Filed by RightCHOICE Managed Care, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: RightCHOICE Managed Care, Inc.
Commission File No. 333-34750
The following communications contain forward-looking
statements within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. In
particular, statements regarding the reorganization of
RightCHOICE Managed Care, Inc., a Missouri corporation, are
based on management's current expectations or beliefs and
are subject to a number of factors and uncertainties that
could cause actual results to differ materially from those
described in the forward-looking statements. Careful
consideration should be given to risk factors included in
RightCHOICE's reports filed with the Securities and Exchange
Commission, especially the section entitled "Risk Factors"
in "ITEM 1. BUSINESS" of RightCHOICE's Annual Report on Form
10-K for the year ended December 31, 1999.
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CEO 14474
Log 56859
John A. O'Rourke
Chairman, President & CEO
RightCHOICE Managed Care, Inc
1831 Chestnut Street
St. Louis, MO 63103
314-923-4444 - CEO
314-923-6618 - FAX
SYM - RIT
Richard Franklin
March 13, 2000
TWST: Let's start out by your giving us a brief
overview of RightCHOICE Managed Care, Incorporated: the
company's history, services, activities, customers, those
kinds of things, please?
Mr. O'Rourke: RightCHOICE is a managed care company
licensed by the Blue Cross Blue Shield Association to
provide Blue Cross and Blue Shield benefit plans in our
Missouri service area. Through our HealthLink subsidiary, we
also do business in six contiguous states. Our product mix
includes: Preferred Provider Organization (PPO) products,
point-of-service (POS) products, HMO products, and
traditional indemnity insurance. Our business is
concentrated in the more traditional PPO and point-of-
service products as opposed to HMO, which is significant
considering recent increased demand for open access PPO- and
POS-type products.
Blue Cross and Blue Shield of Missouri, the parent
company of RightCHOICE, is both the oldest and the largest
managed care company in the state. We've been doing
business for more than 50 years. We originally started out
as separate Blue Shield and Blue Cross plans, and in the mid-
80s those plans were consolidated to create Blue Cross and
Blue Shield of Missouri. In 1994, we established a company
called RightCHOICE. We are among a handful of Blue Cross
and Blue Shield plans that are publicly traded.
We are clearly the major player in the state of
Missouri in terms of membership, product mix and service.
Our total book of business is nearly twice the book of
business of our nearest competitor. We have a 26 percent
market share compared to our nearest competitor who has an
estimated 15 percent market share.
When I became president of Blue Cross and Blue Shield
of Missouri and RightCHOICE back in February of 1997, our
financial performance was disappointing. We were also
involved in a significant dispute with the state insurance
regulators and the Attorney General about our corporate
purposes. In a three-year period this company has mended
its relationship with government and its financial picture
has improved dramatically. We moved from a significant loss
in 1997 to solid profit in 1999. In 1997, we reported a $24
million loss. That changed to a positive net income of
$5.6 million in 1998 and $17.2 million in 1999. In 1998, we
had an earnings-per-share of 30 cents, but in 1999 we posted
an earnings-per-share of 92 cents. This clearly documents a
dramatic change. In 1998, we reached an accommodation with
the regulators in the state of Missouri and have,
subsequently, resolved a plethora of lawsuits that
threatened the companies' long-term prospects.
TWST: Congratulations on the turnaround. Could you
tell us more about RightCHOICE's competitive advantages?
What else sets the company apart from your competition?
Mr. O'Rourke: There are a number of factors that set us
apart. One is clearly our comprehensive network of
physicians and hospitals that includes the best hospitals
and the widest selection of physicians. We also have the
benefit of the Blue Cross and Blue Shield name and mark,
which is known and highly valued in Missouri. To the public,
it signifies trust, dependability, financial strength, and
staying power. This is very important to consumers as they
consider purchasing health insurance. Because we are "Blue"
our members also have the opportunity to access other Blue
Cross and Blue Shield plans when they travel outside of
Missouri. For example, if they were traveling in Florida,
their BlueCard is easily recognized and honored by
physicians and hospitals that contract with our sister plan.
