August 15, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Choice Health Network, Inc.
File No. 0-23998
Ladies and Gentlemen :
Kindly accept the following transmission of the above-referenced corporation's
second quarter report on Form 10-QSB and Financial Data Schedule for the
period ended June 30, 1996. The Company maintains one manually sign copy on
file.
Kindly acknowledge acceptance of this transmission via our CompuServe E-mail
address - 72731,3025.
Very truly yours,
Randolph R. Barker
kk:RB
Enclosures
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-23998
FIRST CHOICE HEALTH NETWORK, INC.
(Name of small business issuer as specified in its charter)
Washington 91-1272766
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1100 Olive Way, Suite 1480
Seattle, Washington 98101
(Address of principal
executive offices)
(206)292-8255
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes __X___ No ______
The aggregate number of Registrant's shares of Class A Common Stock and Class
B Common Stock outstanding on August 13, 1996 was 658 shares and 34,800
shares, respectively.
Transitional Small Business Disclosure Format ( check one ):
Yes ______ No __X__
Page 1 of 24 Pages
FIRST CHOICE HEALTH NETWORK, INC.
INDEX TO FORM 10-Q
Page
Part I Financial Information
Item I Financial Statements
Consolidated Balance Sheets
at June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . 8
Item 2 Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . 20
Part II Other Information
Item 1 Legal Proceedings . . . . . . . . . . . . . 23
Item 2 Changes in Securities . . . . . . . . . . . 23
Item 3 Defaults Upon Senior Securities . . . . . 23
Item 4 Submission of Matters to a
Vote of Security Holders . . . . . . . . . . 23
Item 5 Other Information . . . . . . . . . . . . . 24
Item 6 Exhibits and Reports on Form 8-K . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . 25
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, 1996 and December 31, 1995
June 30, December 31,
Assets 1996 1995
(Unaudited)
Current assets:
Cash and cash equivalents $1,886,166 2,129,006
Service fees receivable, net of allowance for
doubtful accounts of $96,187 in 1996 and 1995 983,439 1,104,164
Investment securities
available for sale (note 4) 2,062,204 1,276,783
Federal income tax receivable 90,129
Prepaid expenses 83,272 182,469
Other assets 15,000 15,625
Total current assets 5,030,081 4,798,176
Furniture, equipment and computer software:
Furniture and equipment 856,148 813,663
Computer software 149,558 149,558
License fees (note 6) 193,557 191,876
1,199,263 1,155,097
Less accumulated depreciation and amortization 630,635 574,377
Net furniture, equipment and
computer software 568,628 580,720
Investment securities available for sale
(note 4) 1,999,695 1,940,454
Deferred Federal income taxes, net (note 5) 33,472 -
Goodwill, net of accumulated amortization of
$7,000 in 1996 and $5,500 in 1995 (note 1) 81,500 84,500
$7,713,376 7,403,850
See accompanying notes to consolidated financial statements (unaudited).
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
June 30, 1996 and December 31, 1995
June 30, December 31,
Liabilities and Shareholders' Equity 1996 1995
(unaudited)
Current liabilities:
Note payable $ - 45,000
Accounts payable 91,510 206,606
Accrued expenses 199,895 212,420
Federal income tax payable 147,034 -
Deferred Federal income taxes, net (note 5) 283,310 286,451
Other liabilities 15,863 11,575
Total current liabilities 737,612 762,052
Deferred Federal income taxes, net (note 5) - 25,062
Total liabilities 737,612 787,114
Shareholders' equity (note 2):
Common stock:
Class A, par value $1. Authorized 30,000
shares; issued and outstanding 658 shares
in 1996 and 676 shares in 1995 658 676
Class B, par value $1. Authorized 70,000
shares; issued and outstanding 29,000 shares
in 1996 and 1995 29,000 29,000
Additional paid-in capital 2,626,965 2,630,268
Paid-in capital from affiliates 1,472,108 1,472,108
Retained earnings 2,918,469 2,502,946
Net unrealized loss on investment securities
available for sale, net of deferred taxes
of $36,801 in 1996 and $9,407 in 1995
(notes 4 and 5) ( 71,436) ( 18,262)
Total shareholders' equity 6,975,764 6,616,736
Commitments and subsequent events (notes 3, 6, and 8)
$7,713,376 7,403,850
See accompanying notes to consolidated financial statements (unaudited).
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
For the Three Months and For the Six Months Ended June 30, 1996 and 1995
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Operating revenue (Note 7) $1,464,143 1,255,431 $2,754,248 2,476,134
Operating expenses:
Payroll and related 591,989 563,921 1,314,258 1,093,533
Selling, general and
administrative costs 469,509 673,034 993,979 1,221,546
Total operating expenses 1,061,498 1,236,955 2,308,237 2,315,079
Operating income 402,645 18,476 446,011 161,055
Other income:
Interest and dividends 75,730 67,775 144,266 126,700
Other income (loss) 16,453 287 13,064 ( 3,869)
92,183 68,062 157,330 122,831
Income before Federal
income taxes 494,828 86,538 603,341 283,886
Federal income taxes (Note 5) 168,296 31,443 187,818 99,130
Net income $ 326,532 55,095 $ 415,523 184,756
Net income per common share $ 6.94 $ 1.17 $ 8.83 $ 3.92
See accompanying notes to consolidated financial statements (unaudited).
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $ 415,523 184,756
Adjustments to reconcile net income to net cash
provided by (used in ) operating activities:
Depreciation and amortization 51,846 62,720
Deferred Federal income taxes, net ( 34,281) ( 143,460)
(Gains) losses realized on sales of investment
securities ( 14,905) 3,869
(Gain) loss realized on sale of equipment
and furnishings 1,841 ( 595)
Change in certain assets and liabilities:
Decrease in service fees receivable 120,725 308,130
Decrease in prepaid expenses 99,197 36,905
Increase (decrease) in prepaid Federal income tax 90,129 ( 173,869)
Increase (decrease) in accounts payable ( 120,913) 90,551
Decrease in accrued expenses ( 12,966) ( 38,946)
Increase (decrease) in Federal income taxes
payable 147,034 ( 21,640)
Total adjustments 327,707 123,665
Net cash provided by operating activities 743,230 308,421
Cash flows from investing activities:
Purchase of investment securities available for sale (1,970,661) ( 41,306)
Sales of investment securities available for sale 844,672 47,208
Maturities of investment securities 200,000
Assignment of call option ( 60)
Purchase of furniture, equipment and computer
software ( 52,528) ( 146,318)
Sale of equipment and furnishings 595
Principal received, bonds 40,928 21,429
Note receivable 18,500
Acquisition of goodwill ( 45,000)
Acquisition of loan fees ( 1,500)
Net cash used in investing activities ( 937,649) ( 146,392)
Cash flows from financing activities:
Reduction of note payable ( 45,000)
Issuance of Class A common stock and membership
rights to physicians 3,934
Repurchase of Class A common stock and membership
rights from physicians ( 3,421) ( 1,400)
Net cash provided by (used in) financing activities ( 48,421) 2,534
Increase (decrease) in cash and cash equivalents ( 242,840) 164,563
Cash and cash equivalents at beginning of period 2,129,006 1,934,776
Cash and cash equivalents at end of period $ 1,886,166 2,099,339
(Continued)
See accompanying notes to consolidated financial statements (unaudited).
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 1996 and 1995
1996 1995
(Continued)
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for Federal
income taxes $( 15,246) 438,000
Supplemental disclosure of non-cash investing activities:
Note payable incurred for acquisition of goodwill $ - 45,000
Unrealized gains (losses) on securities available for sale:
Current $ 56,838 15,668
Non-current ( 158,737) (102,971)
$( 101,899) ( 87,303)
Deferred income taxes on unrealized gains (losses)
on securities available for sale and securities
sold under agreements to repurchase:
Current $( 17,170) ( 5,327)
Non-current 53,971 35,010
$ 36,801 29,683
Unrealized losses on securities sold under
agreements to repurchase:
Current $( 6,338) -
See accompanying notes to consolidated financial statements (unaudited).
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
First Choice Health Network, Inc. (Company) was incorporated under the laws
of the State of Washington on September 28, 1984. The Company was formed to
organize a network of independent participating physicians and hospitals to
provide a comprehensive, managed health care delivery system for group plans
established by employers and benefit groups. The Company's business is
conducted primarily in Washington, Oregon and Alaska.
In June, 1996, the Company began receiving insurance premium revenue through
the operations of its wholly owned subsidiary, First Choice Health Plan, Inc.
(b) Principles of Consolidation
The consolidated financial statements include the consolidated accounts of
the Company and its wholly-owned subsidiary, First Choice Health Plan, Inc.,
a health care services contractor which was formed on January 31, 1995. All
significant inter-company balances have been eliminated in consolidation.
(c) Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At June 30,
1996 and December 31, 1995, cash equivalents consist of money market funds
amounting to $303,781 and $100,764, and cash management funds of $1,311,572
and $1,880,210, respectively.
(d) Operating Revenue
Operating revenue consists of network access fees and hospital administrative
fees. Network access fees are recognized as earned during the month of
coverage and are recorded at contractual rates. Hospital administrative fees
are recognized as earned in the month hospital claims are incurred by a
subscriber and are recorded at a contractual percentage of the claims.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(e) Investment Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investment in Debt and
Equity Securities, (Statement 115). Statement 115 applies to investments in
equity securities that have a readily determinable fair market value and all
debt securities.
Under Statement 115, investments are classified as held-to-maturity, trading
securities, or available-for-sale. The Company classifies all investment
securities as available-for-sale. Statement 115 requires that all securities
classified as available-for-sale be recorded at fair market value on the
balance sheet, with unrealized holding gains and losses excluded from
earnings and recognized as a separate component of shareholders' equity.
Declines in the fair values of investment securities available for sale
determined to be other than temporary are recognized as a component of net
income.
The cost used in determining the gain or loss on sales of marketable equity
securities and debt securities is average cost and specific identification,
respectively.
(f) Furniture, Equipment, Computer Software and License Fee
Furniture, equipment, computer software and license fee are recorded at cost.
Depreciation and amortization are computed using the straight-line method
over the lesser of the estimated useful lives of the assets, licensing
agreement or lease term, ranging from three to five years.
