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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, 2002
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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(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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 15, 2003, was approximately $1,821,241,687. 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 95,099,520 shares of Common Stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
2002 Annual Report to Stockholders.................. Parts I, II and IV
Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on
May 13, 2003........................................ Parts I and III
PART I
Item 1. Business
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Forward-Looking Statements
This report includes certain forward-looking statements within the
meaning of the federal securities laws. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," "could"
and "should" and variations of these words and similar expressions are
intended to identify these forward-looking statements. Forward-looking
statements made by us are based on estimates, projections, beliefs and
assumptions of management at the time of such statements and are not
guarantees of future performance. We disclaim any obligation to update or
revise any forward-looking statements based on the occurrence of future
events, the receipt of new information or otherwise. Actual future
performance, outcomes and results may differ materially from those expressed
in forward-looking statements made by us as a result of a number of risks,
uncertainties and assumptions. For representative examples of these
factors, we refer you to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our 2002 Annual Report to
Stockholders.
General
First Health Group Corp., together with its consolidated subsidiaries
(referred to as "First Health," "FH," "us," "we," or "our"), is a full-
service national health benefits company. We specialize in providing large,
national employers and payors with a single source for their group health
programs by offering comprehensive, cost-effective and innovative solutions
for the health benefits needs of their employees nationwide. Through The
First Health[R] Network, we offer group health payors the means to manage
healthcare costs by reducing the per-unit price of medical services
provided. Through our workers' compensation service line, we provide a full
range of managed care services for insurance carriers, state insurance
funds, third party administrators, auto insurers and large, self-insured
national employers. Through our First Health Services service line, we
provide services to various state Medicaid and entitlement programs for
claims administration, pharmacy benefit management programs and medical
management and quality review services.
First Health is a Delaware corporation that was organized in 1982. Our
executive offices are located at 3200 Highland Avenue, Downers Grove,
Illinois 60515, and our telephone number is (630) 737-7900. Our Internet
website is located at www.FirstHealth.com. Our periodic and current reports
are available on our website, free of charge, as soon as practicable after
such reports are filed with the Securities and Exchange Commission.
Significant Developments
Mail Handlers Benefit Plan On April 16, 2002, the Company
increased its business relationship with the National Postal Mail Handlers
Union (the "Union"), the sponsors of the Mail Handlers Benefit Plan (the
"Plan"). As a result of the Company's acquisition of Claims Administration
Corporation ("CAC"), the prior underwriter and claims administrator of the
Plan, the Company was able to assume underwriting and claims administration
services to the Union and Plan in mid-2002. The new arrangements were built
on an existing contract through which the Company provides The First
Health[R] Network to the Plan's members. Through two important new
contracts effective January 1, 2003, the Company and its wholly-owned
subsidiary insurance companies, First Health Life and Health Insurance
Company and Cambridge Life Insurance Company, will continue to be the
underwriter and the claims administration provider to the Plan and, in
addition, provide health benefit services to the Plan. Health benefit
services include PPO and clinical management services. In addition, the
Union has notified us that we have been awarded a third contract for
Pharmacy Benefit Administration services, effective January 1, 2003, and
that contract is being negotiated with the Union. The Plan has nearly
400,000 federal employees and annuitants representing approximately one
million members nationwide, and is one of the nation's largest health plans.
On July 1, 2002, the Company acquired the stock of CAC, a subsidiary of
Continental Casualty Company, which was the provider of many of the services
required by the Plan (see Note 2 to the Consolidated Financial Statements),
for a purchase price of $18 million. In connection with this acquisition,
the Company assumed the responsibility for supporting the Plan effective
July 1, 2002. The acquisition includes the transfer of approximately 1,000
CAC employees and related assets which support the Plan in various offices
throughout the United States. These employees have assumed the same
function for First Health, providing the Company with an experienced team of
personnel already accustomed to administering the one-million-member Plan.
The Company believes this acquisition significantly reduced the need for
typical implementation efforts related to these new contracts. The
acquisition was financed from borrowings under the Company's existing line
of credit.
