FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 12, 1996
FOHP, Inc.
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(Exact name of registrant as specified in its charter)
New Jersey 0-25944 22-3314813
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification
of incorporation) Number)
2 Bridge Avenue
Building 6
Red Bank, New Jersey 07701-1106
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (908)842-5000
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(Former name or former address, if changed since last report.)
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Item 5. Other Events.
New Jersey Departments of Insurance and Health Approval of Plan of Action
Submitted by FOHP-NJ to Address Potential Deficiency in Statutory Net Worth.
First Option Health Plan of New Jersey, Inc. ("FOHP-NJ"), a wholly-owned
subsidiary of FOHP, Inc. ("FOHP" or the "Company") which operates as a health
maintenance organization ("HMO") in the State of New Jersey, is required by the
New Jersey Department of Insurance ("DOI") to maintain a minimum statutory net
worth. In addition, if FOHP-NJ's statutory net worth is, or is expected to be,
less than 125% of the minimum requirement, FOHP-NJ is required to submit to the
DOI a plan of action to address the deficiency or expected deficiency. During
the first quarter of 1996, FOHP learned that FOHP-NJ's statutory net worth as of
December 31, 1995 may have been below 125% of the minimum requirement. FOHP-NJ
addressed this potential deficiency by submitting in April, 1996 a plan of
action to the DOI which outlined the actions which had been taken and measures
to be used by FOHP-NJ to correct the potential deficiency. The plan of action
also outlined the actions to be taken by FOHP and FOHP-NJ to ensure that FOHP-NJ
remained in compliance with applicable statutory net worth requirements in 1996.
The plan of action submitted by FOHP-NJ provides that in the event that
either the DOI or the New Jersey Department of Health ("DOH") requires that
FOHP-NJ obtain additional capital to remain in compliance with the statutory net
worth and other capital requirements applicable to FOHP-NJ as an HMO licensed in
New Jersey, FOHP will contribute such capital to FOHP-NJ. To assure that FOHP
has sufficient capital to contribute to FOHP-NJ in the event that FOHP-NJ is
required to obtain additional capital to remain in compliance with the statutory
net worth and other capital requirements applicable to it, certain officers,
directors, and shareholders of FOHP either (i) arranged for the issuance of
letters of credit by various banks, against which FOHP may draw if required to
fund the payment of its obligations to FOHP-NJ so as to allow FOHP-NJ to remain
in compliance with the statutory net worth and other capital requirements
applicable to it, or (ii) guaranteed a portion of FOHP's capital obligation to
FOHP-NJ. In addition, pursuant to the plan of action, FOHP effected several
operational changes in order to increase capital in 1996. The operational
changes made by FOHP included (a) the implementation of a program to generate
increased operating profits by requiring certain acute care institutional
shareholders which had not met their enrollment commitments to meet such
commitments if they want to remain shareholders of FOHP and providers in the
FOHP-NJ provider network, (b) the
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implementation of a hiring freeze and suspension of bonus payments and the use
of consultants in order to control FOHP's administrative costs, and (c) the
implementation of a modified provider reimbursement schedule which became
effective on April 1, 1996, for purposes of reducing medical costs.
On June 12, 1996, the DOI and DOH approved FOHP-NJ's plan of action subject
to certain reporting and other conditions. Such conditions include: (i) the
submission of a monthly report to the DOI which is to contain a comparison of
actual results for the month just ended to the budgeted results for such month;
(ii) the administrative expense saving measures specified in the plan of action,
including the hiring freeze and the suspension of bonuses and consultant use,
shall not be discontinued or modified unless the DOI has received written notice
of any such proposed discontinuance or modification and has not objected to the
proposed discontinuance or modification within five (5) days of receiving such
notice; (iii) the submission to the DOI of the minutes of any FOHP or FOHP-NJ
board meeting and the minutes of certain committee meetings within thirty (30)
days of the date of any such meeting; (iv) neither FOHP nor FOHP-NJ shall enter
into any joint venture, acquisition, merger, intercompany related party
transaction, or other material transaction (defined as one half of one percent
or greater of net admitted assets as of the prior year) without the prior
written approval of the DOI; (v) neither FOHP nor FOHP-NJ shall declare or apply
any dividends or bonuses or make any distributions other than in the ordinary
course of business without the prior written approval of the DOI; (vi) any
proceeds from the sale of FOHP stock to New Jersey providers must first be used
to pay the payable from FOHP to FOHP-NJ; (vii) a claim reserve lag study shall
be provided to the DOI on a quarterly basis in a format prescribed by the DOI;
(viii) prior written approval of the Commissioner of the DOI must be obtained
before either FOHP or FOHP-NJ makes any expenditure related to activities in
jurisdictions other than New Jersey; and (ix) on or before October 1, 1996, at
least one-third of the directors of FOHP and of FOHP-NJ and at least one-third
of the members of each committee of the Boards of Directors of FOHP and FOHP-NJ
shall be persons who are not affiliated with FOHP or FOHP-NJ or any subsidiaries
thereof and who do not have any contractual relationship with FOHP or FOHP-NJ or
any subsidiaries thereof, including any health care provider in the FOHP-NJ
provider network. The aforementioned conditions are to continue until the DOI
and DOH issue a written determination that (a) FOHP-NJ has had two (2)
consecutive quarters with a net gain from operations in each quarter of at least
$2 million, (b) FOHP-NJ surplus equals or exceeds 125% of its minimum net worth
requirement for the same two consecutive quarters, and (c) the payable from FOHP
to FOHP-NJ has been paid in full. The Company intends to comply with each of the
conditions established by the DOI and DOH. In addition, the Board of Directors
of FOHP is currently reviewing various changes to FOHP's governance structure
which the Company believes will address the condition set forth in Subsection
(ix) above.
Replacement of President and Chief Executive Officer of FOHP
On June 26, 1996, John W. Rohfritch was appointed the acting President and
Chief Executive Officer of FOHP, and acting President and Chief Executive
Officer of FOHP-NJ.
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Prior to being appointed to such positions, Mr. Rohfritch served as President of
First Option Health Plan of New York, Inc., a wholly-owned subsidiary of FOHP
which was formed to operate as an HMO in the State of New York. Mr. Rohfritch
replaced John L. Adessa, who is no longer with FOHP or FOHP-NJ. Pursuant to an
employment agreement among FOHP, FOHP-NJ and Mr. Adessa, Mr. Adessa will receive
a severance payment of approximately $700,000. The severance payment will be
made by FOHP as soon as such payment is permitted by the DOI.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FOHP, Inc.
(Registrant)
By: /s/ DONALD PARISI
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Donald Parisi
Senior Vice President, Legal Affairs
and General Counsel
Date: July 12, 1996
