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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-15846
First Health Group Corp.
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(Formerly HealthCare COMPARE Corp.)
(Exact name of registrant as specified in its charter)
Delaware 36-3307583
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3200 Highland Avenue
Downers Grove, Illinois 60515
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 737-7900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 19, 2001, was approximately $1,459,061,589. For the
purposes of the foregoing calculation only, all directors, executive
officers and five percent stockholders of the registrant have been deemed to
be affiliates. On that date, there were 48,492,474 shares of Common Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
2000 Annual Report to Stockholders.................. Parts I, II and IV
Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on
May 22, 2001........................................ Parts I and III
PART I
Item 1. Business
General
First Health Group Corp., together with its consolidated subsidiaries
hereinafter collectively referred to as the "Company" or "First Health", is
a full-service national health benefits company. The Company specializes in
serving large, national employers and payers with a single source for
their group health programs -- providing comprehensive, cost-effective and
innovative solutions for all the health benefits needs of their employees
nationwide. Through its workers' compensation service line, the Company
provides a full range of workers' compensation services for insurance
carriers, state insurance funds, third party administrators and large, self-
insured national employers. Through its First Health Services service line,
the Company provides services to various state Medicaid and entitlement
programs for claims administration, pharmacy benefit management programs and
medical management and quality review services.
The Company, which is a Delaware corporation, was organized in 1982. The
Company's principal executive offices are located at 3200 Highland Avenue,
Downers Grove, Illinois 60515, and its telephone number is (630) 737-7900.
Strategy
First Health assists its group health clients through an integrated
health plan offering that promotes the well-being and satisfaction of
participants while positively impacting an organization's medical cost
trends through:
* 24-hours-a-day, 7 days-a-week availability to help participants
with all benefits-related issues;
* A broad national PPO network of quality, cost-effective health
care providers;
* Non-network fee schedule (First Health U&C Schedule) and ad hoc
negotiations;
* Clinical and care support programs;
* Medical claims administration;
* Pharmacy Benefit Management (PBM);
* Disease Management
Its various clinical and care support programs help First Health's
clients manage the number of units of medical services (volume) with
emphasis on managing chronic diseases. Its PPO and non-network products help
First Health's clients manage the cost of those units of service (price).
For many of its corporate clients the Company also processes medical claims.
Through its Bill Review capabilities, the Company provides workers'
compensation bill review services nationally. These services are coupled
with the Company's medical review programs and PPO networks in order to
provide a comprehensive product offering in the workers' compensation arena
where, in recent years, loss ratios have been rising rapidly. Through First
Health Services, the Company provides claims administration, pharmacy
benefits management and medical management and quality review services to
public sector payors such as state Medicaid and state entitlement programs.
First Health seeks to develop clinical and care support programs designed
to control the number of health care units, manage costly diseases and
increase compliance with prescribed treatment. These programs include a
full range of medical and mental health care and integrate PBM to manage the
full range of benefits. First Health's management believes that the
continuous offering of new and improved programs is important to the
expansion of its business.
Through The First Health[R] Network, First Health also offers its clients
services designed to control the price of a health care unit of service.
First Health specializes in the development of PPOs and the collection and
analysis of health care cost data. First Health's capability to analyze
health care cost data allows it to use a client's actual history of health
care usage to structure networks of providers tailored to client needs. The
Company also makes available the First Health U&C Schedule, a proprietary
non-network fee schedule based on average network rates within certain
geographic areas.
The Company's ownership of small indemnity insurance companies has
enabled the Company to expand its product offering to leverage its managed
care assets of The First Health[R] Network and its clinical management
services. The introduction of new products has allowed the Company to
provide stop-loss insurance products.
Health Care Reform, Expenditures and Managed Care
In recent years, political, economic and regulatory influences have
subjected the health care industry to fundamental change and consolidation.
Since 1993, the federal government has proposed various programs to reform
the health care system and expressed its commitment to (a) increasing health
care coverage for the uninsured, (b) controlling the continued escalation of
health care expenditures, and (c) using health care reimbursement policy to
help control the federal deficit and (d) allowing insureds to sue their
ERISA or HMO health plan. Even though Congress rejected various proposals,
several potential approaches remain under consideration, including broad
insurance reform proposals, tax incentives for individuals and the self-
employed to purchase insurance, controls on the growth of Medicare and
Medicaid spending, the creation of insurance purchasing groups for small
businesses and individuals, and market-based changes to the health care
delivery system. Proposals under consideration at the federal level also
would provide incentives for the provision of cost-effective, quality health
care through encouraging managed care systems. In addition, many states are
considering various health care reform proposals. At both the federal and
state level, there is growing interest in legislation to regulate how
managed care companies interact with providers and health plan members. The
Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and payment
methodologies, and that the public debate of these issues will likely
continue in the future. Although the Company believes it is well-positioned
to respond to the stated concerns, the Company cannot predict what impact
the proposed measures may have on its business. Concern about the proposed
reform measures and their potential effect has been reflected in the
volatility of the stock prices of companies in health care and related
industries, including the Company.
The Company is monitoring developments concerning health care reform and
preparing strategic responses to the different reform scenarios. In
response to pending legislation and market pressures and in anticipation of
future health care reform, the Company is broadening and diversifying its
services so it will be less affected if health care reform proposals are
enacted.
First Health offers numerous programs designed to help payers of health
care control their medical costs. Unlike HMOs, PPO companies typically
do not underwrite health insurance or assume related risks. Clinical
management and PPO services have been offered on a commercially significant
scale for the last ten years by firms which are engaged in providing these
types of services. The industry is currently highly fragmented with
numerous independent firms providing medical utilization review and PPO
services, primarily on a regional or local level but the rate of
consolidation is accelerating. In addition, a growing number of health
insurance carriers, HMOs and third party administrators have established
internal clinical management and PPO departments.
In workers' compensation, medical costs are rising at almost twice the
rate of general medical inflation. Though such medical costs represent only
about 5% of total health care expenditures, the increase in costs is
significant for employers and insurance carriers and have risen more than
1000% since 1970. First Health and certain other cost management firms
offer programs designed to control escalating medical expenses and indemnity
payments for lost time, reduce litigation and allow injured employees to
return to work as soon as possible. Many of the services used in group
health are also applied to the workers' compensation market. PPOs are
utilized to manage price. Clinical management services are targeted toward
managing the number of units of service and the quality of that service, and
helping the employee return to productive employment. In addition, bill
review services are applied on a national basis in the nearly 40 states that
have a medical fee schedule and in the remaining states which allow a
usual and customary review. In addition to the laws governing workers'
compensation in each state, over 25 states have enacted specific managed
care legislation that further provides the ability to offer comprehensive
managed care programs. The combination of these services offers workers'
compensation insurance carriers and employers significant cost savings.
PPO Services - The First Health[R] Network
Established in 1983, The First Health[R] Network, previously known as The
AFFORDABLE Medical Network, has developed and manages a national PPO network
that incorporates both group health and workers' compensation medical
providers. This is the largest area of the Company's business. The
networks consist of hospitals, physicians and other health care providers
who offer their services to clients at negotiated rates in order to gain
access to a growing national client base.
As of March 2001, the Company's hospital network includes approximately
3,700 hospitals in 50 states, the District of Columbia and Puerto Rico. In
each case, rates are individually negotiated for the full range of hospital
services, including hospital inpatient and outpatient services. In
addition, the Company has established an outpatient care network (OCN)
comprising approximately 350,000 physicians, clinical laboratories, surgery
centers, radiology facilities and other providers in 50 states, the District
of Columbia and Puerto Rico.