(g) Goodwill
Goodwill is determined as the difference between the purchase price and fair
market value of net assets purchased. Goodwill is amortized using the
straight-line method over fifteen years.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
the deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(i) Advertising
The Company expenses advertising costs as incurred. Advertising expense
amounted to $1,025 and $27,059 for the six months ended June 30, 1996 and
1995, respectively.
(j) Accounts Receivable
Accounts receivable consists primarily of an estimate for hospital
administrative fees receivable related to claims incurred on or before the
balance sheet date, but not reported. The Company evaluates the
reasonableness of hospital administrative fees receivable based upon claims
reported in subsequent periods. These estimates are subject to the effects of
trends in claim. Although considerable variability is inherent in such
estimates, management believes that the hospital administrative fees
receivable are reasonable. The estimates are continually reviewed and
adjusted as necessary as new information becomes known; such adjustments are
included in the current year operations.
The Company performs periodic credit evaluations of its customers and
maintains allowance for potential credit losses.
(k) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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 date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(2) Shareholders' Equity
(a) Ownership of Stock
Class A common stock may be held solely by physicians licensed in the State
of Washington who contract with the Company to provide health care services
and who hold active, associate or provisional medical staff privileges at one
or more of the hospitals that contract with the Company to provide health
care services.
Class B common stock may be held by hospitals in the State of Washington that
contract with the Company to provide health care services.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(b) Voting Rights
Holders of each outstanding share of Class A or Class B common stock are
entitled to one vote on each matter submitted to a vote at meetings of
shareholders and each class of common stock votes as a separate class.
(c) Transfer of Stock
Shareholders may only transfer their stock in the Company to the Company for
repurchase. The repurchase price is established by the Board of Directors
each fiscal year as set forth in the Bylaws.
(d) Dividends
The Board of Directors may declare and pay dividends on one or more classes
of common stock at such times and in such amounts as it designates, but in no
event may dividends be paid while there is an outstanding obligation to
repurchase shares. Dividends are allocated among shareholders of each class
of stock according to the number of shares outstanding to each Class A or B
shareholder. Any dividends paid to the Class B shareholders must be shared
with the non-shareholder district hospitals that have rights equivalent to
that of the Class B shareholders.
(e) Liquidation Rights
Upon liquidation or dissolution, the Board of Directors, at its discretion,
will allocate the value of assets among the classes of its outstanding stock
in proportion to the capital contributions of shareholders of each class. For
these purposes, the contributions by the non-shareholder district hospitals
that have rights equivalent to that of the Class B shareholders and the
membership fees paid by Class A shareholders are considered capital
contributions. The allocation to Class A shareholders will be shared among all
Class A shareholders in accordance with the number of shares outstanding to
each Class A shareholder. The allocation to the Class B shareholders must be
shared with the non-shareholder hospitals that have rights equivalent to that
of Class B shareholders.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(f) Paid-in Capital from Affiliates
District hospitals are not shareholders of the Company, but have contractual
agreements with the Company that provide for certain rights and obligations
equivalent, but not identical, to those of Class B shareholders, including
liquidation and dividend rights. The capital contributions of the
nonshareholders are recorded as paid-in-capital from affiliates. These
contractual agreements are considered to be common share equivalents for
purposes of calculating net income per common share.
(g) Net Income Per Common Share
The weighted average number of common share and common share equivalents used
in computing net income per common share amounted to 47,068 and 47,094 for
the six months ended June 30, 1996 and 1995, respectively.
(3) Line of Credit
At June 30, 1996 and December 31, 1995, the Company had a $300,000 line of
credit, expiring on June 3, 1997. Borrowings under the line bear interest at
the prime rate plus 1%. There were no borrowings outstanding under the line
of credit at June 30, 1996 or December 31, 1995.
(4) Investment Securities
The amortized cost, gross unrealized gains, gross unrealized losses and fair
values of investment securities at June 30, 1996 are as follows:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
Marketable equity securities $ 619,267 89,742 34,505 674,504
Mortgage and asset-backed
securities 1,956,162 3,368 160,141 1,799,389
Corporate debt securities 1,588,369 2,515 2,878 1,588,006
Securities sold under
agreements to repurchase ( 9,525) 2,600 8,938 ( 15,863)
$4,154,273 98,225 206,462 4,046,036
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The amortized cost, gross unrealized gains, gross unrealized losses and fair
values of investment securities available for sale at December 31, 1995 are
as follows:
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
Marketable equity securities $ 545,101 59,911 31,134 573,878
Mortgage and asset-backed
securities 1,997,823 7,063 64,432 1,940,454
Corporate debt securities 701,982 923 - 702,905
$3,244,906 67,897 95,566 3,217,237
The amortized cost and fair values of mortgage and asset-backed securities
and corporate debt securities at June 30, 1996, based on contractual
maturity, are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Amortized cost Fair value
Due in one year or less $1,437,250 1,432,591
Due after one year and through five years 202,269 200,305
Due after five years and through ten years 81,569 81,948
Due after ten years 1,823,443 1,672,551
$3,544,531 3,387,395
During the six months ended June 30, 1996 and 1995, the Company realized
gains and losses on investment securities available for sale, as follows:
Six Months Ended
June 30, 1996 June 30, 1995
Gross proceeds $ 844,672 $ 47,208
Gross realized gains 21,482 4,976
Gross realized losses ( 6,577) ( 8,845)
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(5) Income Taxes
Federal income taxes consist of the following components:
Three months ended
June 30, June 30,
1996 1995
Current $ 222,099 242,590
Deferred ( 34,281) (143,460)
$ 187,818 99,130
In 1995, the Company filed amended corporate tax returns to recharacterize
certain equity payments, and received tax refunds of $16,868, including
interest of $1,622 in 1996, and $233,634, including interest of $18,920 in
1995, related to these filings.
Federal income taxes differ from the amount computed by applying the
"expected" U.S. corporate income tax rate to income before Federal income
taxes for the six months ended June 30, as follows:
1996 1995
Amount Percent Amount Percent
Computed "expected" rate $ 205,136 34.0% $ 96,521 34.0%
Tax effect of permanent differences:
Dividend income received from
domestic corporations ( 2,889) ( .5)
Adjustment to prior year tax
returns ( 15,246) ( 2.5)
Other 3,689 . 6 2,970 1.0
Tax effect of timing differences ( 2,872) ( 5) ( 361) .1
$ 187,818 31.1% 99,130 34.9%
Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax asset and deferred tax liabilities
at June 30, 1996 and December 31, 1995 are presented below:
June 30, December 31,
1996 1995
Deferred tax assets:
Accounts payable and accrued expenses $ 96,541 $141,810
Unrealized loss on investment securities 36,801 9,407
Total deferred tax assets 133,342 151,217
Deferred tax liabilities:
Service fees receivable 334,369 375,416
Prepaid expenses 28,313 62,039
Furniture, equipment and computer software 20,498 25,059
Other - 216
Total gross deferred tax liabilities 383,180 462,730
Deferred Federal income taxes, net $249,838 $311,513
There was no valuation allowance for deferred tax assets as of June 30, 1996
and December 31, 1995. However, deferred tax assets as of June 30, 1996 and
December 31, 1995 include $36,801 and $9,407, respectively, of potential tax
benefit if securities were to be disposed of at their current market value.
The Federal tax law limits the deductibility of capital losses (permitted
only to the extent of recognized gains), with a limited carryback of three
years to offset prior recognized gains, and a limited carryforward of five
years to offset future recognized gains. Although management does not
currently intend to dispose of these assets, the Company's ability to obtain
tax benefit from a disposition of this type is uncertain.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(6) Commitments
(a) License Fees
(i) HSD Software License
On March 21, 1994, the Company entered into a software license and beta site
agreement with Health Services Design Corporation (HSD) for the use of the
software application developed and owned by HSD. The agreement calls for an
initial one-time license fee of $145,000.
(ii) VHS Software License
On May 31, 1995, the Company entered into a software licensing agreement with
Value Health Science, Inc. (VHS). The initial license term begins on the day
VHS successfully installs the related software, and ends three years later.
The license term will automatically renew for one more year at the third
anniversary of the commencement date and each anniversary thereafter. The
agreement calls for a $30,000 one-time customization fee and a $30,000 start-
up fee. On an ongoing basis, the agreement calls for miimum monthly fees plus
claims procesing fees and out-of-pocket costs with respect to storage and
processing. The current monthly fee, as of June 30, 1996, was $3,125. The
maximum annual license fee shall not exceed $300,000. The total amount paid
for the six months ended June 30, 1996 and 1995 related to this agreement was
$18,750 and $0.00, respectively.
(b) Consulting Agreement
On October 20, 1995, the company entered into a consulting agreement with
Olympic Health Management System, Inc. to develop and implement a Medicare
supplement product. The agreement may be terminated without cause at any time
by the Company. The agreement calls for a minimum monthly fee of $11,000
through the sooner of the completion of certain phases or for the first six
months this agreement is in effect. Total fees related to this agreement
amounted to $51,359 and $0.00 for the six months ended June 30, 1996 and 1995,
respectively.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(c) Leases
The Company leases its office facilities under terms of an operating lease
expiring in September, 1999. The lease provides for monthly minimum rent
payments and includes a renewal option for an additional five years.
Rental expense charged to operations under the operating lease for the six
months ended June 30, 1996 and 1995 was $72,336 and $68,557, respectively.
Future minimum lease payments under the operating lease for the years ended
December 31 are as follows:
1996 $ 69,102
1997 138,204
1998 138,204
1999 96,358
$441,868
(7) Related Party Transactions
(a) Note Receivable
At December 31, 1994, the Company had an $18,500 note receivable from an
officer of the Company. The note bore interest at 4.5% and was paid in full
in February, 1995.
(b) Operating Revenue and Service Fees Receivable
Operating revenue includes approximately $523,301 and $491,067 for
administrative service fees charged to owner and affiliated hospitals and
network access fees charged to owner and affiliated hospitals through third-
party administrators for the six months ended June 30, 1996 and 1995,
respectively.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(8) Acquisition
Effective January 31, 1995, the Company acquired 100% of the stock interest
in Pacific Health Systems, Inc., a dental Preferred Provider Organization
(PPO) operating in the state of Washington, by delivering cash of $45,000 and
a noninterest-bearing note of $45,000 due in full on January 31, 1996. In
addition to the fixed purchase price, the Company shall make contingent
purchase price payments to be calculated as 50% of the dental PPO net income,
as defined in the purchase agreement, in excess of $295,000 for each of the
calendar years 1995 and 1996 with an aggregate amount not to exceed $260,000.
