actions
until correction of such failure, or having corrected
any such failure, fails to perform and observe all
such obligations and conditions at any time in the
future (without the requirement of any additional
notice from the Company); and
(ii) The Employee is under a long-term disability; or
(iii) The death of the Employee.
For purposes of this agreement, a long-term disability shall mean that:
(1) Because of physical or mental incapacity, it is probable,
in the opinion of a licensed physician selected by the Company, that
the Employee will not be able to engage actively in full-time
employment by the Company for a period of 120 days or longer; or
(2) The Company selects such a licensed physician and the
Employee fails within a reasonable time to submit to any examinations
reasonably requested by that licensed physician.
ss.10. NONCOMPETITION AND CONFIDENTIALITY.
In consideration of the severance arrangements set forth in ss.7 of
this agreement, the Employee agrees to abide by the following terms and
conditions:
(a) The Employee shall not at any time, either during the term
of his employment with the Company or any of the other Health Power
Companies, or after the termination of such employment for whatever
reason,
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<PAGE> 5
(i) Disclose to anyone (except to the extent
necessary as a benefit to the Company in the performance of
his duties and with prior written authorization by the
Company) any trade secrets or confidential information of the
Health Power Companies, or
(ii) Solicit or seek to employ any of the employees
of the Health Power Companies to leave such employment, or
(iii) Solicit, recruit, or otherwise attempt to
persuade any members or providers of any Health Power Company
to leave such Company and do business with competing
organizations.
(b) During the Initial Term and any Renewal Term, and for six
months following the termination of his employment, for whatever
reason, the Employee agrees that he shall not, directly or indirectly,
on his own behalf, or as a member of any partnership, or as an officer,
director, shareholder, agent, consultant or employee of any other
corporation or entity, compete with the Company or any of the other
Health Power Companies or be engaged in, loan money or credit to, own
any interest in, be employed by or otherwise participate in any other
business which competes with the Company or any of the other Health
Power Companies in any geographic location or within any business or
economic market where the Company or any of the other Health Power
Companies conduct, or intend to conduct, their business during the term
of the Employee's employment with the Company.
(c) The Employee understands that this section is an essential
element of this agreement and that the Company would not have entered
into this agreement without this section being included in it. The
Employee has consulted with his legal counsel and has been fully
advised concerning the reasonableness and propriety of this section in
the specific context of the operations and business of the Company, and
the Employee acknowledges that this section is reasonable and
appropriate in all respects. In the event of any violation or attempted
violation of this section, Employee specifically acknowledges and
agrees that the Company's remedy at law will be inadequate, that the
Company, its business and business relationships will suffer
irreparable injury and, therefore, the Company shall be entitled to
injunctive relief upon such breach in addition to any other remedy to
which it may be entitled, either in law or in equity, without the
necessity of proof of actual damage.
(d) As used in this agreement, the terms "trade secrets" and
"confidential information" shall mean any information which is not
generally known to the public and which, if relevant to unauthorized
persons, would be detrimental to the reputation or business interests
of the Company and the other Health Power Companies and includes, but
is not limited to, any information relating to the Company's and the
other Health Power Companies' business operations and structure, sales
methods, practices and techniques, technical know-how, advertising, or
marketing methods and practices, their provider relationship and
membership lists (including customer names and addresses), and the
Company's and the other Health Power Companies' relationships with
suppliers, providers, and potential providers, employees, members and
potential members or other persons or entities doing business with such
Companies.
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<PAGE> 6
ss.11. RETURN OF RECORDS. Upon termination of employment, the Employee
will deliver to the Company all records, reports, data, memoranda, notes,
models, and equipment of any nature that are in the Employee's possession or
under the Employee's control prepared or acquired in the course of the
Employee's employment relationship with the Company. The Employee further agrees
not to take any such information or data, or reproductions of such information
or data, that relate to the business activities of the Company or to parties in
a contract relationship with the Company.
ss.12. EMPLOYEE'S CAPACITY. The Employee represents and warrants to the
Company that he has the capacity and right to enter into this agreement and
perform all his services under this agreement without any restriction whatsoever
by any other agreement, other document, or otherwise.
ss.13. COMPLETE AGREEMENT. This document contains the entire agreement
between the parties and supersedes any prior discussions, negotiations,
representations, or agreements between them relating to employment of the
Employee. No additions or other changes to this agreement shall be made or be
binding on either party unless made in writing and signed by each party to this
agreement.