In the last several years, the Company has incurred substantial expense
in expanding its PPO networks. The expansion has occurred in the number of
health care providers within existing areas and in the number of geographic
areas throughout the country. The Company has expanded the number of
contract hospitals not only in major metropolitan markets, but also in
targeted secondary and tertiary markets; many of the hospital and OCN
providers that have been added during the past few years have been in these
markets. Management expects to continue to incur significant expenses to
further expand its hospital and outpatient care networks, particularly in
secondary and tertiary markets and believes that its investment in
developing these markets significantly differentiates it from competitors.
The following table sets forth information with respect to the
approximate number of participating providers in The First Health Network at
the end of each of the past five years:
December 31,
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1996 1997 1998 1999 2000
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Number of Hospitals in Network 2,320 2,650 3,220 3,510 3,700
Outpatient Care Network Providers 207,000 231,000 288,000 321,000 348,000
The First Health[R] Network was developed in response to the needs of the
Company's national client base. These clients provide the leverage
necessary to enable First Health to negotiate favorable rates with providers
throughout the country. The First Health client base includes a diverse
group of health care payers, such as group health and workers' compensation
insurance carriers, third party administrators, HMOs, self-insured
employers, union trusts and government employee plans. The Company believes
the amalgamated buying leverage of these clients provides it with strength
in negotiating favorable PPO contracts with current and prospective health
care providers.
Compensation. As a fee for developing and managing its expansive PPO
network, the Company generally charges a percentage of savings realized by
its clients. The amount of this fee varies depending on a number of factors
including number of enrollees, networks selected, length of contract and
out-of-pocket benefit copayments and amount of savings realized by its
clients. Additionally, the Company has other fee arrangements that provide
for greater or lesser fees depending on the actual savings or costs realized
by the client based upon established criteria.
Approach to Network Development
The strategy of First Health is to create a selective network of
individual providers which will meet the medical, financial, geographic and
quality needs of its clients and their beneficiaries. First Health
contracts directly with each hospital and generally does not contract with
groups of hospitals or provider networks established by other organizations.
Management believes this provides the maximum control over the composition
and rates in the network and ensures provider stability in The First
Health[R] Network. To further promote stability and savings in the network,
when possible, First Health enters into multi-year agreements with its
providers with nominal annual rate increases.
The selected providers benefit from their participation in The First
Health[R] Network through increased patient volume as patients are directed
to them through health benefit plans maintained by First Health's clients
and other channeling mechanisms, such as the Company's clinical and care
support services and electronic and internet provider directory applications
The network consists of a full array of providers, including hospitals
and outpatient providers (physicians, laboratories, radiological facilities,
outpatient surgical centers, mental health providers, physical therapists,
chiropractors, and other ancillary providers). By establishing contractual
relationships with the complete range of providers, First Health is able to
impact the vast majority of the client's health costs and facilitate
referrals within the network for all needed care.
The rate structure negotiated by First Health maximizes the savings for
the client and gives incentives to providers to deliver cost effective care.
Unlike many other PPOs which negotiate price discounts or separate rates for
intensive care and other specialty units, First Health strives to negotiate
a single all inclusive per diem for medical/surgical and intensive care unit
days in hospitals. The majority of the Company's hospital PPO contracts are
negotiated with an all-inclusive rate structure. The charges for hospital
outpatient care are controlled as well through reimbursement caps. Fees for
physicians and other outpatient providers are set by fee schedules
established by First Health. The negotiated rates have resulted in typical
savings of more than 40% on inpatient hospital costs and 20-30% for
physician and outpatient costs.
First Health leverages these negotiated rates and has developed
geographic specific "Usual and Customary" price caps for physician services.
The First Health U&C Schedule is possible because of the national network,
the Company's large database, direct provider contracts and transactional
capabilities. The schedule applies when non-network providers are used and
yields plan savings equivalent to the average network rate within each
geographic area.
After a network has been established, First Health provides ongoing
consulting services to clients, re-negotiates contracts with providers and
prepares annual evaluations which profile for its clients the effectiveness
of the network. The networks are continuously undergoing refinements with
active redevelopment activity to expand geographic coverage and to improve
rate structure as care continues to shift to outpatient settings.
In order to promote an ongoing and long term positive business
relationship with network providers, First Health has established an
extensive provider relations program. Dedicated staff perform a variety of
activities including responding to hospital claims inquiries, conducting
site visits, preparing provider newsletters and participating in joint
hospital/First Health functions which are intended to promote goodwill and
increased utilization of network providers. The Company's retention rate
for hospitals has been more than 99% and more than 96% for physicians and
other outpatient providers.
PPO Quality Assessment
Quality assessment of network providers is a critical component in the
selection and retention process. The Company has established an intensive
program which evaluates each individual provider against standards set for
various quality indicators. Provider evaluation occurs prior to the
selection of the provider and continues while they are in the network.
QA Activities include:
* Physician credentialing
* Peer review of applications when credentialing criteria are not met
* Physician recredentialing on a biennial basis
* Claims profiling
* Hospital profiling / credentialing
* Ongoing monitoring based on external data and information gathered
through interaction with providers
* Quality investigations
Information Systems
The Company's system and its suite of integrated applications utilize a
centralized store of corporate data. The information technology consists of
3 layers: The first level consists of database servers located in a secure
corporate center. Backup data center is in place for business continuity.
The second level is integrated corporate databases - provider, member
and client. Our suite of applications is at the third level. These
applications are designed to access the corporate databases. This
architecture provides flexibility while maintaining tight control of the
Company's data assets.
In addition, health care cost data analysis services are made available
to the Company's clients. These services provide clients with in-depth
customized information concerning their health care cost and utilization
experience. Using its internally developed proprietary software, the
Company analyzes its clients' health care claims information and benefit
plans in order to provide each client's specific health care cost profile
and suggest appropriate cost management programs. This software also allows
the Company to simulate how changes in a benefit plan's structure will
change the overall cost of a benefit program.
Internet Applications
Internally developed Internet channeling tools are available for both
group health and workers' compensation clients. Currently there are three
channeling tools available: electronic directory, Directory Maker and
Worksite Poster. Each tool contains the same information that is made
available through First Health's toll-free telephonic provider directory --
data for hospital and outpatient care providers in The First Health[R]
Network. Provider information is updated on a weekly basis. The electronic
directory is easily accessible on the web for use by a large audience.
Directory Maker and Worksite Poster are currently for business-to-business
use and are password-protected.
Electronic Directory
Electronic directory is easy to use and allows clients, their employer
groups or participants to search for a hospital, physician or clinic in The
First Health[R] Network. Access to the electronic directory can search for
a provider by zip code within a 5-mile default radius, county, city or
provider name. It also provides a map with directions to the provider.
Directory Maker
Directory maker is designed to allow clients to create and print custom
directories of The First Health[R] Network providers at the client site.
Directories can be created on an as-needed basis and will contain the most
up-to-date information. By creating a directory profile, clients can pick
specific cities, counties or even zip codes that will be included in a
directory, as well as determine the way the data will be sorted.
Directories are typically created in two hours, and then made available on
the web in PDF format for printing.
Worksite Poster Application (for workers' compensation use only)
The worksite poster application is designed to assist clients by
producing posters that list hospitals, clinics/facilities and physicians
closest to their site(s). Clients can search on the internet by zip code
within a 5-mile radius default to find providers in The First Health[R]
Network. In addition, clients can specify physicians, clinics and hospitals
or any combination of the three to print on a poster. The poster is
produced immediately in a common format for easy printing.