No contingent purchase price payments were due for calendar year 1995. The
entire purchase price was allocated to goodwill. The operation of the PPO was
merged into the Company.
(9) Fair Value of Financial Instruments
On December 31, 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures About Fair Values of Financial
Instruments, as modified by SFAS No. 119, Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments. SFAS No. 107
requires disclosures of fair value for financial instruments, whether or not
they are included in the balance sheet, for which it is practicable to
estimate fair value. SFAS No. 119 requires disclosures about amount, nature
and terms of dervative financialinstruments.
The Company's financial instruments, included in the June 30, 1996 and
December 31, 1995 balance sheet, consist of investment securities available
for sale. The fair value of the investment securities is based upon quoted
market prices (Note 4).
The Company has invested in derivative financial instruments held for non-
trading purposes that are subject to off-balance-sheet market risk related
to investment securities available for sale. In 1995, the Company placed
$250,000 with Prudential Securities Incorporated (Prudential) with the
primary investment objective of capital appreciation and secondary objective
of current growth. The risk tolerance in the investment portfolio is moderate.
(Continued)
FIRST CHOICE HEALTH NETWORK, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(10) Retirement Plans
The Company has a qualified 401(k) Employee Savings and Profit Sharing Plan
(Plan) covering substantially all employees that are not already covered by
a collective bargaining agreement. Under the Plan, employees can defer up to
12% of the eligible compensation. The Company matches 50% of the employee
contribution, up to 6% of the participant's eligible salary. The Company also
has the option to make an additional profit sharing contribution to the Plan.
Employer contributions to the Plan for the six months ended June 30,1996 and
1995 amounted to $22,034 and $17,756, respectively.
(11) Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with
high credit quality institutions. At times, such investments may be in excess
of the FDIC insurance limit. The Company routinely assesses the financial
strength of its customers and, as a consequence, believes that its trade
accounts receivable credit risk exposure is limited.
(12) Subsequent Events
In July, 1996, the Company entered into a participation agreement with a
hospital which calls for an affiliation fee in the approximate amount of
$931,000.
Item 2
Management's Discussion and Analysis
or Plan of Operation
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included in this quarterly report
and with the Company's 1995 Annual Statement on Form 10-KSB.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Operating revenue increased 16.7% to approximately $1.46 million in the
second quarter of 1996, from approximately $1.26 million during the same
quarter of 1995, primarily as a result of an increase in the number of
subscribers (or members) and their dependents (collectively, "Covered
Persons") utilizing the Company's network of physicians, hospitals or other
health care providers ("PPO"), and an increase in rates to renewing groups.
Total operating expenses decreased 14.2% to approximately $1.06 million in
the second quarter of 1996, from approximately $1.24 million in the same
quarter of 1995. This change is primarily due to decreased expenditures
brought about by the reassessment of advertising and promotional goals; in
consulting by the completion of certain specialized computer programming
projects in connection with the Company's systems upgrade; and in legal due
to the costs associated with proxy items brought to a vote of the shareholders
which occurred in 1995. Expenses are expected to increase in the third and
fourth quarters of 1996 with the introduction of products through the
Company's subsidiary 'First Choice Health Plan, Inc.'
Payroll and related expenses increased 5% to $591,989 in the second quarter
of 1996, from $563,921 in the same quarter of 1995. This slight change is
primarily due to the re-evaluation of staffing and duties when certain
positions were vacated in the second quarter. Payroll and related expenses
decreased to 40.4% of operating revenue for the three-month period ending
June 30, 1996, compared to 45% of operating revenue in the same period of
1995.
Selling, general and administrative costs decreased 30.3% to $469,509 in the
second quarter of 1996, from $673,034 in same quarter of 1995. This is
primarily due to decreases in the following: advertising - through a
reassessment of marketing strategies,; in legal - for bylaw changes by proxy
made in second quarter 1995 but not in 1996; in travel and entertainment due
to a reduction in business trips; and in supplies. Increases in software
licensing fees, insurance, depreciation, and subscriptions and memberships
were all due to increased business activity.
Other income increased 35.5% to $92,183 in the second quarter of 1996, from
$68,062 during the same quarter in 1995, primarily due an increase in cash
available for investment.
Income taxes increased 435% to $168,296 in the second quarter of 1996, from
$31,443 during the same quarter in 1995, primarily due to the increase in
income before federal income taxes.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Operating revenue increased 11.2% to approximately $2.75 million in the first
six months of 1996, from approximately $2.48 million during the same period
of 1995, primarily as a result of an increase in the number of subscribers
(or members) and their dependents (collectively, "Covered Persons") utilizing
the Company's network of physicians, hospitals or other health care providers
("PPO"), and an increase in rates to renewing groups.
Total operating expenses decreased 3% to approximately $2.3 million in the
first six months of 1996, from approximately $2.32 million in the same period
of 1995. This is primarily due to changes in advertising and promotion,
legal and accounting, and consulting. A comparatively equal increase in
payroll and related expenses account for the negligible decrease between the
two periods. It is anticipated that expenses in the last six months of 1996
will increase due to the introduction of new product(s) through the licensure
of the Company's subsidiary 'First Choice Health Plan, Inc.' The release
dates for these products is dependent upon approval of rates from the
Washington state Office of Insurance Commissioner.
Payroll and related expenses increased 20.2% to approximately $1.3 million in
the first six months of 1996, from approximately $1.1 million in the same
period of 1995. This change is primarily due to staffing required for the
anticipated introduction of products under the licensure for FCHP; the
expansion of technical support for data systems, placement of a full time
medical director and increased costs for employee benefits. Payroll and
related expenses increased to 47.8% of operating revenue for the six-month
period ending June 30, 1996, compared to 44.2% of operating revenue in the
same period of 1995.
Selling, general and administrative costs decreased 18.7% to approximately
$1 million in the first six months ending June 30, 1996, from approximately
$1.22 million in same period of 1995. This is primarily due to decreases in
advertising - through a reassessment of marketing strategies; in travel and
entertainment due to a reduction in business trips; and in supplies. By-law
changes made in 1995 but not in 1996 are the primary reason for the decrease
in legal expenses in 1996. Increases in insurance an insurance and
depreciation were due to increased business activity.
Other income increased 28.1% to $157,330 in the first six months ending
June 30, 1996, from $122,831 during the same period in 1995, primarily due
an increase in cash available for investment.
Income taxes increased 89.5% to $187,818 in the first six months ending
June 30, 1996, from $99,130 during the same period in 1995, primarily due
to the increase in income before federal income taxes.
Liquidity and Capital Resources
The Company has a $300,000 line of credit from Seafirst Bank. On June 1,
1996, this line of credit was renewed for a one-year period ending June 1,
1997. At June 30, 1996, there were no borrowings outstanding under the line.
At June 30, 1996, the Company had cash, cash equivalents and investment
securities at fair market value of approximately $5.9 million compared to
approximately $5.5 million at March 31, 1996, approximately $5.3 million at
December 31, 1995, and approximately $4.4 million at June 30, 1995.
Net cash provided by operating activities during the first six months ended
June 30, 1996 was $743,230, compared to $308,421 for the same period in 1995,
due primarily to decreases in service fees receivable, and in prepaid
expenses and in accounts payable. A concerted effort to reduce the service
fee receivable accounts for the increase in cash in the first six months of
1996.
Net cash used in investing activities during the first six months ended
June 30, 1996, was $937,649 compared to $146,392 used during the same period
in 1995. The use of cash in the first six months of 1996 was due primarily
to the purchase of investment securities.
Net cash used by financing activities during the first six months ended
June 30, 1996 was $48,421 compared to $2,534 provided in the same 1995 period.
The reduction in cash from financing activities is due to the payment, in
February 1996, of the note held by Pacific Health Systems, Inc. for the
purchase of First Choice Dental System, Inc.
On February 1, 1995, the Company purchased all of the issued and outstanding
stock of a dental PPO for $90,000, $45,000 of which was paid at the closing
and the $45,000 balance of which is payable on February 1, 1996. Under the
related purchase agreement, First Choice is required to make additional
contingent purchase-price payments equal to 50% of the dental PPO's net
income in excess of $295,000 for each of the calendar years 1995 and 1996,
with aggregate additional purchase price payments not to exceed $260,000. The
additional aggregate purchase-price, due in January 1996 for 1995, will not be
owed because net income projections were not realized.
On July 25, 1995, First Choice Health Network, Inc. submitted amended Federal
corporate income tax returns for the years 1992 and 1993. KPMG Peat Marwick
had been asked to study payments made by shareholders which were recorded as
additional income for income tax purposes rather than the equity basis used
on our financial statements. It has been determined that, except for certain
physician non-membership contracts, these shareholder payments should have
been recorded as equity for all purposes. The total of these amended returns
is $229,091. As of this filing, the Internal Revenue Service has refunded
all portions inclusive of interest, penalty decrease and reduction of
interest previously charged.
Subsequent to year-end, the Company transferred cash of $150,000 to its
subsidiary, First Choice Health Plan, Inc., in connection with its licensure
as an HCSC. The Company previously transferred $1.5 million in January 1995
to fund the required statutory reserve. Additional funds may be required
when the Company introduces products pursuant to the license. There can be
no assurance the Company will be able to obtain the requisite financing to
expand its operations to introduce such new products. As of this filing these
funds remain on deposit.
The Company signed contracts for software development on March 21, 1994,
commenced implementation thereof, and have obtained necessary programming
assistance and additional hardware. Portions of the new system have been
installed on a pilot test basis and the Company expects to have fully
operational systems in place by early Fall, 1996.
Subsequent to the end of the second quarter, the Company entered into a
'Subscription Agreement' with Swedish Medical Center, a Washington non-
profit corporation, to acquire Fifty-Eight Hundred (5,800) shares of Class B
common stock of 'First Choice Health Network, Inc.' Under the terms of the
agreement Swedish acknowledges that full disclosure has been made and that
they are capable of evaluating the merits and risks of and investment in the
Company. They further agreed to pay $931,484 for the 5,800 shares, valued
at approximately $160.60 per share. This sales has been reported to the
Washington State Department of Financial Institutions, Securities Division.