ss.14. NOTICES. Any notice or other communication required or desired
to be given to any party under this agreement shall be in writing and shall be
deemed given:
(a) In the case of the Employee, when delivered personally to
the Employee or when deposited in the United States mail, first-class
postage prepaid, addressed to the Employee at 424 Spruce Hill Drive,
Gahanna, Ohio 43230, or any other address thereafter designated by the
Employee in notice theretofore given to the Company; and
(b) In the case of the Company, when deposited in the United
States mail, first-class postage prepaid, addressed to the Company at
560 East Town Street, Columbus, Ohio 43215, attention President, or at
any other address hereafter designated by the Company in notice
theretofore given to the Employee, with copy to Alec Wightman, Esq.,
Baker & Hostetler, Suite 2100, 65 East State Street, Columbus, Ohio
43215.
ss.15. GOVERNING LAW. All questions concerning the validity, intention,
or meaning of this agreement or relating to the rights and obligations of the
parties with respect to performance hereunder shall be construed and resolved
under the laws of Ohio.
ss.16. SEVERABILITY. The intention of the parties to this agreement is
to comply fully with all laws and public policies, and this agreement shall be
construed consistently with all laws and public policies to the extent possible.
If and to the extent that any court of competent jurisdictions determines that
it is impossible or violative of any legal prohibition to construe any provision
of this agreement consistently with any law, legal prohibition, or public policy
and consequently holds that provision to be invalid or prohibited, that shall in
no way affect the validity of the other provisions of this agreement which shall
remain in full force and effect.
ss.17. NONWAIVER. No failure by any party to insist upon strict
compliance with any term of this agreement, to exercise any option, enforce any
right, or seek any remedy upon any default of any other party shall affect, or
constitute a waiver of, the first party's right to insist upon such strict
compliance, exercise that option, enforce that right, or seek that remedy with
respect to that default or any prior, contemporaneous, or subsequent default;
nor shall any custom or practice of the parties at variance with any provision
of this agreement affect or
- 72 -
<PAGE> 7
constitute a waiver of, any party's right to demand strict compliance with all
provisions of this agreement.
ss.18. CAPTIONS. The captions of the various sections of this agreement
are not part of the context of this agreement, but are only labels to assist in
locating those sections, and shall be ignored in construing this agreement.
ss.19. SUCCESSORS. This agreement shall be personal to the Employee and
no rights or obligations of the Employee under this agreement may be assigned by
him. Except as described in the preceding sentence, this agreement shall be
binding upon, inure to the benefit of, and be enforceable by and against the
respective heirs, legal representatives, successors, and assigns of each party
to this agreement.
HEALTH POWER MANAGEMENT
CORPORATION
/s/ Ronald J. Wurtz By /s/ Thomas E. Beaty, Jr.
-------------------- -------------------------
RONALD J. WURTZ Thomas E. Beaty, Jr., President
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<PAGE> 1
Exhibit 10(t)
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is made as of October 31, 1996, to the Employment
Agreement dated as of July 21, 1995 (the "Employment Agreement"), between
CompManagement, Inc., an Ohio corporation (the "Company"), and Robert J. Bossart
(the "Employee"), who hereby agree as follows:
ss.1. Upon the execution and delivery of this agreement by the
Employee, the Employee shall receive a payment from the Company in the amount of
$82,408.
ss.2. Section 2 of the Employment Agreement is hereby amended in its
entirety to read as follows:
The term of the Employee's employment by the Company pursuant
to this agreement shall begin on July 21, 1995, and shall end, unless
sooner terminated in accordance with the provisions of ss.9, below, on
December 31, 1999 (the "Termination Date"). Not less than 120 days
prior to the Termination Date, the parties shall begin to renegotiate
in good faith the terms of this agreement. If a mutually acceptable
agreement cannot be reached by the parties prior to the Termination
Date, then the Employee's employment shall terminate as of the close of
business on the Termination Date, the Employee shall be entitled to
receive the severance pay and benefits described in ss.8(b) and (c),
below, and the Employee shall abide by the noncompetition and
confidentiality provisions described in ss.10, below.
ss.3. Section 5(b) of the Employment Agreement is hereby amended in its
entirety to read as follows:
(b) sales commissions, the calculation of which shall
be based upon a Calendar Year (as defined below), payable
beginning with the 1995 Calendar Year and continuing through
the term of this agreement, and in an amount equal to (i) 25%
of the amount of the first fees generated by the Employee
during a Calendar Year for new business of the Company,
including, but not limited to, all employers that are part of
group rating plans, state-funded employers, and self-funded
employers, purchasers of unemployment compensation services,
and purchasers of new products of the Company ("New
Business"), plus (ii) 25% of the amount of the increase in
fees over the prior Calendar Year for all employers which are
part of group rating plans of the Company, minus (iii) a
deduction for each Calendar Year in the amount of $82,408.