HCVM Acquisition. On May 1, 2002, the Company completed the
acquisition of HealthCare Value Management ("HCVM") for an initial purchase
price of $24 million. The Company will pay $3.1 million in March 2003 and
anticipates paying an additional $3.3 million in 2003 for contractual
obligations based on financial performance measures that HCVM has met. HCVM
is a small New England based PPO company, headquartered in suburban Boston.
The acquisition was financed from borrowings under the Company's existing
line of credit.
Introduction to Our Products and Services
We assist our clients through an integrated health plan offering that
positively impacts their medical cost trends while promoting the well being
and satisfaction of plan participants. The components of our integrated
health plan offering are:
* A broad, national preferred provider organization (PPO) of
quality, cost-effective healthcare providers,
* Medical and pharmacy claims administration,
* Clinical and care support programs,
* Workers' compensation managed care solutions,
* Managed care programs for public-sector clients, and
* Insurance products.
Through The First Health[R] Network, our national PPO network, we offer
our clients services designed to control the price of a healthcare unit of
service. We specialize in the creation of a client-specific network, made
up of participating providers in The First Health[R] Network. Our ability
to analyze healthcare cost data allows us to use a client's actual history
of healthcare usage to structure a network of providers tailored to its
needs. While a client's cost savings are greatest when plan participants
utilize our network resources, our non-network products, such as The First
Health[R] U&C (a usual and customary schedule), also help our clients manage
the cost of medical services.
For many of our corporate clients, we process medical claims and
provide various clinical and care support programs designed to help our
clients control the number of units of medical services, manage costly
diseases and increase compliance with prescribed treatment. These programs
include a full range of medical and mental healthcare and integrate our
pharmacy benefit management program to manage the full range of benefits.
An important feature of our health plan offering that distinguishes us from
our competitors is the availability of 24-hours-a-day, 7-days-a-week
telephonic assistance to aid plan participants with all benefits-related
needs. We believe that the continuous offering of new and improved programs
and services is important to the expansion of our business.
We have also integrated our managed care assets and clinical management
services with our ownership of small life and health insurance companies to
offer our group health clients stop-loss protection.
In the workers' compensation area, our national network is coupled with
our medical management and bill review programs to provide a comprehensive
product offering. This product offering allows us to meet the needs of
workers' compensation payors in 49 states including those with state
legislated managed care programs. We also make available to our workers'
compensation clients technology solutions that decrease the costs of paper
administration through scanning and optical character recognition ("OCR")
with record storage and retrieval. Given rapidly increasing loss ratios in
the workers' compensation area in recent years, we believe that our product
offering can generate substantial savings for our workers' compensation
clients.
Through First Health Services, we provide claims administration,
pharmacy benefits management and medical management and quality review
services to public sector payors such as state Medicaid and state
entitlement programs.
Healthcare Reform, Expenditures and Managed Care
In recent years, political, economic and regulatory influences have
subjected the healthcare industry to fundamental change and consolidation.
Since 1993, the federal government has proposed various programs to reform
the healthcare system and expressed its commitment to:
* Increasing health care coverage for the uninsured,
* Controlling the continued escalation of health care expenditures,
and
* 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 healthcare delivery system.
Proposals under consideration at the federal level also would provide
incentives for the provision of cost-effective, quality healthcare through
encouraging managed care systems. In addition, many states are considering
various healthcare 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 participants. We
anticipate that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methodologies,
and that the public debate of these issues will likely continue in the
future. Although we believe that we are well-positioned to respond to those
concerns, we cannot predict what impact the proposed measures may have on
our business. The volatility of stock prices of companies in healthcare and
related industries reflects these concerns about proposed reform measures
and their potential effect.
We are monitoring developments concerning healthcare reform and
preparing strategic responses to different reform scenarios. In response to
pending legislation and market pressures and in anticipation of future
healthcare reform, we are broadening and diversifying our services so that
we will be less affected if healthcare reform proposals are enacted.
We offer numerous programs designed to help payors of healthcare
control their medical costs. Unlike HMOs, PPO companies typically do not
underwrite health insurance or assume related risks. While clinical
management and PPO services have been offered on a commercially significant
scale for the last ten years, the industry continues to be fragmented with
many independent companies providing medical utilization review, PPO
services and claims administration, primarily on regional or local levels.