Additional Internet Services
Member Site
In addition, First Health offers a customized member services site
entitled "My First Health" to assist participants in utilizing our services.
The applications on this site allows members to:
* Access general information about First Health;
* Print commonly used health benefits forms, including
claims forms;
* Locate a provider in The First Health[R] Network;
* Obtain answers to frequently asked questions about
The First Health[R] Network;
* Send First Health an e-mail with health plan questions
* View past year's claims and check status of recently
submitted claims;
* Obtain medical information
The Company is evaluating additional services for this site, with the
intent of having them available in 2001, including:
* Eligibility status;
* Benefit plans;
* Accumulation of total payments, deductibles, etc.;
* Ability to resolve a pended claim online;
* Personalized health record with personalized health
information;
Provider Site
First Health currently offer providers in The First Health[R] Network
access to a customized provider Internet site. This site allows providers
access to a complete client listing, payor list, referral directory and
formulary. This site is being further developed in 2001. At that time, we
plan to expand the provider Internet site to include the following:
* Eligibility lookup and verification;
* Online claims submission;
* Client benefit plan;
* Precertification;
* Provider demographic updates;
* Clients' Summary Plan Documents;
* Electronic payment / EOBs;
* Information about First Health; and
* Survey tool for provider satisfaction.
Client Site
In 2001, clients will also have access to customized information that
will include:
* Electronic Directory, Directory Maker and Worksite Poster;
* Claims administration reports;
* Bill Review data application;
* Ability to view eligibility files, as well as make
eligibility changes and updates;
* News and legislative updates;
* Online implementations.
Claims Administration Capabilities
The Company provides "one-stop shopping" for employers offering
indemnity, PPO and point of service plans through its core competency of
claims administration and customer service. The Company provides clients
with an integrated package of health care benefits administration including:
* Telephonic availability to members 24 hours a day, seven
days a week
* medical, disability, dental and vision claims processing
* prescription drug plan administration and network management
* managed care administration
Additionally, they can utilize, if they so desire:
* COBRA administration
* Flexible Spending Account administration
* stop-loss brokerage
* data analysis
The Company's claims administration product is a sophisticated,
technologically advanced claims processing, tracking and reporting system.
A majority of this processing is performed by the Company's fully integrated
and proprietary system ("First Claim"). The system supports a broad range
of benefit programs, including medical care, prescription drugs, FLEX
accounts, vision care and dental care. Additionally, in order to further
enhance the Company's claims processing capabilities, the Company has
expanded its offering by adding new and advanced features including imaging.
The Company currently estimates that these development efforts will
significantly enhance and improve upon the capabilities of First Claim.
Such modifications are expected to be ongoing over the next two years or so.
The system helps clients increase the cost effectiveness of their benefit
plans by offering such features as on-line reporting capability, Electronic
Data Interchange ("EDI"), rapid and responsive customer service, automatic
tracking of annual, lifetime, per-case, and floating maximums, and full
integration with all other First Health departments and services. This
integration benefits clients since the Company can analyze claims data as
well as clinical management, pharmacy and network usage data. This analysis
enables the Company to provide comprehensive management reports that can be
used to impact medical costs. In addition, because First Health's claims
system is an on-line, "real time," interactive system, clients can expect
member issues to be minimized because claims can be paid promptly and
accurately.
This single-vendor environment is a benefit for participants as well.
They have just one number to call for all health care benefit information.
The round-the-clock, toll-free number they call to locate a network provider
or to obtain general health information is the same number they call with
claims and eligibility inquiries. Additionally, First Health's claims
process can be virtually paperless for the participant, especially when a
network provider is used -- which is a critical step to enhancing
participant satisfaction. This system automatically calculates benefits and
issues checks, letters, and explanation of benefits (EOBs) to plan
participants and providers.
The system incorporates advanced technologies available, including:
* Online reporting and data retrieval capabilities
After a claim is entered into the system, it verifies eligibility,
applies appropriate deductibles, adjudicates the claims against
predetermined negotiated or usual and customary guidelines, matches
precertification outcomes, searches for previous history of
coordination of benefits, and presents final adjudication
information to the benefit examiner for his or her approval. Once
the benefit examiner has reviewed and approved the information on
the screen, the system generates a check and explanation of benefits
that evening, which are mailed the next day.
* Electronic Data Interchange (EDI)
First Health contracts with several commercial claims clearinghouses
to gather EDI claims from providers. Providers transmit claims to
one of these clearinghouses. The clearinghouses then batch claims
destined for First Health and forwards them to the Company each day.
Performing these functions electronically enhances efficiency and
accuracy.
* Tracking of annual, lifetime and floating maximums
Each new client's benefit plan(s) is loaded onto the system. The
system tracks benefit maximums on-line for every participant. When
an individual has reached a specified maximum, the system will
automatically reduce the benefit payment as specified in each
client's plan document.
* Responsive and comprehensive customer service capabilities
Integration of First Health's managed care and claims systems enable
the participant to access all health benefits information including
claims history, eligibility, deductibles and maximum accumulations,
as well as Explanation of Benefit (EOB) information through a
single, round-the-clock, toll-free number.
These advanced technologies enable First Health's system to support a
broad range of benefit programs, including medical, dental and vision care,
Medicare, prescription drugs, Consolidated Omnibus Budget Reconciliation Act
(COBRA), Health Insurance Portability and Accountability Act (HIPAA) and
flexible spending accounts.
Clinical Management Services
First Health provides centralized clinical and care support programs
(utilization review, medical case management and disease management
services) from its headquarters in Downers Grove, Illinois, and Scottsdale,
Arizona, through an internal staff consisting primarily of allied health
professionals, licensed practical and registered nurses and physicians.
First Health also has a nationwide network of consulting physicians in
various specialties. The Company's clinical and care support services are
coupled with the Company's PPO and claims processing services to provide an
integrated service offering.
First Health's clinical and care support programs advise their
participants and dependents of review requirements. A participant, or his
or her attending physician, utilizes the program by calling one of First
Health's toll-free numbers prior to the proposed hospitalization or
outpatient service or within two business days of an emergency admission or
outpatient service. From these calls, First Health's clinical management
staff gathers the medical information necessary to enable it to perform a
review. Based on this information, and using First Health's clinically
valid and proprietary review criteria, First Health determines whether it
can recommend certification for the proposed hospitalization or outpatient
service as medically necessary under the participant's health care plan.
Upon completion of the review, First Health notifies the participant, the
attending physician and other affected providers, as well as the its clients
as to whether the proposed hospitalization and length of stay or outpatient
service can be certified as medically necessary and appropriate under the
terms of the client's benefit plan. For client's where the Company pays
claims it also uses the review outcome to pay claims in accordance with the
client's benefit plan. First Health does not practice medicine and its
services are advisory in nature. All decisions regarding the patient's
medical treatment are made by the patient and the patient's attending
physician, not by First Health. Participants can call First Health on a
toll-free line if they have questions regarding its services. Clients and
their claim administrators also can obtain additional information from the
Client Services staff.