In May of 1996 the Company's subsidiary, First Choice Health Plan, Inc.,
introduced into the market place a Medicare Supplement program in conjunction
with two of its owner hospitals, Northwest Hospital and Valley Medical Center.
By the quarter ending June 30, 1996 there were 23 policies in force and
collected premiums of $2,221. The Company has contracted with Olympic Health
Management Systems to act as the plan administrator. Their primary
responsibilities are to maintain a adequate sales force legally licensed in
Washington State, premium billing and collection, claims processing and
payment, and financial reporting to all applicable parties including the
appropriate reports necessary for compliance with the Office of Insurance
Commissioner of the State of Washington.
Part II - Other Information
Item 1 Legal Proceedings
Not applicable.
Item 2 Changes in Securities
Not applicable.
Item 3 Defaults Upon Senior Securities
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the First Choice Health
Network, Inc. held on June 27, 1996, nominees* for three positions on
the Board of Directors were put to a vote of the shareholders.
The following Directors were elected to a three year term to expire in 1999:
For Against Abstain Total
Class A: Richard Lipsky 353 11 0 364
Class B: Phil Haas 337 26 1 364
Class C: Paul Elliott 352 11 1 364
(one write-in candidate vote was submitted.
* The nominees held the respective directors positions to which they were
re-elected.
Item 5 Other Information
At the June 27, 1996 Board of Directors meeting Gary Gannaway, President and
CEO, requested that the Board set and approve the number of First Choice
Vice Presidents at seven. The motion was made, seconded and UNANIMOUSLY
APPROVED.
Mr. Gannaway introduced Mr. David Peel as Vice President ofProduct
Development and Underwriting. Mr. Peel's duties willinclude OIC compliance,
underwriting and product development. Mr. Peel started on July 1, 1996.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
10.19 Copy of Subscription Agreement dated
July 16 , 1996, with Swedish Medical Center.
10.20 Copy of Product Line Management Agreement
dated April 22, 1996, with Olympic Health
Management Systems, Inc.
10.20a Copy of Administrative Agreement dated
April 22, 1996, with Olympic Health
Management Systems, Inc.
10.20b Copy of Supervising Agent Addendum to
Independent Agent Agreement dated
April 22, 1996, with Olympic Health
Management Services, Inc.
10.20c Copy of Independent Agent Agreement
dated May 7, 1996, with Olympic Health
Management Services, Inc.
10.20d Copy of Schedule of Commissions and Service
Fees dated April 22, 1996, with Olympic Health
Management Services, Inc.
(b) Reports on Form 8-K
Filed - July 24, 1996
Item 5
On July 16, 1996, the Registrant and Swedish Medical Center, Seattle, a
Washington non-profit corporation, signed a 'Subscription Agreement.' This
document states that Fifty-Eight Hundred (5,800) shares of the registrant's
Class B common stock will be acquired by Swedish Medical Center, pursuant to
the terms set forth in the agreement.
In consideration for such stock, Swedish paid a total of $931,484.,
approximately $160.60 per share.
Report of this sale has been duly filed with the Washington State Department
of Financial Institutions, Securities Division.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST CHOICE HEALTH NETWORK, INC.
Date: August 15, 1996
By: / s /Randolph R. Barker
Randolph R. Barker
Vice President of Finance and Treasurer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST CHOICE HEALTH NETWORK, INC. STATEMENTS, SECOND QUARTER ENDING
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<NAME> FIRST CHOICE HEALTH NETWORK, INC.
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<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 1,886,166 2,129,006
<SECURITIES> 2,062,204 1,276,783
<RECEIVABLES> 1,079,626 1,200,351
<ALLOWANCES> (96,187) (96,187)
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,030,081 4,798,176
<PP&E> 1,199,263 1,155,097
<DEPRECIATION> (630,635) (574,377)
<TOTAL-ASSETS> 7,713,376 7,403,850
<CURRENT-LIABILITIES> 737,612 762,052
<BONDS> 0 0
0 0
0 0
<COMMON> 29,658 29,676
<OTHER-SE> 6,946,106 6,587,060
<TOTAL-LIABILITY-AND-EQUITY> 7,713,376 7,403,850
<SALES> 0 0
<TOTAL-REVENUES> 2,754,248 2,476,134
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,308,237 2,315,079
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 603,341 283,886
<INCOME-TAX> 187,818 99,130
<INCOME-CONTINUING> 415,523 184,756
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
EXHIBITS
TO
FORM 10Q-SB
QUARTERLY REPORT
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
______________________
FIRST CHOICE HEALTH NETWORK, INC.
(Name of small business issuer in its charter)
SUBSCRIPTION AGREEMENT
First Choice Health Network, Inc.
1100 Olive Way, Suite 1480
Seattle, WA 98101-1838
Gentlemen:
1. Subscription. Swedish Medical Center, a Washington non-profit corporation
("Swedish") hereby subscribes for and agrees to acquire Fifty-Eight Hundred
(5,800) shares of Class B common stock (the "Stock") of First Choice Health
Network, Inc., a Washington corporation (the "Company"), upon approval of a
majority of the Directors of the Company, and the Company hereby accepts
such subscription, all pursuant to the terms set forth herein.
2. Purchase Price. In consideration for such Stock, Swedish shall pay a
total purchase price of $931,484.00, approximately $160.60 per share, payable
in cash upon tender of this Subscription Agreement to the Company.
3. Stockholder Restrictions. Except as specifically set forth in this
Subscription Agreement, Swedish hereby acknowledges, adopts, accepts and
agrees to be bound by all the terms and provisions of the Company's Articles
of Incorporation, Bylaws, the Agreement Among Class B Shareholders and
Affiliates, and all other corporate documents binding upon or affecting the
Company's stockholders.
4. Representations and Warranties. Swedish hereby represents and warrants
that:
(a) Swedish is a Washington non-profit corporation in good standing in the
state of Washington which has been granted tax exempt status as a charitable
organization under Section 501(c)(3) of the Internal Revenue Code, is not
formed for the specific purpose of acquiring the Stock, and has total assets
in excess of $5,000,000.00;
(b) The Stock is being acquired by Swedish for investment purposes only, for
the account of Swedish and not with the view to any resale or distribution
thereof, and Swedish is not participating, directly or indirectly, in an
underwriting of such Stock and will not take, or cause to be taken, any
action that would cause Swedish to be deemed an "underwriter" of such Stock
as defined in Section 2(11) of the Securities Act of 1933, as amended;
(c) Swedish has received and has carefully read a copy of the Company's
Articles of Incorporation, its Bylaws, its most recent audited financial
statements, its 1995 year-end 10-K report, its first quarter 1996 10-Q
report, and other subscription documents, and, in connection therewith, has
had access to all other materials, books, records, documents, and information
relating to the Company, and has been able to verify the accuracy of and
supplement the information contained therein;
(d) Swedish acknowledges that Swedish has been offered an opportunity to ask
questions of, and receive answers from the Company, its President and Chief
Executive Officer, Gary R. Gannaway, and its Chief Financial Officer,
Randy Barker, concerning the Company and its business, and that any request
for such information has been fully complied with by them;
(e) Swedish has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of an
investment in the Company, or Swedish has, together with its legal and
financial advisors, such knowledge and experience in financial and business
matters that Swedish and its legal and financial advisors are capable of
evaluating the merits and risks of this investment;
(f) Swedish has adequate means of providing for the current needs profits
business and operations and possible contingencies, and Swedish has no need
for liquidity with respect to its investment in the Company;
(g) Swedish has been advised that an investment in the Company involves
substantial risk and Swedish is able to bear the economic risk of its
investment in the Company and can withstand a complete loss of such investment;
that there is no public market for the Company's Stock; and that it may not be
possible to liquidate the investment in the Stock in case of an emergency;
(h) Swedish is authorized and otherwise duly qualified to acquire the Stock;
(i) The Company has made no representations or warranties in connection with
Swedish's purchase of the Stock; and
(j) Prior to the time Swedish becomes committed to purchase the Stock,
Swedish knew of the restrictions on the Stock as described herein.
5. Restrictions on Transferability of Interests. Although the Company is a
reporting company under Section 12 of the 1934 Securities and Exchange Act,
Swedish realizes that the Stock in the Company is not, and will not be,
registered under the Securities Act of 1933, as amended (the "Act") or under
the securities laws of any state. Swedish also understands that the Company
has not agreed to register the Stock in the Company for distribution in
accordance with the provisions of the Act or any applicable state securities
laws, and that the Company has not agreed to comply with any exemption under
the Act or any such laws for the resale of the Stock in the Company. Hence,
Swedish understands that by virtue of the provisions of certain rules
relating to "restricted securities" promulgated under the Act, the interest
in the Company which Swedish has subscribed for hereby must be held
indefinitely, unless and until subsequently registered under the Act and
applicable state securities laws or unless an exemption from registration is
available, in which case Swedish may still be limited with respect to the
extent to which such interest may be transferred.
6. Payment of Subscription. Enclosed herewith is a cashier's or certified
check payable to the order of the Company for the full amount of this
subscription. If this subscription is rejected by Company's Board of
Directors, the funds delivered herewith shall be returned to Swedish, without
interest or discount, as soon as practicable.
7. Withdrawal. Swedish may at any time, voluntarily withdraw from the
Company, as a shareholder, effective upon giving notice of its intent to do
so to the Company. In such event, Company shall repurchase Swedish's Stock on
the same terms and conditions as established pursuant to the Bylaws of the
Company then in effect. In the event Swedish withdraws prior to the payment
of any capital call, Swedish shall not sufficiently given if sent by
registered or certified mail, postage prepaid, and (i) if to the Company, at
the address at the head of this Subscription Agreement, and (ii) if to
Swedish, at the address set forth below, or (iii) at such other address as
either Swedish or the Company shall designate to the other by notice in
writing.
9. Successors and Assigns. This Subscription Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to the
successors and assigns of the Company and to the personal and legal
representatives, heirs, guardians, successors, and permitted assignees of
Swedish.
10. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Washington and, to the
extent it involves any United States statute, in accordance with the laws of
the United States.
IN WITNESS WHEREOF, Swedish has executed this Subscription Agreement, this
___16th__ day of _____July____, 1996.
91-0433740
Tax Identification Number
Address:
747 Broadway
P.O. Box 14999
Seattle, WA 98114-0999
SWEDISH MEDICAL CENTER,
a Washington non-profit corporation
By /s/Richard Peterson
Its President and CEO
Accepted:
FIRST CHOICE HEALTH NETWORK, INC.