However, the rate of consolidation among these companies has been
accelerating. Additionally, all major health insurance carriers have
established internal clinical management and PPO departments.
In the workers' compensation area, medical costs continue to rise.
Although these medical costs represent only about 5% of total healthcare
expenditures, these costs have risen more than 1000% since 1970 and
represent a significant cost increase for employers and insurance carriers.
First Health and certain other cost management companies 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 the group health market
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. Bill review services are applied
in approximately forty-two states that have medical fee schedules and in the
remaining states that allow a usual and customary review. In addition to
the laws governing workers' compensation in each state, over twenty-five
states have enacted specific managed care legislation. This legislation
creates additional opportunities to offer comprehensive managed care
programs. The combination of these services offers workers' compensation
insurance carriers and employers significant cost savings.
Our Products and Services
PPO Services - The First Health[R] Network
PPOs are groups of hospitals, physicians and other healthcare providers
that offer services at pre-negotiated rates to healthcare payors on behalf
of employee groups. PPO networks offer the employer an additional means of
managing healthcare costs by reducing the per-unit price of medical services
provided. Established in 1983, our national PPO network, known as The First
Health[R] Network, incorporates both group health and workers' compensation
medical providers. This is the largest area of our business, from which we
derive the greatest percentage of our revenues. The First Health[R] Network
consists of hospitals, physicians and other healthcare providers that offer
their services to our healthcare payor clients at negotiated rates in order
to gain access to our growing, national client base.
As of December 31, 2002, our hospital network included approximately
4,200 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, we have established an outpatient care network (OCN) comprising
approximately 412,000 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, we have incurred substantial expense in
expanding our PPO network. We have increased both the number of healthcare
providers with whom we contract within existing geographical markets and the
number of geographical areas we serve. We have 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 we have added to our network in recent years are located in
those secondary and tertiary markets. We expect to incur significant
expenses in connection with the continued growth, development and
maintenance of our network, particularly into secondary and tertiary
markets, and believe that this investment will significantly differentiate
us from our competitors.
The following table sets forth information with respect to the
approximate number of participating providers in The First Health[R] Network
at the end of each of the past five years:
December 31,
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1998 1999 2000 2001 2002
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Number of Hospitals in
Network 3,220 3,510 3,700 4,100 4,200
Outpatient Care Network
Providers 288,000 321,000 348,000 390,000 412,000
The First Health[R] Network was developed in response to the needs of
our national client base which is composed of a diverse group of healthcare
payors, such as group health and workers' compensation insurance carriers,
third party administrators, HMOs, self-insured employers, union trusts and
government employee plans. The breadth and depth of our client-base allows
us to negotiate favorable rates with current and prospective healthcare
providers throughout the country.
Compensation. Fees for developing and managing our expansive PPO
network are generally performance based. 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 co-payments.
Approach to Network Development. Our strategy is to create a selective
network of individual providers from within The First Health[R] Network to
meet the medical, financial, geographic and quality needs of individual
clients and plan participants. We attempt to contract directly with each
hospital and generally do not contract with groups of hospitals or provider
networks established by other organizations. We believe that this provides
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, we enter into multi-
year agreements with our providers with nominal annual rate increases.
The First Health[R] Network consists of a full array of providers,
including hospitals and outpatient providers, such as 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, we are able to impact the vast majority of our clients'
healthcare costs and facilitate referrals within the network for all needed
care. Network 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 our clients and other
channeling mechanisms, such as our clinical and care support services and
on-line provider directories.
Our rate structure maximizes the savings for the client and gives
incentives to providers to deliver cost effective care. Unlike many other
PPOs that negotiate price discounts or separate rates for intensive care and
other specialty units, we strive to negotiate a single all-inclusive per
diem for medical/surgical and intensive care unit days in hospitals. The
majority of our hospital PPO contracts have such an all-inclusive rate
structure. We also control the charges for hospital outpatient care through
the use of reimbursement caps. These negotiated rates have resulted in
typical savings in excess of 40% on inpatient hospital costs and in excess
of 35% for physician and outpatient costs.