The Case Management program is designed to provide clients with a careful
management of all cases which involve complex high cost or chronic diseases,
conditions or catastrophic illnesses. Through medical and pharmacy claim
triggers and periodic reviews, First Health's nurse case managers and
physicians identify potentially large claim cases. These services consist
primarily of conferring with the attending physician and other providers to
identify cost-effective treatment alternatives. Such alternatives may
include moving a patient from an acute care hospital to less expensive
settings -- often the home -- as soon as the patient's physician determines
that it is safe and medically feasible. If such a move requires a home
nursing service or medical equipment, First Health serves as a referral for
alternative available services, provides recommendations regarding continued
usage of these services and negotiates discounts with the providers where
network providers are not appropriate or not available. In all cases, the
decision to proceed with the course of treatment initially prescribed by the
attending physician or a more cost-efficient alternative identified by First
Health is made by the patient and his physician.
The care support program is a patient-focused program that enables us to
identify high-risk members with chronic diseases that account for a large
portion of health care dollar expenditures. The Care Support Program is a
comprehensive approach which starts with predictive modeling of a client's
specific population. The program is centered around the member to include
highly-personalized patient education and support initiatives, network
channeling, medication compliance support and other activities aimed at
increasing patient compliance, as well as inpatient monitoring, discharge
planning, and intensive case management. This approach allows for
coordination of information for members with a series of needs which may
overlap among many diseases.
The medical management process for Workers' Compensation monitors an
injured worker's care and identifies opportunities for cost-effective
alternative care and treatment with the goal of returning the worker to the
client's work force or to reach Maximum Medical Improvement (MMI), as soon
as medically feasible. The case manager is responsible for the overall
coordination of the many comprehensive services that may be needed, such as
review of rehabilitation and chiropractic care, home health services and
others, with a constant focus on the injured worker's ability to return to
productivity.
Other Services
Pharmacy Benefit Management (PBM). First Health integrates its Pharmacy
Benefit Management (PBM) program with claims, clinical and network programs.
The PBM program is one of the few large-scale programs in the Group Health
market not aligned with / or controlled by a drug manufacturer. We believe
that this is critical to achieving the autonomy to make clinically based
decisions related to health care utilization.
The components of the program include a national pharmacy network,
formulary management, drug utilization review and online pharmacy claim
adjudication. These services are designed to control drug expenditures are
designed to control drug expenditures as well as overall health plan
expenditures through linkage of the pharmacy data with other core data to
identify high risk members. Once identified, First Health clinical staff
work with these members to help them manage their disease.
PPO Redirection and Telephonic Provider Directory. The Company will
attempt to redirect the patient to a PPO hospital or outpatient provider
located near the patient. Additionally, the clients' participants can
access the website or call the Company's telephonic provider directory line
to determine whether a network provider of their choosing within a
reasonable proximity to their residence or place of work. By utilizing a
PPO network hospital or outpatient provider, the payer and the patient will
achieve savings from what the billed charges would otherwise be.
Health Information. This is also a 24-hour-a-day, 7-day-a-week service.
The services of this program include:
* Helping members obtain answers to general medical questions;
* Assisting members to make informed health care decisions;
* Facilitating communication between providers and members;
* Identifying patient situations that may be appropriate for
referral to clinical management services;
First Health[R] National Transplant Program. As medical technology
advances, new and more complicated procedures, such as transplants, have
evolved. In an attempt to assist the Company's clients in meeting these
technological advances and their related costs, First Health has developed
The National Transplant Program.
This program has been designed to facilitate the cost-effective use of
high quality transplant services through an integrated system whereby case
management staff assists in the coordination of the process from the
determination of the need for a transplant through follow up care for one
year after the transplant is performed.
The goals of The National Transplant Program include:
* Enhancing quality of care and favorable outcomes through case
management and direction of patients to a selected number of transplant
programs that meet stringent quality and performance standards;
* Reducing health care costs by contracting a cost-effective package rate
with high quality transplant centers that have a proven performance
record of desirable outcomes;
* Improving predictability of transplant costs by establishing fixed fees
that share risk with the providers and spread payment out over a one-
year period.
Transplants included in the program include: heart, lung, heart/lung,
liver, kidney, kidney/pancreas and bone marrow (both allogenic and
autologous).
Physician Resources
First Health believes that its in-house physician staff is an invaluable
resource in its clinical and care programs and in developing clinical policy
and guidelines. The staff includes experienced board certified physicians
in such specialties as family practice, internal medicine, cardiology,
gynecology, urology, orthopedics, psychiatry, pediatrics, and surgery as
well as other doctoral level practitioners such as clinical psychology and
chiropractic medicine. In addition, First Health has a nationwide network
of consulting physicians in the significant specialties. This physician
staff is crucial to the development and maintenance of up-to-date clinically
valid review criteria and protocols and the network quality assessment
efforts.
Benefit Plan Recommendations
Clients can take various steps in benefit plan design that will help
accomplish the goal of managing long-term health care costs. The client's
ability to accomplish this goal through First Health is contingent on:
* Reasonable incentives or disincentives for plan participants to comply
with the notification procedures and clinical management recommendations
of First Health. Because early notification is essential to effective
case management, these incentives help ensure not only cost effectiveness
but quality outcomes.
* An effective benefit differential between in-network and out-of-network
services of at least 10% for inpatient and outpatient services, to
include annual out of pocket maximums sufficiently large so as to
reinforce copayment/coinsurance differentials.
* Coverage for travel and organ-donor costs for services at network
transplant providers, and coverage of well-baby care for participation in
the maternity screening services.
* Distribution to all plan participants of a First Health identification
card, including the toll-free health information line, prior to the
implementation date. Because the toll-free number is such an integral
part of the program, the more familiar the participant is with the
number, the more likely he or she is to use it -- and the sooner the
client will begin realizing cost savings.
* A program of effective communication to plan participants about First
Health programs. Well-planned, timely communication increases
participant satisfaction and compliance significantly.
Workers' Compensation Services
Bill Review System. The Company provides comprehensive workers'
compensation medical bill review services through a sophisticated computer
system that enforces administration policies, applies state-specific
workers' compensation fee schedules, checks for billing infractions and
applies provider contract rates. Since all of these functions are
consolidated and automated, they reduce paperwork and costs associated with
claims processing and are highly cost effective for larger workers'
compensation entities who generally process in excess of 500,000 bills
annually. The Company currently is in the process of developing a system
for organizations that process less than 500,000 bills annually. It is
estimated that it will be implemented in mid to late 2001. Since these
system capabilities are integrated with its medical management and PPO
services, the Company believes it offers one of the most comprehensive
workers' compensation medical cost management programs in the industry.
Marketing. First Health markets the workers' compensation programs to
insurance carriers, third party administrators, state workers' compensation
funds, and self-insured, self-administered companies. The Company's payer
clients include at least some offices of six of the ten largest workers'
compensation insurers. Worksite posters, provider directories (either paper
or electronic) and other materials provided by its payer clients encourage
injured employees to utilize First Health's provider network.
Bill Review. Services offered by the Company include a computer assisted
review of medical provider billings to ensure accuracy and adherence to
established rates and billing rules. In 40 states, including California,
Texas, Arizona, Michigan, Ohio and Florida, a schedule of presumed maximum
fees has been established for workers' compensation medical claims. The
review process identifies and corrects inappropriate bill practices and
applies state fee schedules. Provider network discounts are applied as well
during the review. Additionally, through the system, the Company is able to
go beyond "traditional" bill review services to provide enhanced systems
savings by identifying and repricing non-related services, upcoding and
unbundling of charges and other features. Finally, bill review data is
integrated with medical management and quality assessment activities.