For purposes of this ss.5(b), the term "Calendar
Year" shall mean the period from January 1 through December 31
of the same year.
ss.4. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement
and this amendment, the provisions of this amendment shall control. Except as
modified by this amendment, the Employment Agreement shall continue in full
force and effect without change.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Robert J. Bossart
- ------------------------------ ---------------------
Bernard F. Master, D.O., ROBERT J. BOSSART
Chairman
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<PAGE> 1
Exhibit 10(v)
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is made as of October 31, 1996, to the Employment
Agreement dated as of July 21, 1995 (the "Employment Agreement"), between
CompManagement, Inc., an Ohio corporation (the "Company"), and Jonathan R.
Wagner (the "Employee"), who hereby agree as follows:
ss.1. Upon the execution and delivery of this agreement by the
Employee, the Employee shall receive a payment from the Company in the amount of
$82,408.
ss.2. Section 2 of the Employment Agreement is hereby amended in its
entirety to read as follows:
The term of the Employee's employment by the Company pursuant
to this agreement shall begin on July 21, 1995, and shall end, unless
sooner terminated in accordance with the provisions of ss.9, below, on
December 31, 1999 (the "Termination Date"). Not less than 120 days
prior to the Termination Date, the parties shall begin to renegotiate
in good faith the terms of this agreement. If a mutually acceptable
agreement cannot be reached by the parties prior to the Termination
Date, then the Employee's employment shall terminate as of the close of
business on the Termination Date, the Employee shall be entitled to
receive the severance pay and benefits described in ss.8(b) and (c),
below, and the Employee shall abide by the noncompetition and
confidentiality provisions described in ss.10, below.
ss.3. Section 5(b) of the Employment Agreement is hereby amended in its
entirety to read as follows:
(b) sales commissions, the calculation of which shall
be based upon a Calendar Year (as defined below), payable
beginning with the 1995 Calendar Year and continuing through
the term of this agreement, and in an amount equal to (i) 25%
of the amount of the first fees generated by the Employee
during a Calendar Year for new business of the Company,
including, but not limited to, all employers that are part of
group rating plans, state-funded employers, and self-funded
employers, purchasers of unemployment compensation services,
and purchasers of new products of the Company ("New
Business"), plus (ii) 25% of the amount of the increase in
fees over the prior Calendar Year for all employers which are
part of group rating plans of the Company, minus (iii) a
deduction for each Calendar Year in the amount of $82,408.
For purposes of this ss.5(b), the term "Calendar
Year" shall mean the period from January 1 through December 31
of the same year.
ss.4. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement
and this amendment, the provisions of this amendment shall control. Except as
modified by this amendment, the Employment Agreement shall continue in full
force and effect without change.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Jonathan R. Wagner
--------------------------- ----------------------------
Bernard F. Master, D.O., JONATHAN R. WAGNER
Chairman
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<PAGE> 1
Exhibit 10(x)
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment is made as of October 31, 1996, to the Employment
Agreement dated as of July 21, 1995 (the "Employment Agreement"), between
CompManagement, Inc., an Ohio corporation (the "Company"), and Richard T. Kurth
(the "Employee"), who hereby agree as follows:
ss.1. Upon the execution and delivery of this agreement by the
Employee, the Employee shall receive a payment from the Company in the amount of
$16,481.
ss.2. Section 2 of the Employment Agreement is hereby amended in its
entirety to read as follows:
The term of the Employee's employment by the Company pursuant
to this agreement shall begin on July 21, 1995, and shall end, unless
sooner terminated in accordance with the provisions of ss.9, below, on
December 31, 1999 (the "Termination Date"). Not less than 120 days
prior to the Termination Date, the parties shall begin to renegotiate
in good faith the terms of this agreement. If a mutually acceptable
agreement cannot be reached by the parties prior to the Termination
Date, then the Employee's employment shall terminate as of the close of
business on the Termination Date, the Employee shall be entitled to
receive the severance pay and benefits described in ss.8(b) and (c),
below, and the Employee shall abide by the noncompetition and
confidentiality provisions described in ss.10, below.
ss.3. Section 5(b) of the Employment Agreement is hereby amended in its
entirety to read as follows:
(b) sales commissions, the calculation of which shall
be based upon a Calendar Year (as defined below), payable
beginning with the 1995 Calendar Year and continuing through
the term of this agreement, and in an amount equal to (i) 25%
of the amount of the first fees generated by the Employee
during a Calendar Year for new business of the Company,
including, but not limited to, all employers that are part of
group rating plans, state-funded employers, and self-funded
employers, purchasers of unemployment compensation services,
and purchasers of new products of the Company ("New
Business"), plus (ii) 25% of the amount of the increase in
fees over the prior Calendar Year for all employers which are
part of group rating plans of the Company, minus (iii) a
deduction for each Calendar Year in the amount of $16,481.