We have utilized these negotiated rates to develop The First Health[R]
Network U&C, a usual and customary schedule for non-network services. The
First Health[R] Network U&C, a usual and customary schedule, applies when
non-network physicians or hospitals are used and yields plan savings
equivalent to the average network rate within each geographic area. The
schedule is possible because of our national network, large database, direct
provider contracts and transactional capabilities.
After a network has been established, we provide a number of on-going
services for our clients, including consulting services, renegotiating
provider contracts and preparing annual evaluations profiling the
effectiveness of the network. We continuously refine our networks to expand
geographic coverage and improve the rate structure as care continues to
shift to outpatient settings.
We have established an extensive provider relations program in order to
promote ongoing and long-term positive business relationships with network
providers. 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. Due, in part, to the effectiveness of the provider
relations program, our retention rate has been more than 99% for hospitals
and more than 96% for physicians and other outpatient providers.
CCN. Our acquisition of CCN in August 2001 has expanded our position
in the group health TPA and insurance company sectors. The addition of CCN
network providers has added to the national reach of our network and offers
our clients and their employees more choices for their provider selection.
PPO Quality Assessment. Quality assessment of network providers is a
critical component in the selection and retention process. We have
established an intensive program whereby we evaluate each individual
provider against standards set for various quality indicators. Provider
evaluation begins prior to the selection of a provider and continues as long
as the provider remains in the network.
Quality assessment activities include:
* Physician credentialing,
* Peer review of applications when credentialing criteria are not
met,
* Physician recredentialing on a biennial basis,
* Claims profiling,
* Hospital profiling and credentialing,
* Ongoing monitoring based on external data and information gathered
through interaction with providers, and
* Quality investigations.
Medical Claims Administration
We provide "one-stop shopping" for employers offering indemnity, PPO
and point of service plans through our core competency of claims
administration and customer service. We provide clients with an integrated
package of healthcare benefits administration that includes:
* Telephonic availability to plan participants 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, and
* Data analysis.
Additionally, if they so desire, clients may utilize:
* COBRA administration,
* Flexible Spending Account administration, and
* Stop-loss brokerage
Our claims administration product is a sophisticated, technologically-
advanced claims processing, tracking and reporting system. A majority of
the processing is performed by our fully integrated and proprietary system
known as First Claim[R]. The system supports a broad range of benefit
programs, including medical, dental and vision care, Medicare, prescription
drugs, COBRA, Health Insurance Portability and Accountability Act and
flexible spending accounts. Additionally, we have expanded our claims
administration capabilities by adding new and advanced features such as
imaging/OCR. These development efforts have significantly enhanced and
improved upon the efficiency and the capabilities of First Claim[R].
Our system helps clients increase the cost effectiveness of their
benefit plans by offering such features as on-line reporting capability,
Electronic Data Interchange, known as EDI, rapid and responsive customer
service, automatic tracking of annual, lifetime, per-case and floating
maximums, and full integration with all of our other departments and
services. This integration benefits our clients because we can analyze
claims data as well as clinical management, pharmacy and network usage data.
This analysis enables us to provide comprehensive management reports that
can be used to make benefit changes to reduce medical costs. In addition,
because our claims system is an on-line, "real time," interactive system,
clients can expect plan participant issues to be minimized because claims
can be adjusted and paid promptly and accurately.
We provide a single-vendor environment which benefits plan participants
as well as our clients. Plan participants have just one number to call for
all healthcare benefit information. The round-the-clock, toll-free number
that they call to locate a network provider or to obtain general health
information is the same number that they call with claims and eligibility
inquiries. Additionally, our claims process can be virtually paperless for
the plan participant, especially when a network provider is used, which
is a critical step in enhancing his or her satisfaction. This system
automatically calculates benefits and issues checks, letters and Explanation
of Benefits (EOBs) to plan participants and providers.
Our claims system incorporates available advanced technologies,
including:
* Imaging and OCR technology
We use imaging/OCR to turn each claim into an electronic record.
This provides for greater processing efficiency, better control of
inventory, management of workflow and business continuity. This
capability is also being used by our carrier clients who have the
need to better manage their workflow and data.