The Company has an agreement with Electronic Data Systems Corporation
("EDS") which enables it to utilize EDS' extensive data processing and
communications networks. EDS provides data processing, electronic claims
transmission and marketing support services to the Company. EDS modified
its comprehensive bill review and audit processing system to handle workers'
compensation claims and integrated the system with First Health's medical
management programs. The initial term of the EDS agreement was to January
1, 2005, and has been extended to at least 2010.
Bill review decreases workers' compensation payers' administrative costs
because First Health maintains virtually all aspects of the program.
First Health offers two variations of the bill review program:
* Systems Lease: The systems technology is brought to the client's office
where their staff performs bill review.
* Service Bureau: Bills are sent to First Health's processing centers and
First Health keys the bills and performs bill review.
Compensation. The Company generally receives an agreed upon percentage
of total savings generated for clients through bill review plus a per-bill
fee, including provider network discounts, adjustments to applicable billing
rules and regulations and utilization reviews. Savings are generally
calculated as the difference between the amount medical providers bill the
payer clients and the amount First Health recommends for payment.
Customers and Marketing
First Health primarily markets its services to national multi-sited
direct accounts, including self-insured employers, government employee
groups and multi-employer trusts with greater than 1,000 employees or
members. In addition, First Health markets its services to and through
group health and workers' compensation insurance carriers. The following
are representative customers of First Health:
Agilent Technology, Inc. McDonald's Corporation
American International Group NALCO Chemical Company
Boilermakers National Health National Association of Letter Carriers
and Welfare Fund The Pillsbury Company
CNA State Farm Mutual Automobile
ConAgra, Inc. Insurance Company
Crawford and Company Tandy Corporation
Delphi Automotive Systems Texas Instruments Employees' Health
Eaton Corporation Benefits Trust
Hartford Financial Services, Inc. The Mail Handlers Benefit Plan
Kemper National Services The Sherwin-Williams Company
Liberty Mutual Insurance Company Travelers Property Casualty
The Company presently has approximately 60 group health and workers'
compensation insurance carrier clients. Typically, First Health enters into
a master service agreement with an insurance carrier under which First
Health agrees to provide its cost management services to health care plans
maintained by the carrier's policyholders. First Health's services are
offered not only to new policyholders, but also to existing policyholders at
the time their policies are renewed. The insurance carrier's sales and
marketing staff ordinarily has the responsibility for offering First
Health's services to its policyholders, thus relieving the Company of a
significant marketing expense.
First Health typically enters into standardized service contracts with
its direct accounts and master service agreements with its insurance carrier
and third party administrator clients. These contracts and agreements have
automatically renewable successive terms of between one and three years, and
are generally terminable upon one to six months' notice prior to their
expiration. These contracts are generally non-exclusive and permit the
client to provide medical review services on an in-house basis; however,
these contracts are generally exclusive as to the client's ability to use
other PPO firms during their term.
Risk Products
The Company's offering of HMO-like health plans for self-funded ERISA
plans in 1998 and 1999 did not achieve the anticipated level of commercial
acceptance. Accordingly, the Company stopped marketing these plans in 2000.
Stop-Loss Insurance
The Company's stop-loss insurance capabilities through its wholly-owned
insurance companies enable it to serve as an integrated single source for
managed care needs. Because First Health's stop-loss rates are based on the
savings and value generated through the Company's various services, First
Health is able to offer competitive rates and policies. The Company can
offer multiple-year rate guarantees that include fixed-percent increases and
that are based upon loss results. Stop-loss policies are written through
the Company's wholly-owned insurance subsidiaries. Policies can be written
for either or both specific or aggregate stop-loss insurance. This is the
primary insurance product the Company is emphasizing in its sales efforts
currently.
First Health Services Overview
First Health Services ("Services") provides value-added automation,
administration, payment, and health care management services for public
sector clients. Services provides: 1) Pharmacy Benefit Management, which
manages pharmacy benefit plans for managed care organizations, HMOs,
Insurers, Specialty & Elderly Rx programs, Medicaid programs, state-funded
specialty programs, and self-funded employers; 2) Mental Health, which
provides psychiatric utilization review, long-term care review and quality
of care evaluation services for state government clients; and 3) Fiscal
Agent, which administers state Medicaid health plans and other state funded
health care programs.
First Health has been able to leverage its Medicaid fiscal agent
expertise, its base of experience in the public sector and its client
relationships with over 20 state governments, to provide new products and
services as the public sector health programs (primarily Medicaid) move
toward managed care.
Pharmacy Benefit Management (PBM)
Services' PBM service line is one of the largest PBMs in the country.
Services' PBM business provides a full range of services, including:
pharmacy point-of-sale ("POS") eligibility verification and claims
processing; provider network development and management; disease state
management programs; prospective and retrospective drug utilization reviews
("DUR"); provider profiling; formulary development; manufacturers' rebate
administration; and RxPert, a proprietary database and decision support
system for pharmacy utilization monitoring and plan management.
PBM services are increasingly required by both public and private third-
party payers as prescription drug expenses grow. Services' PBM program is
one of the few large-scale participants in the market not aligned with or
controlled by a drug manufacturer. Management believes that Services' role
as an objective provider is a distinct competitive advantage in the growing
sectors of managed care organizations and state government plans, where
clinical autonomy is often a requirement. Furthermore, Services is the
national leader with substantial experience managing pharmacy plans for
Medicaid and elderly populations. This clinical and management expertise
gives Services a competitive advantage in the rapidly growing market of
managed care organizations serving capitated public sector lives (primarily
Medicaid).
Services also offers Disease Management Programs ("DMP") to assist
physicians and network pharmacies in the treatment of prevalent, high-cost
disease states. This program provides physicians with diagnosis, treatment,
and formulary guidelines which have been developed by nationally recognized
clinicians and medical academicians. Services' DMP focuses on that
percentage of patients who experience preventable therapeutic problems
(i.e., non-compliance, inappropriate therapy, adverse drug reactions, etc.).
The program includes prior authorization initiatives, prospective DUR,
retrospective DUR, and educational intervention initiatives (concurrent
DUR).
Health Care Management
Health Care Management provides an array of quality evaluation and
utilization review services to Medicaid programs, state mental health
agencies, HMOs, managed care organizations, and other health care programs
desiring to improve quality of care, contain costs, ensure appropriate care,
and measure outcomes. Products include: 1) External Quality Reviews; 2)
Utilization Review; and 3) Long Term Care Reviews.
The External Quality Review encompasses the entire medical delivery
mechanism, not just the mental health portion. There is a new market
rapidly developing as various states implement this type of program to move
Medicaid recipients into Managed Care Organizations.
Health Care Management provides services for a variety of behavioral
health programs, including Medicaid Under 21 acute psychiatric treatment,
adult and geriatric acute psychiatric treatment, residential services, and
other alternative services. Health Care Management also provides on-site
quality reviews and inspection of care for community mental health centers,
residential treatment centers and inpatient psychiatric programs. As state
Medicaid programs and state departments of mental health spend increasing
proportions of public funds on the treatment of mental and substance abuse
illnesses, the need for utilization review services is increasing. Some
states are moving toward capitated contracts with private sector firms to
help manage this problem; however, many states are opting to contract for
utilization review services to ensure appropriate mental health care while
containing costs.
Under the Long Term Care Review program, Health Care Management provides
level-of-care determinations as well as preadmission screenings and annual
resident reviews ("PASARRs") to determine the need for specialized services
for mental illness, mental retardation or related conditions.