By /s/Gary R. Gannaway
Gary R. Gannaway, President and CEO
Exhibit 10.20
Product Line Management Agreement for Medicare SELECT
Olympic Health Management Systems, Inc.
322 N. Commercial St., Suite 300
Bellingham, WA 98225
This Agreement is entered into by and between Olympic Health Management
Systems, Inc. (hereinafter referred to as "Systems"), a consultant and third
party administrator, and First Choice Health Network, Inc. (hereinafter
referred to as "FCHN").
RECITALS
WHEREAS, FCHN has entered into an Agreement with First Choice Health Plan,
Inc., (hereinafter referred to as "Health Plan") whereby FCHN member hospitals
("hereinafter referred to as "Hospitals") shall participate in a Medicare
SELECT supplement program; and
WHEREAS, Medicare SELECT plan(s) will restrict payment of certain benefits to
Hospitals unless the subscriber could not reasonably access care at Hospitals
or the needed care was not available at Hospitals; and
WHEREAS, Systems has extensive experience in the sale, promotion, and
management of provider-based Medicare supplement programs, including, but not
limited to, third party administration, research, marketing, and contracting;
and
WHEREAS, Systems collects considerable data from its automated interface with
the Part B intermediary and, through this Product Line Management Agreement,
agrees to provide monthly reports and interpretation to FCHN on sales,
premium and claims activity.
Now, therefore, in consideration of the promises and mutual covenants herein
stated, it is agreed by and between the parties hereto as follows:
Article I. Systems' Obligations
1.1 Health Plan Relations. Systems shall advise FCHN on the status of the
regulatory filing of Medicare SELECT Plan of Operations, Medicare SELECT
contracts, premium rates, disclosure statement and other required forms,
along with advertising that is required to be filed with the Office of the
Insurance Commissioner. Systems will coordinate the development of the Plan
of Operations in such areas as quality assurance standards, developing
subscriber grievance procedures, marketing, and, as may be appropriate,
negotiating, and revising the Network Hospital Agreement. Systems shall
perform the ongoing Medicare supplement regulatory filing and reporting for
the Medicare SELECT program as required by state and federal law.
1.2 Monthly Product Line Reports. Systems shall provide these monthly
reports as follows:
1.2.1 A report summarizing the data for the FCHN direct marketed
Medicare SELECT product.
1.2.2 A report summarizing the data for the agent marketed Medicare
SELECT product. Said report to cover the service areas of all
participating hospitals.
1.2.3 Reports for each participating hospital summarizing the data for the
participating hospital's respective service area.
The monthly reports shall contain at least the following information:
Current month and year to date sales summary; current month and year to
date cancellation summary; current month and year to date in force plan
summary; sales and in force statistical recap; risk pool analysis; and claims
data in the aggregate and on a per member per month basis, by provider
specialty and by network and non-network facilities.
1.3 Quarterly Claims and Premium Accounting. Within thirty (30) days of
the end of each calendar quarter, Systems shall provide, in addition to the
reports described in Sections 1.2.1, 1.2.2 and 1.2.3 of this Agreement,
quarterly reports including the information in the monthly reports, and
program performance analysis, including a program financial statement with
both actual and projected data, accounting activities for premiums collected
and claims paid, show total premiums collected and claims paid by subscriber,
and further summarize by age and plan in both aggregate dollars and on a per
member per month basis. Such reports shall include an Incurred But Not
Reported (IBNR) claims reserve estimate.
1.4 Specialty Reports. If requested by FCHN, and subject to the provisions
of 2.3.2, Systems will provide claims data for subscribers listing the
provider charge, the Medicare allowable fee, deductibles and co-insurance
paid below the Medicare allowable fee or above the Medicare allowable fee,
Medicare payment, date of service, date of payment. This data can be sorted
by subscriber, plan, provider, provider specialty, place of service, type of
service, CPT code, age, sex, or any other data elements captured by Systems.
Such reports can be produced for any plan, consolidation of plans, or for any
month or consolidation of months.
1.5 Annual Premium Increases. Systems shall provide to FCHN on an annual
basis, or upon request, recommendations on premium increases required to meet
FCHN's financial objectives as it relates to its risk, marketing objectives,
and return on investment.
1.6 Marketing Materials. Systems shall assume responsibility for
coordinating the review and filing of marketing materials requested by FCHN.
Such marketing material must be authorized by the Health Plan and approved by
the Office of the Insurance Commissioner prior to use.
1.7 Hospitals Orientation Program. Systems shall assist Hospitals in
communicating the importance and procedures of Health Plan's Medicare SELECT
program to its medical staff and employees. Such orientation shall include
written communication as well as group presentations.
1.8 Project Coordination. The success of the Medicare SELECT program is
contingent upon the support of Hospitals, communications with the Office of
the Insurance Commission, communications on the status of the project with
the Health Plan, customer support, and agent management.
1.9 Exclusive Management.
1.9.1 While this Agreement is in effect, and except as otherwise provided
herein, Systems agrees not to provide services for Medicare SELECT products,
to another hospital or hospital systems in the mutually agreed upon service
areas for each hospital with which FCHN has signed a Network Hospital
Agreement. For those hospitals which currently have executed a Network
Hospital Agreement the service area is described by the map and zip codes
on Attachment 1.9.1, attached hereto and incorporated herein by this
reference.
1.9.2 Systems agrees not to provide services for Medicare SELECT products
to another hospital or hospital system, except for Whatcom County, Multicare
and hospitals participating in the FCHP hospital sponsored Medicare
SELECT program (i) for a period of one (1) year in the areas served by
FCHN owner hospitals, and (ii) for a period not to exceed six (6) months in
the remaining counties in the state of Washington. For the purposes of this
Agreement, those areas served by FCHN owner hospitals are defined as
King, Pierce, Snohomish and Spokane counties in Washington state.
1.9.3 After the first six (6) months that this Agreement is in effect, Systems
agrees that it will provide FCHN sixty (60) days prior written notice of its
intent to provide Medicare SELECT product line management services to
another hospital or hospital system ("Systems Hospital") in counties not
serviced by FCHN owner hospitals, and the area in which the Hospitals
sponsored Medicare SELECT product line will be offered. During this
sixty (60) day period, FCHN shall the right to (i) invite the Systems
Hospital to sign a FCHN Network Hospital Agreement, or (ii) bring a
different hospital into FCHN's Medicare SELECT program in the area
identified in the notice. If FCHN brings a different hospital to Systems,
Systems will not do business with Systems' Hospital. Any hospital
proposed by FCHN under this paragraph, must be of equivalent size, and
provide the same or greater level of services than the Systems' Hospital.
The provisions of this Section 1.9.3 shall expire one (1) year following the
effective date of this Agreement.
1.9.4 Systems shall not provide consulting services to insurers, health
maintenance organizations or health care service contractors identified in
Exhibit 1.9.4 for the purposes of establishing a Medicare SELECT product,
either agent or direct marketed, in the state of Washington for a period not
to exceed one (1) year from the effective date of this Agreement.
Article II. FCHN's Obligations
2.1 Project Team. FCHN shall assign an administrative point person to
communicate with Systems. This individual shall be responsible for
coordinating FCHN's obligations hereunder for a project team consisting of
competent and appropriate staff, committed to the success of this project.
2.2 Marketing. All marketing activities must be authorized by Health Plan
and approved by the Office of the Insurance Commissioner before production.
FCHN will notify Systems of any marketing activities which it desires.
2.3 Reimbursement of Systems.
2.3.1. FCHN shall compensate Systems for its services in the amount of
$2,500.00 per month.
2.3.2 FCHN shall reimburse Systems on a monthly basis for expenses directly
incurred and requested by FCHN and for such expenses as are reasonably
incurred by Systems in the performance of its obligations herein. Such
expenses include, but are not limited to, travel, costs associated with the
development of FCHN specific marketing materials, postage, telephone and
any applicable taxes.
2.3.3 Reimbursement to Systems shall be paid by FCHN within thirty (30) days
of receipt of billing.
2.3.4 A $15,000.00 deposit from FCHN shall remain with Systems for the
term of this Agreement. The deposit shall be returned at the time Systems'
services are terminated or applied against any outstanding billings.
Article III. Maintenance and Access of Books and Records
3.1 Maintenance of Records. Systems shall maintain, at its administrative
office(s), books and records of all transactions among itself, FCHN and
Health Plan relating to the services which Systems performs for FCHN under
this Agreement, and the Administrative Agreement with Health Plan. These
books and records shall be maintained in accordance with prudent standards of
insurance record-keeping during the term of this Agreement and for a minimum
of four (4) years after any termination of this Agreement, or the longest
period required by law.
Further, in the event that this Agreement is subject to regulations
promulgated by the implementation of 952 of the Omnibus Reconciliation Act
of 1980 by the Health Care Financing Administration as codified under 42 USC
1395x(v)(1)(I), the following shall apply:
3.1.1 Each party agrees, until the expiration of four (4) years after
furnishing services under the terms of this Agreement, to make available,
upon written request, to the Secretary of Health and Human Services or, upon
request, to the Comptroller General, or any of their duly authorized
representatives, this Agreement and all books, documents and records that are
necessary to verify the nature and extent of the costs of such services.
3.2.2 If either party carries out any of the duties of this Agreement
through a subcontract with a related organization, having a value or cost of
ten thousand dollars ($10,000.00) or more over a twelve (12) month period,
such subcontract shall contain a clause to the effect that, until the
expiration of four (4) years after furnishing such services pursuant to such
subcontract, the subcontracting organization shall make available, upon
written request, to the Secretary of Health and Human Services or, upon
request, to the Comptroller General, or any of their duly authorized
representative, this Agreement and all books, documents and records that are
necessary to verify the nature and extent of the costs of such services.
3.2 Inspection of Records. FCHN shall have the right, during Systems'
regular business hours, to audit, examine, inspect, and copy all books and
records. Systems will release to FCHN on demand any such books and records
to answer inquiries or audits. FCHN shall pay for reasonable costs incurred
by Systems.