* Online reporting and data retrieval
After a claim is entered, the system verifies eligibility, applies
appropriate deductibles, adjudicates the claims against
predetermined negotiated or usual and customary guidelines,
matches pre-certification outcomes, searches for previous history
of coordination of benefits, and auto-adjudicates or 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 and mails them the next day.
* EDI
We contract with several commercial claims clearinghouses to
gather claims received via EDI from providers who transmit their
claims to one of these clearinghouses. The clearinghouses batch
claims destined for us and forward them to us every day.
Performing these functions electronically enhances efficiency and
accuracy.
* Tracking annual, lifetime and floating maximums
Each client's benefit plan(s) is loaded onto our system which
tracks benefit maximums on-line for every plan participant. When
a participant 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
By integrating our managed care and claims systems, we enable
health plan members to access all health benefits information
including claims history, eligibility, deductibles, maximum
accumulations and benefit explanation information through a
single, round-the-clock, toll-free number.
Compensation. As a fee for providing claims administration services,
we receive a predetermined contractual rate that is based upon the number of
transactions processed.
Clinical and Care Support Programs
We provide centralized clinical and care support programs, including
utilization review, medical case management and disease management services,
through an internal staff consisting primarily of allied health
professionals and registered nurses and physicians. Our staff is located at
our headquarters in Downers Grove, Illinois and at a number of our claims
offices. Additionally, we maintain a nationwide network of consulting
physicians with a full range of specialties. These clinical and care
support services are coupled with our PPO and claims processing services to
provide an integrated service offering.
Our clinical and care support programs advise plan participants and
their dependents of review requirements. Plan participants, or their
attending physicians, utilize the program by calling one of our toll-free
numbers prior to a proposed hospitalization or outpatient service or within
two business days of an emergency admission or outpatient service. From
these calls, our clinical management staff gathers the medical information
necessary to enable it to perform a review. Applying our clinically valid,
proprietary review criteria, we then determine whether to recommend
certification of the proposed hospitalization or outpatient service
as medically necessary under the participant's healthcare plan. Upon
completion of our review, we advise the participant, the interested
healthcare providers and our client 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 a client for whom we pay claims, we also use the review outcome
to pay claims in accordance with the client's benefit plan.
We do not practice medicine and our services are advisory in nature.
All decisions regarding medical treatment are made by the patient and the
patient's attending physician. Patients can call us on a toll-free line if
they have questions regarding our services. Clients and their claim
administrators also can obtain additional information from our Client
Services staff.
Our medical case management program is also designed to provide clients
with careful management of all cases involving complex, high-cost or
chronic conditions or catastrophic illnesses. Our nurse case managers and
physicians identify potentially large claim cases through medical and
pharmacy claim triggers and periodic reviews and interactions with
individual members. Closely conferring with an attending physician and
other providers to identify cost-effective treatment alternatives is our
primary management tool. Such alternatives may include moving a patient
from an acute-care hospital to a less expensive setting - 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, we will serve as a referral for alternative available services,
provide recommendations regarding continued usage of these services and
negotiate discounts with providers when 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 us is made by the patient and
his or her physician.
Our care support program is a patient-focused program that enables us
to identify high-risk plan participants with chronic diseases that account
for a large portion of healthcare dollar expenditures. Our care support
program is a comprehensive approach starting with predictive modeling of a
client's specific population. The program is centered on the patient,
allowing, among other things, the following:
* Highly-personalized patient education and support initiatives,
* Channeling to network providers,
* Medication compliance support and other activities aimed at
increasing patient compliance with health and treatment programs,
* Inpatient monitoring,
* Discharge planning, and
* Intensive case management.
This approach allows for coordination of information for plan
participants with a series of needs which often overlap among many diseases.
Compensation. As a fee for providing clinical services, we receive a
predetermined contractual rate that is based upon the number of eligible
participants or fees based on time and materials.
Workers' Compensation Services
Our medical management process for workers' compensation cases 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, as soon
as medically feasible. A case manager is responsible for the overall
coordination of the many comprehensive services that may be needed, such as
review of rehabilitation, chiropractic care and home health services, with a
constant focus on the injured worker's ability to return to productivity.