Fiscal Agent
Services' Fiscal Agent service line provides customers with full fiscal
agent operations and systems maintenance and enhancement. Under this
product line, Services provides eligibility verification and ID card
issuance, health care claims receipt, resolution, processing and payment,
provider relations, third party liability processing, financial
reconciliation functions and client reporting. Customers of Services
include state Medicaid agencies, state departments of human services,
departments of health and managed care organizations serving Medicaid
populations. Fiscal Agent administrative services may also be procured to
support other government programs, such as state employee benefit plans,
early intervention programs, or other health care initiatives. Typically,
Fiscal Agent systems are modified to meet specific states' program policy
and administration requirements, and services are offered for all claim
types.
Services is one of four major competitors in the Medicaid fiscal agent
field. Services has developed and operates a HCFA-approved information
system for each of these contracts. These systems are utilized to process
and adjudicate eligibility, health care claims and encounters, pay providers
under a full range of reimbursement methods and to generate reports for use
in managing the program.
Services management believes there are significant future opportunities
in this market and has been recently awarded significant additional business
from the Commonwealth of Virginia. In addition, there are several benefits
that Services receives from operating the Fiscal Agent business: 1) the
contracts are profitable, with very little new capital investment in the
business required; 2) the expertise, capabilities and systems developed
from these contracts have provided a platform for expansion into other
products, services and customer segments; and 3) customer relationships
with the states have proven valuable to First Health Services in developing
other business in PBM and Mental Health.
Year 2000 Matters
See Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's 1999 Annual Report to Stockholders.
Such information is incorporated herein by reference.
Competition
First Health competes in a highly fragmented market with national and
local firms specializing in utilization review and PPO cost management
services and with major insurance carriers and third party administrators
which have implemented their own internal cost management services. In
addition, other health care programs, such as HMOs, compete for the
enrollment of benefit plan participants. First Health is subject to intense
competition in each market segment in which it competes. Many of First
Health's competitors are significantly larger and have greater financial and
marketing resources than First Health.
First Health competes on the basis of the quality and cost-effectiveness
of its programs, its proprietary computer-based integrated information
system and its emphasis on commitment to service and high degree of
physician involvement. Due to the quality of the services offered, First
Health tends to charge more for its services than many of its competitors.
The insurer market for workers' compensation programs is somewhat
concentrated with the top ten insurers controlling over 50% of the insured
market. The loss or addition of any one of these insurers could have a
material impact on revenues. First Health currently has as clients at least
some offices of six of the top ten insurers. While experience differs with
various clients, obtaining a new client requires extended discussions and
significant time.
Over the last few years, the Company believes a major competitive threat
has arisen as a result of the so-called "Silent" Preferred Provider
Organizations (PPO) or non-directed networks. In this situation, medical
reimbursement payers seek to avail themselves of PPO discounts without
providing any apparent patient channeling mechanisms. Management believes
that these organizations undermine the trust of providers who offer
preferred rates to networks anticipating active patient directing programs.
Since managed care is fundamentally a bargain between a managed care
organization and a medical provider in which the managed care organization
channels patients to the provider in exchange for favorable price
consideration and the adherence to managed care guidelines, the Company
believes "silent" PPO networks can and do undermine that bargain. To the
extent that providers are misled into a price for volume trade-off,
management is concerned that the ability of legitimate managed care
companies to obtain appropriate priced considerations will be diminished.
Employees
As of December 31, 2000, First Health had approximately 3,825 employees,
including approximately 1650 employees involved in claims processing and
related activities; 640 employees in information systems; 470 employees in
various clinical management and quality assessment activities; 400 employees
in PPO development and operations, 260 employees in sales, account
management and marketing; and the remainder involved with accounting, legal,
human resources, facilities, and other administrative, support and executive
functions. First Health also has a nationwide network of conferring
physicians in various specialties, most of whom are compensated on an hourly
or per visit basis when requested by First Health to render consulting
services. None of the Company's employees are presently covered by a
collective bargaining agreement. The Company considers its relations with
its employees to be good.
Government Regulations and Risk Management
The Company believes that its methods of operation are in material
compliance with all applicable laws, including statutes and regulations
relating to PPO and clinical management operations.
Item 2. Properties
First Health owns four office buildings consisting of an aggregate of
approximately 465,000 square feet of space. The Company's headquarters are
located in Downers Grove, Illinois and the other three are located in West
Sacramento, California; Houston, Texas and Scottsdale, Arizona. Currently
the Company is in the process of constructing two new office buildings,
totaling 160,000 square feet in Pittsburgh, Pennsylvania and Tucson,
Arizona. Additionally, the Company leases significant office space in the
Salt Lake City, Utah; Milwaukee, Wisconsin; Richmond, Virginia; Pittsburgh,
Pennsylvania and Boise, Idaho. The Company also has numerous smaller leased
facilities throughout the nation.
All of the Company's buildings and equipment are being utilized, have
been maintained adequately and are in good operating condition. These
assets, together with planned capital expenditures, are expected to meet the
Company's operating needs in the foreseeable future.
Item 3. Legal Proceedings
First Health is subject to various legal proceedings arising in the
ordinary course of business. In the opinion of management, the ultimate
resolution of these pending suits will not have a material adverse effect on
the business or financial condition of First Health. See Notes to
Consolidated Financial Statements in the Company's 2000 Annual Report to
Stockholders, incorporated herein by reference, for further information.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the year ended December 31, 2000.
Executive Officers of the Company
Name Age Position
--------------------- ---- -------------------------------------------
James C. Smith 60 Chairman of the Board and Chief Executive
Officer
Daniel Brunner 57 Executive Vice President, Government
Affairs
Mary Anne Carpenter 55 Executive Vice President, Service Products
A. Lee Dickerson 51 Executive Vice President, Provider Networks
Patrick G. Dills 47 Executive Vice President, Sales
Susan T. Smith 50 General Counsel and Secretary
Joseph E. Whitters 42 Vice President, Finance and Chief Financial
Officer
Edward L. Wristen 49 President and Chief Operating Officer
James C. Smith has served as Chairman of the Board since January 2001 and
Chief Executive Officer and director of First Health since January 1984.
Daniel Brunner, a director of the Company, has been Executive Vice
President, Government Affairs since January 1994. Prior to that, he was
Corporate Operating Officer in charge of government affairs since February
1992. He previously served as the President of a company acquired by First
Health in 1988.
Mary Anne Carpenter has held various senior management positions in the
Company since joining the Company in 1983. In June 1997, Ms. Carpenter was
promoted to Executive Vice President, Service Products. Prior to that, from
March 1994 to May 1997, she was Executive Vice President, Clinical
Operations and Claims Repricing. Prior to joining the Company, Ms.
Carpenter held various positions in the health care industry.
A. Lee Dickerson joined First Health in 1988 as Regional Director,
Hospital Contracting. Mr. Dickerson was promoted into his current position
in November 1995. Previously he held various senior level positions in the
Company's Provider Networks area. Mr. Dickerson has over 20 years
experience in the health care industry.
Patrick G. Dills joined First Health in 1988 as Senior National Director,
Sales and Marketing. Mr. Dills was promoted to Executive Vice President,
Managed Care Sales in January 1994 and to Executive Vice President, Sales in
1998. Prior to joining First Health, Mr. Dills held various senior sales
positions at M&M/Mars, and various divisions of Mars, Inc. for the prior six
years.
Susan T. Smith has served as General Counsel of the Company since March
1997. She was Associate General Counsel from September 1994 and joined the
Company in July 1992. Prior to joining First Health, Ms. Smith was a
partner at Pryor, Carney and Johnson, a large Denver law firm where she
headed the firm's healthcare law practice.