Article IV. Advertising
4.1 Neither Systems or FCHN may use the name, image, promotional material,
stationery, letterhead or logotype of the other party unless such use is
expressly authorized in writing by the other party. Any unauthorized use of
such items is outside the limited scope of authority granted by this Agreement.
Article V. Term and Termination
5.1 Term. This Agreement will take effect on the Effective Date and shall
remain in effect until terminated in accordance with the provisions of this
Article V.
5.2 Written Notice. Except as otherwise stated herein, this Agreement may
be terminated, without cause, at the option of either party upon written
notice to the other of not less than ninety (90) days. During the notice
period, the parties shall continue to be bound by the terms of this Agreement.
5.3 Upon Occurrence of Certain Events. Either party may terminate this
Agreement immediately upon occurrence of any of the following events:
5.3.1 The liquidation or dissolution of either party, whether voluntary or
involuntary unless incidental to a reorganization of either party.
5.3.2 The adjudication of either party as bankrupt; the execution by either
party of an assignment for the benefit of creditors; or the appointment of a
receiver for either party or a material portion of either party's assets, if
the appointment is not vacated within ninety (90) days after the effective
date of such appointment.
5.3.3 Any state or federal regulation which significantly alters the
Medicare SELECT program.
5.4 Cause. Either party may, upon written notice to the other, terminate
this Agreement immediately for cause. Termination for cause shall include,
but not be limited to, fraud, failure to perform the terms of this Agreement,
failure to secure and maintain necessary licenses and accreditation.
Article VI. General Provisions
6.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes any and all other agreements,
either oral or written.
6.2 Severability. If any term, provision, covenant, or condition of this
Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the provisions shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
6.3 Amendment. This Agreement may not be modified, changed, or amended in
any respect unless agreed upon in writing and signed by the President or Vice
President of each of the parties.
6.4 Assignment. This Agreement shall not be assigned by either party
without prior written consent of the other, said consent shall not be
unreasonably withheld.
6.5 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
6.6 Counterparts. This Agreement may be executed in counterparts each of
which shall have the same force and effect of an original.
6.7 No waiver. No term or provision hereof shall be deemed waived and no
breach excused, unless such waiver or consent shall be in writing and signed
by the party claimed to have waived or consented. Any consent or waiver by
either party to a breach by the other, whether express or implied, shall not
constitute a consent to waiver of, or excuse for, any different or subsequent
breach.
6.8 Indemnification and Hold Harmless. Each party agrees to indemnify and
hold the other harmless from any demands, suits, loss, liability, damage,
claims cost, or expense (including reasonable attorney fees, at trial and on
any appeal therefrom) arising out of the negligence of any employee,
director, officer or agent of the indemnifying party in connection with this
Agreement or the breach by the indemnifying party of any provision of this
Agreement. For purposes of this Section, the term "agent" with reference to
FCHN shall not include FCHN's Medical Staff, physicians and other health care
providers who are not employed by FCHN.
6.9 Relationship of Parties. Each party hereto is an independent
contractor with respect to the other and not an agent, servant or employee or
joint venturer.
6.10 Notices. Any notice required to be given under the terms of this
Agreement shall be deemed to be received within three (3) days of its deposit
in the United States mail, first class, postage pre-paid, or the next day if
sent by overnight courier or upon actual receipt if hand delivered and if
addressed to the parties at the addresses set forth below. The date the
notice is sent shall be considered the date of Notice.
If to FCHN: First Choice Health Network, Inc.
1100 Olive Way, Suite 1480
Seattle, WA 98101-1838
Attention: Randy Barker
If to Systems: Olympic Health Management Systems, Inc.
322 N. Commercial Street, Suite 300
Bellingham, WA 98225
Attention: C. Paul Gauthier
Either party may change the address to which such notices are to be directed
upon written notice to the other party given in accordance with the terms
thereof.
Article VII. Effective Date
7.1 The Effective Date of this Agreement is the _22_ day of _April_, 1996.
IN WITNESS WHEREOF, FCHN and Systems have, by their respective officers,
executed this Agreement.
Olympic Health Management First Choice Health Network, Inc.
Systems, Inc.
By: /s/ C. Paul Gauthier By: /s/ Randy Barker
Title: President Title: VP, Finance
Date: May 7, 1996 Date: April 23, 1996
Attachment 1.9.4
1. Any other Health Care Services Contractor incorporated in the State of
Washington, including any affiliated company, with the exception of
HealthGuard Services of Washington.
2. Group Health Cooperative, Good Health Plan, Virginia Mason, Pacificare.
3. Washington Health Network (WHN) and other subsidiaries of WHN.
4. Insurance companies, Third Party Administrators, Union Trusts, and other
payors who are First Choice Health Network clients (see attached list of
current First Choice Health Network clients). This restriction applies only
to assistance with Olympic would provide to these payors to establish a
program in the state of Washington. Olympic may work with these payors to
help them establish a SELECT program in other states.
6. Ethix, Integrated Network Services and other PPOs incorporated in the
state of Washington.
Exhibit 10.20a
Administrative Agreement
This Agreement is entered into this _22nd_ day of _April, 1996_, by and
between First Choice Health Plan, Inc., a Washington health care service
contractor ("FCHP"), and Olympic Health Management Systems, Inc. a third
party administrator ("Olympic").
WITNESSETH THAT:
WHEREAS, FCHP desires to utilize the services of Olympic as a third party
administrator for certain health coverages; and
WHEREAS, FCHP and Olympic are desirous of entering into an Agreement
reflecting their rights and obligations with respect to this relationship; and
WHEREAS, the parties mutually agree that this Agreement, and any amendments,
exhibits, and addenda thereto, if any, shall constitute the full and complete
embodiment of the intention of the parties regarding all policies
administered pursuant to this Agreement;
NOW, THEREFORE, for and in consideration of these premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
Obligations of Olympic
1. Administrative Services. Olympic, acting for and on behalf of FCHP,
agrees to perform certain services relating to the administration of the
Medicare supplement coverage in agreed upon service areas. Each service area
and the functions to be performed by Olympic will be described in separate
Exhibits which shall be consecutively numbered, executed by the parties, and
by reference incorporated and made a part of this Agreement. Each Exhibit
shall contain, at a minimum, the following information with respect to the
applicable service areas:
a. Name of service area;
b. Contract forms to be administered;
c. Services to be performed by Olympic;
d. Amount to be paid to Olympic by FCHP for services to be performed; and
e. Any special instructions with regard to the applicable service areas.
2. Performance of Duties. For all service areas, Olympic represents the
following:
2.1 It will conform its method of conducting business to rules mutually
agreed upon by FCHP and Olympic and which comply with all applicable federal,
state and local laws.
2.2 Use of Approved Materials. It will use the forms, materials and
procedures approved by the FCHP. FCHP may revise such forms,
materials and procedures from time to time. Such revision shall be
effective as soon as practical but not more than ninety (90) days, or as
required by a state, following the receipt of written notification of such
revision.
2.3 Advertising. It will submit to FCHP for prior written approval by FCHP
the form and content of all advertising and sales literature to be used in
any media for the solicitation of business for FCHP. After the form and
content of all advertising have been approved by FCHP and approved for
use by the Office of the Insurance Commissioner, the time and place of its
use shall be at the discretion of Olympic, except in areas where such
advertising may not be distributed due to prohibitions by state law. All
information sent directly to agents for their information must be approved
in advance by FCHP.
2.4 Ownership of Books and Records. All documents, books, records, and
any other material of whatsoever nature of Olympic in any manner relevant to
the administration of the Medicare supplement coverage products are and shall
remain the property of the FCHP, and will be open for inspection by FCHP at
all reasonable times during the time any policies administered hereunder are
in force, and until the termination of all Olympic's duties and
responsibilities under this Agreement. Copies of all such documents, books,
records, and materials of Olympic shall be provided to FCHP, as may be
required by FCHP, in a form acceptable to FCHP upon request. Olympic may
maintain copies of such documents, books, records and materials to perform
its obligations under this Agreement, after which all such documents, books,
records and materials will be returned to FCHP, as described in Article IV,
Section 2 of this Agreement. Nothing within this section shall prohibit
Olympic from providing to hospitals, who have contracted with FCHP, such
information and/or reports as the hospitals are entitled to according to the
terms of there respective agreements with FCHP.
2.5 Advancing Business Interests. It shall direct its efforts in the
performance of services, toward advancing the business and interests of FCHP
to the best of its ability. At no time shall Olympic engage in any practice
prohibited by applicable state law.
2.6 Periodic Reporting. It will make reports of its conduct of the
business in a form and at a time mutually agreed to by FCHP and Olympic, or
required of FCHP to properly assess the experience under the Medicare
supplement products and the proper level of rates for the Medicare supplement
products.
2.7 Governmental Reporting. Olympic will be responsible for all required
reporting to any and all government regulatory bodies in connection with
Olympic's license requirements, if any, and the level of services provided
to FCHP and will cooperate with FCHP in answering any complaints from
the Office of the Insurance Commissioner or other regulatory bodies.
ARTICLE II
Obligations of FCHP
FCHP recognizes Olympic as the administrator for policies identified in the
Exhibits and agrees to:
1. Payment to Olympic. Pay Olympic, while this Agreement is in force, an
allowance based on the functions performed by the Olympic. Such allowance
will be agreed to in writing in each Exhibit attached hereto and made a part
hereof, and may be modified from time to time by negotiations if there is a
change in such functions or in the cost of their performance after the
inception of this Agreement. Said allowance shall be computed on a monthly
basis and paid to Olympic within thirty (30) days of the end of each calendar
month.
2. Premium Rates. Periodically determine the premium rates. These rates
are the final responsibility of FCHP and will be communicated to Olympic at
least 60 days before they take effect.
3. Establishment of Bank Account(s). FCHP shall establish one or more
accounts into which premium may be deposited and claims paid. Premium
collected by Olympic is to be deposited into said account(s) established by
FCHP. Return premiums shall be remitted to the subscribers entitled thereto.
Claim payments will be made from the account(s) established by FCHP. The
bank account(s) are to be maintained to clearly record the deposits and
withdrawals from the accounts on behalf of FCHP. All bank account records
shall be promptly obtained and copies kept. FCHP may demand and be furnished
copies upon request by FCHP. Withdrawals of FCHP's funds from the approved
bank may be only for:
a. Remittance of return premium to persons entitled to them.
b. Payment of claims to subscribers or as otherwise assigned.
c. Payment of commission to agents entitled thereto.
d. Payment of Olympic's administrative fee.