Bill Review System. We provide 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. Our computer system consolidates all of these
functions, thereby reducing the amount of paperwork and costs associated
with claims processing, and is a highly cost-effective alternative for
workers' compensation payors.
Our bill review services include a computer-assisted review of medical
provider billings to ensure accuracy and adherence to established rates
and billing rules. In 42 states, including California, Texas, Arizona,
Michigan, Ohio and Florida, a schedule of presumed maximum fees has been
established for workers' compensation medical claims. In these states, our
bill review process identifies and corrects inappropriate billing practices
and applies state fee schedules. In the remaining states that have not
established maximum fees we adjust bills to the usual and customary levels
authorized by the payor. Provider network discounts are applied as well
during the review. Additionally, through our system, we are able to go
beyond "traditional" bill review services to provide enhanced savings by
identifying and repricing non-related services, upcoding and unbundling of
charges and other features.
We have an agreement with Electronic Data Systems Corporation (EDS)
whereby we utilize EDS' extensive data processing and communications
networks for data processing, electronic claims transmission and marketing
support services. EDS also modified our comprehensive bill review and audit
processing system to handle workers' compensation claims and integrated the
system with our clients and financial systems. The initial term of the EDS
agreement was scheduled to expire on January 1, 2005, and has been extended
to at least 2010.
Our bill review services help decrease the administrative costs of
workers' compensation payors because we handle virtually all aspects of bill
review functions. We offer two variations of bill review services:
Systems Lease: The systems technology is brought to the client's
office where their staff performs bill review.
Service Bureau: Bills are sent to our processing centers and we key
the bills and perform bill review.
Marketing. We market our workers' compensation programs to insurance
carriers, third party administrators, state workers' compensation funds, and
self-insured, self-administered companies. We currently include six of the
top ten workers' compensation insurers among our clients. We provide
worksite posters, provider directories (either paper or electronic) and
other materials to our payor-clients to encourage their injured employees to
utilize our provider network.
Compensation. We generally receive an agreed upon percentage of total
savings generated for clients through our bill review and PPO services plus
a per-bill fee. Savings are generally calculated as the difference between
the charges that medical providers bill the payor clients and the amount
that we have recommended for payment after the application of the fee
schedule and PPO rates.
First Health Services
First Health Services, to be referred to as FH Services, "our" or "we"
(in this section only) provides value-added automation, administration,
payment and healthcare management services for public sector clients.
Specifically, FH Services includes the following programs:
* Pharmacy Benefit Management,
* Healthcare Management, and
* Fiscal Agent Services.
We have been able to utilize our Medicaid fiscal agent expertise, our
base of experience in the public sector and our client relationships with
over 25 state governments to provide new products and services as the public
sector health programs (primarily Medicaid) move toward managed care.
Pharmacy Benefit Management (PBM). FH Services' PBM program manages
pharmacy benefit plans for Medicaid programs, state senior drug programs and
state-funded specialty programs. Our PBM program is one of the largest of
its kind in the country and provides a full range of services, including:
* Pharmacy point-of-sale eligibility verification and claims
processing,
* Provider network development and management,
* Disease state management programs,
* Prospective and retrospective drug utilization reviews, known as
DUR,
* Provider profiling, formulary development and manufacturers' rebate
administration, and
* First IQ, 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 payors as prescription drug expenses grow. Our PBM program is
one of the few large-scale participants in the market not aligned with or
controlled by a drug manufacturer. We believe our role as an independent
provider of PBM services gives us a distinct competitive advantage in the
growing sector of state government plans, where clinical autonomy is often a
requirement. Furthermore, we believe that FH Services is a national leader
in this area with substantial experience managing pharmacy plans for
Medicaid and elderly populations. This clinical and management expertise
gives us a competitive advantage in the rapidly growing market of managed
care organizations serving the public sector on a non-risk fee basis.