This arrangement is unique in that our competition is often
either regionally or locally based. Further, because we are
Missouri-based, we offer our clients the benefit of a local
presence which is valued when there are claims or customer
service issues to deal with.
Another attribute that sets us apart in our market is
our strong relationship with the physician community. We
believe that physicians are absolutely critical to our long-
term survival, so we work hard to build relationships with
physicians that are predicated on trust and a mutuality of
business interests. An excellent example of that thinking is
our innovative program called the Physician Group Partners
Program or PGPPSM for short. The idea behind the program is
to provide primary care physicians an opportunity to earn
additional compensation by improving patient satisfaction
and improving performance levels using nationally recognized
health care industry standards while effectively managing
the costs trends. PGPP's focus is in our HMO business, and
we currently have 573 primary care physicians that are
participating in this program. During the last three years,
our experience with PGPPSM shows that the aggregate medical
cost trend for participating physicians in the program is 50
percent lower compared to non-PGPP physicians. Good
physician relationships are critical to maintaining
credibility in the market. We have an organization called
the Physician Consultative Committee. We meet on a regular
basis with a group of physicians and leaders in the
community to discuss problems and facilitate an effective
dialogue on a range of issues. The Committee has been
useful in helping us to identify important issues and
finding consensus-based solutions.
Another factor that differentiates RightCHOICE is our
HealthLink network. Currently, our Blue Cross and Blue
Shield franchise is limited to the state of Missouri.
However, through HealthLink, we have established networks in
six contiguous states including Iowa, Arkansas, Southern
Illinois, Indiana, West Virginia and Kentucky. On a stand-
alone basis, HealthLink covers a total of 1.5 million
members. The expansion of HealthLink into these states
provides growth opportunities for RightCHOICE because it
allows us to sell non-"Blue" products outside of our
franchise area. The fact that we have business in those
areas gives us leverage in negotiations with the physicians
and hospitals.
TWST: Could you give us an idea of the growth
potential of your markets in the future?
Mr. O'Rourke: We're seeing good growth in our markets
in terms of membership. In the past year, premiums have
grown 15 to 20 percent yet we have grown about 5 percent in
our underwritten membership and our HealthLink business is
expanding at about 12 percent annually.
Even with our large market share, there is plenty of
potential for further growth. Today, we are seeing an
increased interest in the more traditional PPO- and POS-type
products. Most of the growth in our market is occurring in
the PPO/POS benefit design and that's one of our primary
strengths. We are also seeing consolidation in terms of the
number of players in our market. In the fall of 1999, six
insurance companies announced they were pulling out of the
small group and the individual market segments. Another
trend we are also seeing is that the financial condition of
key provider-sponsored plans is deteriorating. Today, they
are less aggressive in their pricing as in the past. So the
competitive landscape is changing and that is creating new
opportunities for RightCHOICE to grow.
TWST: Now those six companies, did they go under, or
were they bought, or what happened?
Mr. O'Rourke: These companies came into the market
several years ago. They tried the market, bought market
share for a while, lost money, and decided to exit the
market completely.
TWST: Where would you like to see the company in three
years?
Mr. O'Rourke: I would like to see RightCHOICE continue
to expand its market share and build its financial strength.
I would also like to position us as the one company that
provides superior service in conjunction with the best
hospitals and doctors in the region. Achieving that will
demonstrate comparative value and improve profitability.
Currently, we are making real progress. We are projecting a
20 percent to 25 percent increase in earnings-per-share for
2000.
TWST: What rate of gain do you see for the future
beyond the next year, if you can project?
Mr. O'Rourke: We anticipate continued growth in
profitability. I think the outlook for RightCHOICE is
strong. I feel confident that we have the right people,
products and services to continue to be successful in the
future.
TWST: You partially answered this: Are there any other
major changes expected in your markets over the next several
years?