Joseph E. Whitters joined the Company as Controller in October 1986 and
has served as its Vice President, Finance since August 1987 and its Chief
Financial Officer since March 1988.
Edward L. Wristen joined First Health in November 1990 as Director of
Strategic Planning and was promoted to Vice President, Managed Outpatient
Care Programs, in April 1991. In February 1992, he became Executive Vice
President and Corporate Operating Officer in charge of Provider Networks.
In January 1995, Mr. Wristen became Executive Vice President, Risk Products.
In September 1998, Mr. Wristen became Chief Operating Officer. In January,
2001 Mr. Wristen became President of the Company. Prior to joining First
Health, Mr. Wristen was President of Parkside Data Services, a subsidiary of
Parkside Health Management Corporation, a firm engaged in data and analytic
services, from March 1989 to November 1990. From February 1987 to February
1989 Mr. Wristen was Chief Operating Officer and Executive Vice President of
Addiction Recovery Corporation, a regional chain of chemical dependency
hospitals. Mr. Wristen has over 18 years experience in the health care
industry.
The Company's officers serve at the discretion of the Board of Directors.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "FHCC" since the Company's corporate name change on January
1, 1998 and prior to that was quoted under the symbol "HCCC". Information
concerning the range of high and low sales prices of the Company's Common
Stock on the Nasdaq National Market and the approximate number of holders of
record of the Common Stock is set forth under "Common Stock" in the
Company's 2000 Annual Report to Stockholders. Information concerning the
Company's dividend policy is set forth under "Dividend Policy" in the
Company's 2000 Annual Report to Stockholders. All such information is
incorporated herein by reference.
Item 6. Selected Financial Data.
Selected financial data of the Company for each of its last five fiscal
years is set forth under "Selected Financial Data" in the Company's 2000
Annual Report to Stockholders. Such information is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The information required by this item is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's 2000 Annual Report to Stockholders and is incorporated herein
by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
The disclosures required by this item are contained in the Company's 2000
Annual Report under the caption Market Risk and are incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this item are contained in the
Company's 2000 Annual Report to Stockholders on the pages indicated below
and are incorporated herein by reference.
Financial Statements: Page No.
--------
Report of Independent Auditors 33
Consolidated Balance Sheets as of
December 31, 1999 and 2000 34-35
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 36
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1998, 1999 and 2000 37
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1999 and 2000 38-39
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1999 and 2000 40-41
Notes to Consolidated Financial Statements 42-51
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Certain information regarding the Company's executive officers is set
forth under the caption "Executive Officers of the Company" in Part I.
Other information regarding the Company's executive officers, as well as
certain information regarding First Health's directors, will be included in
the Proxy Statement for the Company's Annual meeting of Stockholders to be
held on May 22, 2001 (the "Proxy Statement"), and such information is
incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference. However, the Report of
the Compensation Committee of the Board of Directors on Executive
Compensation contained in the Proxy Statement is not incorporated by
reference herein, in any of the Company's previous filings under either the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, or in any of the Company's future filings.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) The Index to Financial Statements is set forth on pages 23 and
24 of this report.
(2) Consolidated Financial Statements Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves.
Schedule IV - Reinsurance
(3) Exhibits
(b) Report on Form 8-K:
The Company did not file a current report on Form 8-K during the fourth
quarter of fiscal 2000.
First Health Group Corp.
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2000, 1999, and 1998
Balance at Additions Charged Adjustments Balance at
Beginning of to Costs and End of
Description Period and Expenses Charges-offs Period
------------ ---------- ---------- ----------- ----------
Year Ended December 31, 2000
----------------------------
Allowance for Doubtful Accounts $10,844,000 $ -- $ (33,000) $10,811,000
========== ========== =========== ==========
Accrued Restructuring Expenses $ 5,149,000 $ -- $ (900,000) $ 4,249,000
========== ========== =========== ==========
Year Ended December 31, 1999:
----------------------------
Allowance for Doubtful Accounts $11,151,000 $ -- $ (307,000) $10,844,000
========== ========== =========== ==========
Accrued Restructuring Expenses $15,303,000 $ -- $(10,154,000) $ 5,149,000
========== ========== =========== ==========
Year Ended December 31, 1998:
----------------------------
Allowance for Doubtful Accounts $10,064,000 $ 897,000 $ 190,000 $11,151,000
========== ========== =========== ==========
Accrued Restructuring Expenses $28,166,000 $ -- $(12,863,000) $15,303,000
========== ========== =========== ==========
First Health Group Corp.
Schedule IV - Reinsurance
Years Ended December 31, 2000, 1999 and 1998
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
----------- -------------- --------- ---------- ---
Year ended 12/31/00:
-------------------
Life insurance in force: $195,112,000 $ (185,455,000) $ -- $ 9,657,000 --%
=========== ============== ========= ========== ===
Premiums:
Life insurance 4,064,000 (3,906,000) 42,000 200,000 21%
Accident and health
insurance 13,614,000 (2,853,000) 1,214,000 11,975,000 10%
----------- -------------- --------- ---------- ---
Total premiums $ 17,678,000 $ (6,759,000) $1,256,000 $12,175,000 10%
=========== ============== ========= ========== ===
Year ended 12/31/99:
-------------------
Life insurance in force: $448,134,000 $ (437,183,000) $ -- $10,951,000 --%
=========== ============== ========= ========== ===
Premiums:
Life insurance 6,086,000 (5,901,000) 41,000 226,000 18%
Accident and health
insurance 9,502,000 (3,497,000) 1,442,000 7,447,000 19%
----------- -------------- --------- ---------- ---
Total premiums $ 15,588,000 $ (9,398,000) $1,483,000 $ 7,673,000 19%
=========== ============== ========= ========== ===
Year ended 12/31/98:
-------------------
Life insurance in force: $585,037,000 $ (545,305,000) $ -- $39,732,000 --%
=========== ============== ========= ========== ===
Premiums:
Life insurance 8,845,000 (8,442,000) 54,000 457,000 12%
Accident and health
insurance 19,539,000 (3,044,000) 2,039,000 18,534,000 11%
----------- -------------- --------- ---------- ---
Total premiums $ 28,384,000 $ (11,486,000) $2,093,000 $18,991,000 11%
=========== ============== ========= ========== ===
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FIRST HEALTH GROUP CORP.
By: /s/James C. Smith
-------------------------------------
James C. Smith, Chairman of the Board
and Chief Executive Officer
Date: March 22, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 22, 2001:
Signature Title
------------------------------ ------------------------------------
/s/James C. Smith Chairman of the Board, Chief
Executive Officer,
James C. Smith Director (Principal Executive
Officer)
/s/Joseph E. Whitters Chief Financial Officer
Joseph E. Whitters (Principal Financial and Accounting
Officer)
/s/Michael J. Boskin Director
Michael J. Boskin
/s/Daniel Brunner Director
Daniel Brunner
/s/Robert S. Colman Director
Robert S. Colman
/s/Harold S. Handelsman Director
Harold S. Handelsman
/s/Don Logan Director
Don Logan
/s/Thomas J. Pritzker Director
Thomas J. Pritzker
/s/David Simon Director
David Simon
/s/Edward L. Wristen Director
Edward L. Wristen
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First Health Group Corp.
Downers Grove, IL 60515
We have audited the consolidated financial statements of First Health Group
Corp as of December 31, 2000 and 1999, and for each of the three years in
the period ended December 31, 2000 and have issued our report thereon, dated
February 19, 2001; such consolidated financial statements and report are
included in the Company's 2000 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedules of First Health Group Corp. listed in Item 14.