FH Services also offers Clinical Management Programs (CMP) to assist
physicians and network pharmacies in the appropriate treatment of patients
using pharmaceuticals. This program provides physicians with diagnosis,
treatment and formulary guidelines which have been developed by nationally
recognized clinicians and medical academicians. FH Services' CMP focuses on
those patients who experience preventable therapeutic problems such as non-
compliance, inappropriate therapy and adverse drug reactions. The program
includes prior authorization initiatives, prospective DUR, retrospective DUR
and educational intervention initiatives, known as concurrent DUR and
counter-detailing.
Compensation. As a fee for providing our PBM services, we receive a
predetermined, contractual rate that is based upon the number of
transactions processed plus added fees for additional time and materials and
for change orders.
Healthcare Management. FH Services' Healthcare Management program
provides external quality of care evaluation, utilization review and long-
term care review services to Medicaid programs, state mental health agencies
and other public sector healthcare programs desiring to improve quality of
care, contain costs, ensure appropriate care and measure outcomes.
The utilization review services cover a variety of behavioral health
programs, including acute and chronic inpatient and outpatient psychiatric
treatment of children, adult and geriatric populations, residential services
and other alternative services. The Healthcare Management program 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
healthcare while containing costs.
Under the long-term care review services, we provide level-of-care
determinations as well as pre-admission screenings and annual resident
reviews to determine the need for specialized services for mental illness,
mental retardation or related conditions.
Compensation. As a fee for providing our healthcare management
services, we receive fees on a time and materials basis.
Fiscal Agent. FH Services' fiscal agent program administers state
Medicaid health plans and other state funded healthcare programs by
providing clients with full fiscal agent operations and systems maintenance
and enhancement. Under this product line, we provide:
* Enrollment services,
* Eligibility verification and ID card issuance,
* Healthcare claims receipt, resolution, processing and payment,
* Provider relations,
* Third party liability processing,
* Financial reconciliation functions, and
* Client reporting.
Our customers include state Medicaid agencies, state departments of
human services and departments of health serving Medicaid populations.
Public sector clients may also procure fiscal agent services to support
other government programs, such as state employee benefit plans, early
intervention programs or other healthcare initiatives. Typically, fiscal
agent systems are modified to meet a specific state's program policy and
administration requirements and services are offered for all claim types.
We are one of four major competitors in the Medicaid fiscal agent field.
FH Services has developed and operates a Clinical Management Services
approved information system for each client. These systems are utilized to
process and adjudicate eligibility, healthcare claims and encounters, pay
providers under a full range of reimbursement methods and generate reports
for use in managing the program.
In addition, there are several additional benefits that FH Services
receives from operating the fiscal agent business:
* The contracts are profitable and new system development is
principally funded by new state contract awards,
* The expertise, capabilities and systems developed from these
contracts have provided a platform for expansion into other
products, services and customer segments, and
* Customer relationships with the states have proven valuable in
developing other business in the PBM and Healthcare Management
programs.
As a fee for providing our fiscal agent services, we receive a
predetermined, contractual rate that is based upon the number of
transactions processed plus added fees for additional time and materials and
for change orders. Fees for software development contracts are recognized
as milestones are met and customer acknowledgment of such achievement of
milestones is received.
Other Services
Pharmacy Benefit Management. In addition to FH Services offering our
PBM program to Medicaid and state-funded programs, we have integrated our
PBM program with our claims administration, clinical and network programs.
The components of our integrated PBM program include a national pharmacy
network, formulary management, drug utilization review and online pharmacy
claim adjudication. These services 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 plan
participants. Once identified, our clinical staff works with these plan
participants to help them manage their conditions that require medication.
First Health[R] National Transplant Program. As medical technology
advances, new and more complicated procedures, such as transplants, are
becoming increasingly common. In an attempt to assist our clients in
meeting these technological advances and their related costs, we have
developed The First Health[R] National Transplant Program.
This program is designed to facilitate the cost-effective use of high
quality transplant services through a fully-integrated system, whereby case
management staff assists in the coordination of the transplant process from
the determination of the need for a transplant through providing follow-up
care for one year after the transplant is performed.
The goals of the 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 healthcare costs by contracting a cost-effective package
rate with high quality transplant centers that have a proven
performance record of desirable outcomes, and
* Improving predictability of transplant costs by establishing fixed
fees that share risk with the providers for the procedure and
associated care for one year after the transplant.