Mr. O'Rourke: Government is always a major concern. If
we get legislation that regulates how we price, increases
reporting requirements, or increases litigation risks, I
think the direct result could be further medical cost
inflation and this will put pressure on our stock. Further,
we need to be mindful of the public's growing interest in
freedom of choice and their aversion for administrative
hassles. We're already seeing that with the increasing
popularity of PPO products. With the prospect of further
regulation, we are prepared to meet the challenge. Over
time, price may likely become less important than service to
quality conscious consumers. Service includes fundamentals
like claims turnaround time, phone response time and
sensitivity in dealing with people. What ultimately gets and
keeps the business is your reputation and ability to deliver
"value" to the consumer. It's happening now, and it's
going to happen more intensely in the future.
TWST: How is RightCHOICE taking advantage of the
Internet?
Mr. O'Rourke: We have a number of initiatives in that
area. Our web site has a wide variety of very useful
information available to our members on the types of
products that we offer. Our web site also allows members to
access information on our provider network, so they can
locate providers and determine whether or not they are
participating in the various products. That's very important
information to the membership.
In the future, we will develop capabilities to sell our
products on the Internet. Our capabilities to facilitate
interactions with the physician community will also grow.
Future potential enhancements include the ability to track
the status of claims and the ability to certify hospital
admissions. There is plenty of potential for Internet
applications. There is no question that it can improve both
the quality and level of service we provide.
TWST: Where do you see the single biggest opportunity
for RightCHOICE, looking forward?
Mr. O'Rourke: Our single biggest opportunity is our
ability to continue to foster growth through differentiating
ourselves from our competitors relative to value. I think
there's an enormous amount of opportunity for growth both in
the state of Missouri and in the contiguous states because
there are many, many areas in Missouri and contiguous states
that don't have a significant penetration of managed care. I
believe that we're going to continue to see increased growth
in managed care in spite of the negative publicity that our
industry has received. This growth will come about because
the baby boom generation is aging, health care costs are
increasing, and people still want affordable benefit plans.
In the future, the value of the Blue Cross and Blue
Shield name and mark will grow in importance. It's a
trademark that is known among consumers like Coca-Cola or
McDonald's, and it's something that people can trust. It
signifies financial stability and dependability. Our Blue
Cross and Blue Shield franchise positions us well in a
market that is becoming more intensely focused on value.
TWST: How about acquisitions, joint ventures,
partnerships, alliances, those kinds of things? Do you look
at any of those as part of your future?
Mr. O'Rourke: There are numerous possibilities for
companies like RightCHOICE. Our strategy is to look at any
potential combination or alliance that makes good business
sense. Obviously, we are interested in maximizing
shareholder value and in serving our members. As
opportunities present themselves, we will focus on those
things that position us for the long-term.
TWST: How is your management team doing? Are they
equipped to handle your ambitious growth strategy?
Mr. O'Rourke: Our management team is superb -- it's one
of the best and brightest in our industry. During the past
three years, we have been fortunate to attract high caliber
people. Our strongest suit is the management team I have the
good fortune to be leading.
TWST: Where are you focusing your time? Where are you
spending your time in the business? What are you
concentrating on?
Mr. O'Rourke: My primary focus is on the bottom line
and on the service we provide to our members. In addition,
I'm also focused on the legislative environment. I deal
extensively with Missouri's legislature in Jefferson City
and the Congress in Washington, D.C. I was recently named
chairman of the Health Policy and Legislation Committee for
the national Blue Cross and Blue Shield Association. So,
some of my time and energy will be devoted to politics and
health policy.
Because of the size of this company and our tradition
of community involvement, there are a number of
philanthropic projects I focus on at the local level. I'm
very fortunate to have a strong management team.
Responsibilities are clearly delineated and that allows me
to also focus on issues that are important to the company
but sometimes outside of the day-to-day business.
TWST: What should long-term investors look at in your
financial reports, your numbers?