These consolidated financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based
upon our audits. In our opinion, such consolidated financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 19, 2001
INDEX TO EXHIBITS
Exhibit No. Description
----------------------------------------------------------------------------
2.1. Omitted
3.1. Restated Certificate of Incorporation of the Company.
{3.1} (1)
3.2. Amendment to Restated Certificate of Incorporation of the
Company. {3.2} (9)
3.3. Restated Certificate of Designation of Preferences, Rights
and Limitations. {3.2} (1)
3.4. Amended and Restated By-Laws of the Company. {3.3} (1)
3.5. Amendment, dated as of May 20, 1987, to Amended and
Restated By-Laws of the Company {3.4} (2)
3.6. Amendment to Amended and Restated By-Laws of the
Company.{3.5} (6)
3.7. Amendment to Amended and Restated By-Laws of the
Company.{3.6} (6)
4. Specimen of Stock Certificate for Common Stock. {4} (2)
9. Omitted
9.1. Omitted
9.2. Omitted
10.1 - 10.24. Omitted
10.25. Form of Consulting Physician Agreement, {10.20} (2)
10.26. Form of Consulting Specialist Agreement. {10.21} (2)
Exhibit No. Description
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10.27-10.68. Omitted
10.69. Second Restatement of the HealthCare COMPARE Corp.
Retirement Savings Plan. {10.69} (14)
10.70. Director's Option Plan dated May 23, 1991. {10.70} (14)
10.71. Stock Option Plan (for employees of OUCH). {10.71} (14)
10.72. - 10.75. Omitted
10.76. Employment Agreement dated as of July 1, 1993 by and
between COMPARE and Daniel S. Brunner. {10.76} (15)
10.77.- 10.89. Omitted
10.90. Retainer Agreement dated January 1, 1994 between
HealthCare COMPARE Corp. and Ronald H. Galowich. {10.90}
10.91-10.93. Omitted.
10.94. 1995 Employee Stock Option Plan. (4.1) {18}
10.95-10.98 Omitted
10.99. Agreement dated as of September 1, 1995 between HealthCare
COMPARE Corp. and Electronic Data Systems. {10.99} (20)
10.100. - 10.105 Omitted.
Exhibit No. Description
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10.106. Employment Agreement dated April 29, 1997 between
HealthCare COMPARE Corp. and Patrick G. Dills. {10.106}
(22)
10.107. Omitted.
10.108. Stock Purchase Agreement among HealthCare COMPARE Corp.,
First Financial Management Corporation and First Data
Corporation dated as of May 22, 1997, incorporated by
reference from the Company's Second Quarter 1997 Form
10-Q dated August 13, 1997. {10.108} (22)
10.109. Amended and Restated Credit Agreement dated as of
October 22, 1997 by and among HealthCare COMPARE Corp.
as borrowers; LaSalle National Bank as administrative
agent, issuing bank and lender; First Chicago Capital
Markets, Inc., as syndication agent; and the other
financial institutions party hereto as lenders.
{10.109} (22)
10.110. First Amendment to Amended and Restated Credit Agreement
dated as of October 22, 1997, by and among First Health
Group Corp. (f/k/a HealthCare COMPARE Corp.), as
Borrower, LaSalle National Bank, as Administrative
Agent, and the other parties thereto (the "Amendment") .
{10.110} (25)
10.111. 1998 Stock Option Plan {4} (23)
10.112. 1998 Directors Stock Option Plan {4} (24)
10.113. Employment Agreement dated May 18, 1999 between First
Health Group Corp. and James C. Smith. {10.113} (26)
10.114. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Ed Wristen. {10.114} (26)
10.115. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Mary Anne Carpenter. {10.115}
(26)
10.116. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Lottie Kurcz. {10.116} (26)
10.117. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Susan T. Smith. {10.117} (26)
10.118. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and A. Lee Dickerson. {10.118} (26)
10.119 Omitted.
Exhibit No. Description
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10.120. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Joseph E. Whitters. {10.120} (26)
10.121. Employment Agreement dated May 1, 1999 between First
Health Group Corp. and Patrick G. Dills. {10.121} (26)
10.122. Option Agreement dated as of May 18, 1999 by and between
the Company and James C. Smith {10.122} (27)
10.123. Option Agreement dated as of May 18, 1999 by and between
the Company and James C. Smith {10.123} (27)
10.124. 2000 Stock Option Plan {4} (28)
11. Computation of Basic and Diluted Earnings Per Share.
13. 2000 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23. Consent of Deloitte & Touche LLP
Exhibit No. Description
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{ } Exhibits so marked have been previously filed with the
Securities and Exchange Commission as exhibits to the
filings shown below under the exhibit number indicated
following the respective document description and are
incorporated herein by reference.
(1) Registration Statement on Form S-1 ("Registration
Statement"), as filed with the Securities and Exchange
Commission on April 17, 1987.
(2) Amendment No. 2 to Registration Statement, as filed with
the Securities and Exchange Commission on May 22, 1987.
(3) Amendment No. 3 to Registration Statement, as filed with
the Securities and Exchange Commission on May 29, 1987.
(4) Annual Report on Form 10-K for the fiscal year ended
August 31, 1987, as filed with the Securities and Exchange
Commission on November 27, 1987.
(5) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on January 12, 1988.
(6) Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on July 12, 1988.
(7) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on January 18, 1989.
(8) Annual Report on Form 10-K for the year ended August 31,
1989, as filed with the Securities and Exchange Commission
on November 28, 1989.
(9) Annual Report on Form 10-K for the year ended December 31,
1990, as filed with the Securities and Exchange Commission
on March 30, 1991.
(10) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on November 1, 1991.
(11) Registration Statement of Form S-4, as filed with the
Securities and Exchange Commission on January 27, 1992.
(12) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on March 4, 1992.
(13) Annual Report on Form 10-K for the year ended December 31,
1991 as filed with the Securities and Exchange Commission
on March 27, 1992.
Exhibit No. Description
----------------------------------------------------------------------------
(14) Annual Report on Form 10-K for the year ended December 31,
1992 as filed with the Securities and Exchange Commission
on March 26, 1993.
(15) Annual Report on Form 10-K for the year ended December 31,
1993 as filed with the Securities and Exchange Commission
on March 25, 1994.
(16) Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 27, 1994.
(17) Annual Report on Form 10-K for the year ended December 31,
1994 as filed with the Securities and Exchange Commission
on March 24, 1995.
(18) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on September 20, 1995.
(19) Annual Report on Form 10-K for the year ended December 31,
1995 as filed with the Securities and Exchange Commission
on March 27, 1996.
(20) Annual Report on Form 10-K for the year ended December 31,
1996 as filed with the Securities and Exchange Commission
on March 27, 1997.
(21) Registration Statement on Form S-8 as filed with the
Securities Exchange Commission on July 23, 1997.
(22) Annual Report on Form 10-K for the year ended December 31,
1997 and filed with the Securities and Exchange Commission
on March 25, 1998.
(23) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15, 1998.
(24) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15, 1998.
(25) Annual Report on Form 10-K for the year ended December 31,
1998 and filed with the Securities and Exchange Commission
on March 29, 1999.
(26) Annual Report on Form 10-K for the year ended December 31,
1999 and filed with the Securities and Exchange Commission
on March 24, 2000.
(27) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on March 19, 2001
(28) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on March 19, 2001