For purposes of this ss.5(b), the term "Calendar
Year" shall mean the period from January 1 through December 31
of the same year.
ss.4. This document is an amendment to the Employment Agreement. In the
event of any inconsistencies between the provisions of the Employment Agreement
and this amendment, the provisions of this amendment shall control. Except as
modified by this amendment, the Employment Agreement shall continue in full
force and effect without change.
COMPMANAGEMENT, INC.
By /s/ Bernard F. Master, D.O. /s/ Richard T. Kurth
---------------------------- ----------------------
Bernard F. Master, D.O., RICHARD T. KURTH
Chairman
- 76 -
<PAGE> 1
Exhibit 11
Statement Regarding Computation of Per Share Earnings
<TABLE>
<CAPTION>
1996 1995 1994
PRIMARY:
<S> <C> <C> <C>
Average Number of Common Shares 3,810,331 3,809,757 3,623,763
Average Common Share Equivalents 0 0 10,398
- - ------
Average Shares Outstanding 3,810,331 3,809,757 3,634,161
Net Income ($9,483,364) $96,117 $3,182,247
Net Income per Common and Common
Equivalent Share ($2.49) $0.03 $0.88
====== ===== =====
FULLY DILUTED:
Average Number of Common Shares 3,810,331 3,809,757 3,623,763
Average Common Shares Equivalents 0 0 29,192
- - ------
Average Shares Outstanding 3,810,331 3,809,757 3,652,955
Net Income ($9,483,364) $96,117 $3,182,247
Net Income per Common and Common
Equivalent Share ($2.49) $0.03 $0.87
====== ===== =====
</TABLE>
- 77 -
<PAGE> 1
Exhibit 21
Subsidiaries of Health Power, Inc.
1. Health Power HMO, Inc., an Ohio corporation.
2. CompManagement, Inc., an Ohio corporation.
3. CompManagement Health Systems, Inc., an Ohio corporation.
4. Health Power Management Corporation, an Ohio corporation.
5. Health Power Life Insurance Agency, Inc., an Ohio corporation.
6. Health Power TPA, Inc., an Ohio corporation.
- 78 -
<PAGE> 1
Exhibit 23
Consent of Independent Accountants
We consent to incorporation by reference in the registration statement of Health
Power, Inc. on Form S-8 (File No. 33-91956), Form S-8 (File No. 33-91958), Form
S-8 (33-91852), Form S-8 (File No. 333-20535), and Form S-3 (File No. 33-80035)
of our report dated March 5, 1997, except for Note 13 for which the date is
March 20, 1997, on our audits of the consolidated financial
statements of Health Power, Inc. and Subsidiaries as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994 which report is
included in this Annual Report on Form 10-K.
Columbus, Ohio /s/ Coopers & Lybrand L.L.P.
March 28, 1997 Coopers & Lybrand L.L.P.
- 79 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET DATED AS OF DECEMBER 31, 1996, AND ITS
CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY, AND CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1996, WHICH FINANCIAL STATEMENTS ARE INCLUDED IN ITEM 8 OF THIS REPORT, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 13,929
<SECURITIES> 0
<RECEIVABLES> 2,257
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,133
<PP&E> 3,853
<DEPRECIATION> 1,461
<TOTAL-ASSETS> 21,069
<CURRENT-LIABILITIES> 16,550
<BONDS> 0
<COMMON> 38
0
0
<OTHER-SE> 4,480
<TOTAL-LIABILITY-AND-EQUITY> 21,069
<SALES> 0
<TOTAL-REVENUES> 66,086
<CGS> 0
<TOTAL-COSTS> 78,176
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (834)
<INCOME-PRETAX> (11,256)
<INCOME-TAX> (1,773)
<INCOME-CONTINUING> (9,483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,483)
<EPS-PRIMARY> (2.49)
<EPS-DILUTED> (2.49)
</TABLE>