ARTICLE III
Effective Date, Term and Termination
1. Effective Date. This Agreement shall be effective on April 22, 1996.
2. Term. This Agreement shall have an initial term of twelve months from
the effective date hereof and shall continue from year to year upon the
expiration of said initial twelve-month period unless terminated in
accordance with Article III, Sections 4 through 7.
3. Continuing Obligations. Notwithstanding the termination, for any
reason, of any Medicare supplement products, this Agreement, or any part
thereof, may continue in effect, at the option of FCHP, until the date on
which all premium due to FCHP has been remitted to FCHP.
4. Termination upon Written Notice. This Agreement, or any Exhibit attached
hereto, may be terminated at the option of either of the parties upon written
notice to the other not less than 90 days before the date set for said
termination. This period of notice may be shortened by mutual agreement in
writing signed by the parties hereto.
5. Termination for Cause. Either party may, upon written notice to the
other, immediately terminate this Agreement for cause. Termination for cause
shall include, but not be limited to, fraud, or failure to obtain and
maintain necessary licenses.
6. Opportunity to Cure. If Olympic fails to perform any of its obligations
under this Agreement, and such failure is detrimental to FCHP, or performs
such obligations in a manner detrimental to FCHP, FCHP shall give detailed
written notice of such failures of performances. Olympic shall initiate
correction of such failures, performances or breaches within fifteen (15)
days of receipt of such notice. If Olympic fails to complete said correction
within thirty (30) days of receipt of such notice, FCHP may take whatever
action is deemed necessary in its sole judgment, including immediate
termination of this Agreement.
7. Insolvency. In the event Olympic assigns its assets for the benefit of
creditors or admits in writing its insolvency, FCHP may immediately
terminate this Agreement, and may temporarily assume the duties of Olympic
under this Agreement until such time as a successor administrator is
appointed by FCHP.
ARTICLE IV
General Conditions
1. Entire Agreement. This Agreement and the Exhibits attached hereto shall
constitute the entire agreement between the parties relating to matters
contained herein and shall supersede all prior written or oral agreements.
No modification or amendment or any provision hereof shall be binding upon
any party hereto unless it is in writing and signed by the President or a
Vice President of each of the Parties.
2. Maintenance of Books and Records. Olympic shall maintain at its
principal offices, for a period of five (5) years after this Agreement is
terminated, a copy of the Medicare supplement contracts and Agreement,
adequate books and records of all transactions between itself, FCHP and
subscribers. After that time, said books and records shall be returned to
FCHP. The books and records shall be maintained in accordance with present
standards of insurance record keeping and in accordance with state law.
3. Federal Regulatory Requirement. In the event that this Agreement is
subject to regulations promulgated by the implementation of 952 of the
Omnibus Reconciliation Act of 1980 by the Health Care Financing
Administration as codified under 42 USC 1395x(v)(1)(I), the following
shall apply:
3.1 Each party agrees, until the expiration of four (4) years after
furnishing services under the terms of this Agreement, to make available,
upon written request, to the Secretary of Health and Human Services or, upon
request, to the Comptroller General, or any of their duly authorized
representatives, this Agreement and all books, documents and records that
are necessary to verify the nature and extent of the costs of such services.
3.2 If either party carries out any of the duties of this Agreement through
a subcontract with a related organization, having a value or cost of ten
thousand dollars ($10,000.00) or more over a twelve (12) month period,
such subcontract shall contain a clause to the effect that, until the
expiration of four (4) years after furnishing such services pursuant to such
subcontract, the subcontracting organization shall make available, upon
written request, to the Secretary of Health and Human Services or, upon
request, to the Comptroller General, or any of their duly authorized
representative, this Agreement and all books, documents and records that
are necessary to verify the nature and extent of the costs of such services.
4. Underwriting of Plans. FCHP's usual underwriting rules shall apply to
the plans which are underwritten and issued by Olympic. Any exceptions to
these rules must be communicated in written form to Olympic.
5. Payment of Premium. Payment of premium to Olympic by a subscriber shall
be deemed to have been received by FCHP.
6. Confidentiality. The names and addresses of subscribers are information
to be confidentially held by Olympic and FCHP except when used in legal
proceedings against either Olympic or FCHP, or as otherwise provided in this
Agreement.
7. Notices and Communications to Subscribers. Any policies, certificates,
booklets, termination notices or other written communications delivered by
FCHP to Olympic for delivery to subscribers shall be delivered promptly by
Olympic after receipt of instructions from FCHP to do so. Olympic or FCHP,
depending upon which issues the certificates, shall give written notice to
each subscriber of the identity and relationship of Olympic, FCHP and the
subscriber.
8. Effect of State and Federal Regulation. In the event that state or
federal laws or regulations should change, alter or modify the present
services or the standards of eligibility of subscribers, the terms and
conditions of this Agreement shall be changed accordingly.
9. Indemnification. Each party agrees to indemnify, defend, and hold
harmless the other, its agents, officers and employees from and against any
and all liability expense including defense costs and legal fees incurred in
connection with claims for damages of any nature whatsoever arising from its
performance or failure to perform its obligations hereunder.
10. Relationship of the Parties. Each party hereto is an independent
contractor with respect to the other and not an agent, servant or employee or
joint venturer. It is expressly understood that without prior written
authorization of the other party, neither party shall be the agent of the
other in the negotiation of the provider agreements contemplated hereby, and
shall have no authority whatsoever to bind the other party to the terms of
any such agreement.
11. Waiver. No act of forbearance or toleration on the part of either
party in favor of the other in respect to provisions of the Agreement, either
express or implied, shall be construed as a waiver by the party of any of its
rights hereunder.
12. Assignment. Neither party shall assign its rights or delegate its
duties under this Agreement without the prior written consent of the other
party, said consent shall not be unreasonably withheld.
13. Notices. Any notices or communications required or permitted hereunder
shall be duly given if delivered in person or sent by registered or certified
mail addressed as follows:
If to FCHP: Randy Barker
First Choice Health Plan, Inc.
1100 Olive Way, Suite 1480
Seattle, WA 98101-1838
If to Olympic: C. Paul Gauthier, President
Olympic Health Management Systems, Inc.
322 N. Commercial Street, Suite 300
Bellingham, WA 98225
or such other address as shall be furnished in writing to the other party
hereto.
14. Severability. If any term, provision, covenant, or condition of this
Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the provisions shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
15. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
16. Counterparts. This Agreement may be executed in several copies of
counterparts each of which shall have the same force and effect of an original.
16 Headings. The headings to the Articles, Sections and Paragraphs of this
Agreement are included only for the convenience of the parties and shall not
have the effect of defining, diminishing or enlarging the rights of the
parties or affecting the construction or interpretation of any portion of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as set
forth herein.
Olympic Health Management First Choice Health Plan, Inc.
Systems, Inc.
By: _/s/ C. Paul Gauthier ___ By: __/s/ Randy Barker ___________
Title: ___President______ Title: _VP, Finance________________
Date: ___May 7, 1996____________ Date: ___ April 23, 1996
Exhibit 10.20a
Administrative Agreement
Exhibit 1
This Administrative Agreement Exhibit 1 is attached to, and made a part of and
subject to all of the provisions of the Administrative Agreement and any
supplements thereto (hereinafter referred to as "Agreement") executed by and
between First Choice Health Plan, Inc. (hereinafter referred to as "FCHP")
and Olympic Health Management Systems, Inc. (hereinafter referred to as
"Olympic").
The parties hereto, having first entered into the Agreement, now make this
Exhibit as follows:
1. Service Area: See attached map and zip code list marked Attachment 1.1,
attached hereto and incorporated herein by this reference.
2. Contract forms to be administered: ASTD.A (2/96), SELA.A (2/96),
SELB.A (2/96), SELC.A (2/96).
3. Services to be performed by Olympic:
a. Maintenance of applications and other necessary records so as to enable
FCHP to determine at any time, the true and accurate status of the
Medicare supplement coverage in force.
b. Underwrite, issue and deliver to the subscriber forms supplied by or
approved, in writing by FCHP, along with Medicare supplement coverage
and/or amendments thereto.
c. Prepare and mail premium billings, statements or coupons as required.
d. Collect and remit premium and supporting premium reports, the form of
which shall have been approved by FCHP, to the home office of FCHP or
such other place as might be designated in writing by FCHP for receipt of
premiums.
e. Pay Medicare supplement coverage claims in accordance with the terms of
the contract.
f. Program accounting in accordance with standard insurance industry
practices.
g. Provide monthly reports on claims adjudicated. Said reports will be in
an electronic format mutually agreed to by the parties.
h. Prepare and file with the Office of the Insurance Commissioner those
premium rates, notices and other documents and forms required by law for
the administration of the Medicare SELECT plans.
4. Administrative Fee: FCHP agrees to pay the following administrative fee
to Olympic for the performance of the services designated: twelve (12)
percent of earned premium.
5. Exhibit Effective Date: __April 22, 1996____________________.
This Administration Agreement Exhibit 1 is executed in duplicate this
____7th_____________ day of __May, 1996_________________.
Olympic Health Management Systems, Inc. First Choice Health Plan, Inc.
By /s/ C. Paul Gauthier By /s/ Randy Barker
VP, Finance
Exhibit 10.20b
Supervising Agent Addendum
To
Independent Agent Agreement
This Addendum is attached to and made a part of that Independent Agent
Agreement (hereinafter referred to as "Agreement") by and between First
Choice Health Plan, Inc. (hereinafter referred to as "FCHP") and Olympic
Health Management Services, Inc. (hereinafter referred to as "Agent").
1. In addition to the duties outlined in the Agreement, Agent shall:
1.1 Recruit, for appointment by FCHP as FCHP's representative, persons
acceptable to FCHP for the sale of FCHP's plans. Agent shall organize,
train, instruct and supervise the work of such Representatives so
appointed.
1.2 Recommend to FCHP the appointment and termination of Representatives
to sell FCHP plans. FCHP shall not unreasonably refuse appointment of
said Representatives. For the purposes of this Agreement,
"Representative" means any person or entity, other than Agent, who is
licensed by the State of Washington to sell health coverage and is recruited
and trained by Agent to sell FCHP's Medicare supplement coverage.