Mr. O'Rourke: Long-term investors need to look at the
changes that occurred between 1998 and 1999. Our net income
in 1998 was $5.6 million, in 1999 it was $17.2. Our
earnings per share tripled from 1998 to 1999. We
significantly reduced our medical loss ratio. It went from
83.5 percent to 82.2 percent. Our medical margin, which is
what's left over after you pay medical claims, increased
from $19.90 to $23.68 on a per member per month basis. Total
membership, including HealthLink, increased by about 200,000
members during that period. Profit margins grew from 0.74
percent in 1998 to 2.22 percent in 1999. When you weigh
these statistics, you realize the depth of the
transformation and the potential for the future. Then look
to our projected earnings for 2000. We're expecting earnings
per share to grow 20 percent to 25 percent. Anyone doing
their homework on RightCHOICE should realize that we have
plenty of opportunity for growth potential.
TWST: What are the primary factors affecting your
profit margins?
Mr. O'Rourke: There are several. One is clearly
revenue growth. There are two things that affect revenue
growth: total membership and premium levels. We're
projecting that for our underwritten membership, premium per
member per month will go up between 9 percent and 10 percent
in 2000. We're expecting a 3 percent to 5 percent increase
in underwritten membership.
Another factor affecting margin is cost - G&A and
medical. For 2000, we're projecting continued reductions in
G&A per member per month. There are also a number of
positive developments in terms of our ability to control
medical costs. We're expecting our medical trend to go up
between 7 percent and 9 percent, which is less than the
trend for the premium increases. Importantly, we're also
seeing increased improvements in our ability to manage
pharmaceutical costs, which is an increasingly important
part of the equation. In the past year, we moved to a three-
tier co-payment program versus a two-tier co-payment
program. We are seeing that the trend for the three-tier as
compared to the two-tier, is about 50 percent less.
TWST: How do you feel about your current stock price?
Mr. O'Rourke: I believe our stock is undervalued.
Currently, the stock is trading at around $13.00. We've
seen some reduction in the stock price in the last couple of
weeks, largely reflective of market volatility. Today, our
stock is a good value. One of the reasons why the stock
hasn't moved as quickly as we'd like is that there is a
limited amount of stock that's currently being traded. As
we consummate the settlement agreement, which we hope to
finalize by the end of this year, we will be in a position
to sell additional stock and increase our float.
TWST: What are two or three reasons why long-term
investors should buy stock in RightCHOICE today?
Mr. O'Rourke: I think one reason is that our business
has tremendous growth potential because of the aging of the
population and because of the continued inflation in medical
costs. We are going to see continued demand for managed care
products that offer real value. Investors with a long-term
outlook should recognize the potential. As far as
RightCHOICE is concerned, I think that the investor
community should focus on the fact that we've had eight
consecutive quarters of increased profitability. We have
made tremendous progress in resolving legal issues which
will enable us to realize even greater potential -- add to
that the fact that we are a Blue Cross and Blue Shield plan
with a highly recognized and valued brand trademark. Any
savvy investor should see us as a smart investment
opportunity.
Investors and security holders are advised to read the proxy
statement/prospectus regarding the business combination
transaction referenced in the following information filed
herewith because it contains important information. The
proxy statement/prospectus has been filed with the
Securities and Exchange Commission by RightCHOICE Managed
Care, Inc., a Delaware corporation, which will be the
surviving corporation in the reorganization transaction
described in the proxy statement/prospectus. Investors and
security holders may obtain a free copy of the proxy
statement/prospectus and other documents filed by
RightCHOICE Managed Care, Inc. at the Commission's web site
at www.sec.gov. The proxy statement/prospectus and such
other documents may also be obtained from RightCHOICE
Managed Care, Inc. by directing such request to RightCHOICE
Managed Care, Inc., 1831 Chestnut Street, St. Louis,
Missouri, 63103, Attn: Investor Relations, telephone
number: (314) 923-4831; e-mail: [email protected].