2. For the services provided herein, FCHP shall compensate the Agent as
follows:
2.1 Commission.
Except as otherwise provided in this Addendum, when a Representative
solicits an application resulting in a plan being issued and remaining in
force for at least thirty (30) days Agent will receive credit to Agent's
commission account in an amount equal to eight (8) percent of the
premium paid, less the commission due to the Representative under its
agreement with FCHP.
Said commission shall be payable for the life of the plan.
2.2 Whenever a premium has been refunded to an applicant or subscriber in
accordance with the rules and regulations of FCHP, the Agent agrees to
immediately return to FCHP any commissions received as a result of that
business.
3. Refunded Premium In any contract year, whenever a premium has been
refunded to an applicant or policyholder in accordance with the rules and
regulations of FCHP, the Agent agrees to immediately return to FCHP any
commissions received as a result of that business either directly or through
a debit to the Agent commission account.
This Schedule is executed in duplicate this __7th____ day of __May, 1996.
First Choice Health Plan, Inc. Olympic Health Management Services, Inc.
By: __/s/ Randy Barker By: ____/s/ C. Paul Gauthier
Title: __VP, Finance____________ WA CIC.: OLYMPHM068C5
Exhibit 10.20c
Independent Agent Agreement
First Choice Health Plan, Inc.
1100 Olive Way, Suite 1480
Seattle, WA 98101
This Agreement is entered into by First Choice Health Plan, Inc. (referred to as
We, FCHP, or Us), and the person signing as Agent (referred to as Agent of
You).
1. Agreement
You agree to represent FCHP as an independent agent in accordance with this
Agreement, the rules of FCHP, the daily operating procedures established by
the market manager and the laws and regulations in the state in which You
operate.
2. Relationship
You are an Independent Contractor and nothing in this Agreement shall be
construed to create the relationship of employee and employer between You
and FCHP. Nothing in this Agreement is intended to prevent You from
engaging in other business activities. No business activities other than
those related to this Agreement shall be conducted on FCHP's premises.
3. Territory
Agent's appointment herein shall be for the territory defined by FCHP.
Nothing in this Agreement confers on the Agent exclusive representation of
FCHP in that Territory and FCHP may appoint such other agent or agents in
the same Territory.
4. Authority
While this Agreement is in effect, You will have the authority to:
a. Procure applications for insurance issued by the FCHP for
which You have been appointed as agent, collect the
premium for the application and issue the receipt thereon;
b. Deliver policies issued on applications so procured,
provided first premium has been paid;
c. Give service to policyholder of policies so written, so as to
maintain the policies in force;
d. Endeavor to procure applications for reinstatement of
lapsed polices.
5. Limitations of Authority
You agree not to perform any acts on behalf of FCHP for which You are
not authorized, such as:
a. Accept risks, incur debt or liability or enter into contracts;
b. Waive, alter, modify or change and FCHP policy or
procedure, contract terms, rates or customary requirements;
c. Endorse checks payable to FCHP;
d. Deliver polices except in accordance with FCHP's
instructions and during the good health of the proposed
insured; or
e. Accept premiums except for the initial premium in
accordance with FCHP's procedures.
6. Compensation
As compensation in full for the performance of services by the Agent as
authorized in this Agreement, FCHP shall pay Agent compensation as set
forth in the attached Schedule of Commissions and Service Fees. Said
Schedule may be altered, decreased, modified or withdrawn by FCHP at any
time. Such change will be effective upon any business written
subsequent to the effective date of the change.
FCHP shall provide a commission statement to Agent on a periodic basis.
Said commission statement will show all activity on Agent's account.
Agent has forty-five (45) days from the receipt of each commission
statement to report, in writing, any disagreement or dispute with the
contents of the commission statement. Failure to notify FCHP of any
dispute with the commission statement within the forty-five (45) days
shall constitute a waiver by Agent of the right to further audit of
Agent's account the period represented by the commission statement.
7. General Provisions
a. Advertising and Sales Promotion Material
1. You agree not to use any advertising materials, supplies or
other printed or written material used in the sale or promotion
of the FCHP's contracts without prior written approval of FCHP.
2. In the event you become aware of any materials used in the
sale or promotion of the FCHP's policies which has not been
approved by FCHP, you agree to promptly disclose such
information to FCHP.
b. Collection of Premium Payment
1. You agree to remit immediately any monies collected by
You on behalf of FCHP.
c. Indebtedness
1. FCHP is hereby given a lien upon any amounts due to Agent
under this or any prior agreement as security for payment of
any indebtedness owed to FCHP by You. In the event such
amount is insufficient to satisfy Your indebtedness to FCHP,
You agree to pay the unsatisfied portion in the lump sum to
FCHP. Any commission or other amounts advanced to You
before actually earned on premiums paid to FCHP, shall be an
indebtedness under this section.
d. License Responsibility
1. You are required to maintain the appropriate license as required
in those states that you solicit insurance under the terms of this
contract, and to provide to FCHP evidence of renewed license
within thirty (30) days of expiration date.
e. Payroll and Employment Taxes
1. No payroll or employment taxes of any kind shall be withheld
or paid with respect to compensation paid Agent. The payroll
and/or employment taxed are the sole responsibility of Agent.
For the purposes of this Section, payroll and employment
taxes include, but are not limited to, FICA, FUTA, federal
personal income tax, state personal income tax, state disability
insurance tax, and state unemployment tax.
f. Workers' Compensation
1. No workers compensation insurance has been or will be obtained
by FCHP on account of Agent.
g. FCHP Property
1. All printed matter or other supplies furnished to Agent by FCHP
is the property of FCHP and shall be promptly returned to FCHP
upon termination of this Agreement.
2 . All books or accounts, documents of every kind, vouchers,
receipts notices, lists of policyholders, or papers of every kind
used from time to time by Agent in connection with this Agreement,
whether the cost thereof be paid be FCHP or by Agent, shall be
and remain the property of FCHP, and the same subject at all
times to inspection be FCHP on demand, and at the termination
or cancellation of this Agreement the same shall be delivered to
FCHP or such place as FCHP may designate.
3. Any and all information obtained by Agent concerning any part
of the business of FCHP, the names of subscribers, the dates
premiums are due or are to become due shall be considered
confidential information and Agent expressly agrees that at all times
during the continuance of this Agreement or after its termination or
cancellation Agent will not divulge to any person in any manner
any information acquired by Agent while acting as Agent of FCHP.
8. No Waiver
No act of forbearance or toleration on the part of FCHP in favor of the
agent in respect to provisions of the Agreement, either express or implied,
shall be construed as a waiver by FCHP of any such rights or a waiver of
any subsequent breach.
9. Non-Assignability
No assignment of this Agreement nor any benefit to accrue hereunder, in
whole or in part, shall be valid or in any way binding on FCHP without prior
written consent.
10. Termination
a. Either FCHP or Agent may terminate this Agreement immediately by
giving the other party written notice at any time.
b. It will terminate automatically at any time Agent's license terminates
for any reason.
11. Performance
This Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.
12. Severability
Should any term of this Agreement be in violation of any law, rule,
regulation or policy of any state or any of its departments, agencies or
bureaus, now or in the future, this Agreement shall be amended so as to
conform thereto; should any provision be void, it shall not affect the
validity of the remaining provisions of this Agreement.
13. Entire Agreement
This Agreement, the Schedule of Commissions and Service Fees and
amendments, if any, attached hereto, supersede all previous agreements between
the parties, if any, and constitute the entire Agreement between the parties.
This Agreement can be changed or modified in behalf of FCHP only by the
written consent of the President or Vice President of FCHP.
14. Effective Date
This Agreement shall take effect on __April 22, 1996_________.
In witness Whereof, this Agreement was executed on this __7th___day of
__May, 1996__, at _Washington____.
First Choice Health Plan, Inc.
By:__/s/ Randy Barker_________ _/s/ C. Paul Gauthier
Agent Signature
Olympic Health Management Services
Title:__VP, Finance__________ Print Agent Name:
License No. OLYMPHMO68C5
File No. FC11596_______
Mailing Address:
322 N. Commercial Street, Suite 300
Bellingham, Washington 98225
Exhibit 10.20d
Schedule of Commissions and Service Fees
Subject to Paragraphs 1 through 14 of the Independent Agent Agreement
("Agreement") to which this Schedule is attached and made a part of, and as
long as the Agent is actively performing under the terms of the Agreement,
the following commissions and fees shall be allowed on premiums paid for
policies and riders approved and issued by First Choice Health Plan, Inc.,
("FCHP"). Commissions and fees on premiums paid in advance of the current
contract year shall not be paid until the contract year the premiums are due.
This Schedule is effective on April 22, 1996 and applies to any business
solicited on or after this effective date.
a. Territory.
This Schedule shall be limited to the State of Washington and the applicable
service areas for Medicare SELECT.
b. Commission.
(1 ) During the First Contract Year. When a contract is solicited by Agent
and paid for, Agent will receive credit to Agent's commission account in
an amount equal to eight (8) percent of the premium paid. Should a
contract terminate for any reason, other than the death of the subscriber,
during the first three (3) months, Agent's commission account will be
charged an amount equal to the commission paid on the unearned portion
of the premium. The charge back will occur, in full, immediately
following the contract's termination and will be offset against any future
commission earnings.
When premium is paid to renew the contract into its next premium
period, Agent will receive credit to Agent's commission account in the
amount equal to eight (8) percent of the premium paid. Except as
otherwise provided herein, Commission shall continue to be paid
through the first six (6) years the contract is in force.
(2) In the case of an individual being converted from another agent
marketed Medicare supplement plan offered by FCHP or an individual has
been covered by an agent marketed Medicare supplement plan offered by
FCHP in the previous twelve (12) months, Agent shall be entitled to
receive such commission as would have been paid on the original contract.
(3) Refunded Premium. In any contract year, whenever a premium has been
refunded to an applicant or policyholder in accordance with the rules and
regulations of FCHP, the Agent agrees to immediately return to FCHP
any commissions received as a result of that business either directly or
through a debit to the Agent commission account.
This Schedule is executed in duplicate this _7th_ day of _May, 1996.
First Choice Health Plan, Inc. Olympic Health Management
Services, Inc.
By: /s/ Randy Barker By: ____/s/ C. Paul Gauthier
Title: VP, Finance WA CIC: OLYMPHM068C5