Transplants included in the program include heart, lung, heart/lung,
liver, kidney, kidney/pancreas and bone marrow (both allogenic and
autologous).
Physician Resources. We believe that our in-house physician staff is
an invaluable resource in our clinical and care support programs and in
developing clinical policy and guidelines. Our 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 doctoral-level practitioners from various
fields, including clinical psychology and chiropractic medicine. In
addition, we have a nationwide network of consulting physicians in the
significant specialties. Our staff of physicians is crucial to the
development and maintenance of evidence-based review criteria and our
network quality assessment efforts.
Benefit Plan Recommendations. Our clients can take various steps in
benefit plan design that will help accomplish their goal of managing long-
term healthcare costs. A client's ability to accomplish this goal through
us is contingent on:
* Reasonable incentives for plan participants to comply with our
notification procedures and clinical management recommendations
because early notification is essential to effective case
management and helps ensure not only cost effectiveness but also
successful 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 co-payment/coinsurance differentials,
* Coverage for travel and organ-donor costs for services at network
transplant providers,
* Distribution to all plan participants of a First Health
identification card, including the toll-free telephone number,
prior to the implementation date because it communicates to
network providers that the member in a plan that uses First
Health, and
* A program of effective communication to plan participants about
our programs because well-planned, timely communication increases
participant satisfaction and compliance significantly.
Data Analysis. Healthcare data analysis services are also made
available to our clients. With these services, we are able to provide
clients with in-depth customized information concerning their healthcare
cost and utilization experience. We analyze our clients' healthcare claims
information and benefit plans using our internally developed proprietary
software in order to provide each client with a specific healthcare cost
profile and suggest appropriate cost management programs. This software
also allows us to simulate how changes in a benefit plan's structure will
affect the overall cost of a benefit program.
Internet Applications. Our 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 provides access to the same,
weekly-updated information regarding hospital and outpatient care providers
in The First Health[R] Network that is also made available through our toll-
free telephonic provider directory. While the electronic directory is
easily accessible on the web for use by a large audience, the directory
maker and worksite poster applications 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 plan participants to search for a
hospital, physician or clinic in The First Health[R] Network. Users may
search for a provider by name, city, county or zip code within a 5-mile
default radius and receive 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 their places of business. 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
criteria by which the data will be sorted. Directories are typically
created in two hours, and then made available on the Internet 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.
Internet Sites
Member Site. We offer a customized member services website entitled
"My First Health[R]" to assist plan participants in utilizing our services.
The applications on this website allow plan participants to:
* Chat online with Member Service representatives
* Obtain daily health news
* Perform health risk assessment
* Access general information about us,
* 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,
* Accumulate total payments, deductibles and related items,
* Resolve a pending claim online
* Send us an e-mail with health plan questions,
* View past year's claims and check status of recently submitted
claims, and
* Obtain health information.
We are evaluating additional services for this site, with the intent of
having them available in 2003, including:
* Eligibility status,
* Benefit plan summaries,
* Research physician rates
* Research provider volumes, and other quality data
* Fill out provider surveys
* Ability to research and save personalized health information.
Provider Site. We currently offer providers in The First Health[R]
Network access to a customized provider Internet site. This site allows
providers access to complete client listings, payor lists and referral
directories, pre-certification submissions, demographic data updates and
formularies. This site is being further developed in 2003. At that time, we
plan to expand the provider Internet site to include the following:
* Online claims submission.
Client Site. Clients have access to customized information and
applications including:
* Internet channeling tools (including electronic directory,
directory maker and worksite poster applications),
* Bill review data analysis application,
* Claims inventory logs,
* Claims administration reports,
* Printing of temporary ID cards
* Access analysis
* Eligibility files, as well as the ability to make changes and
updates,
* News and legislative updates
Stop-Loss Insurance
Our stop-loss insurance capabilities enable us to serve as an
integrated single source for the managed care needs of our clients who are
self-insured employers. Because our stop-loss rates are based on the
savings and value generated through our various services, we are able to
offer competitive rates and policies and multiple-year rate guarantees that
include fixed-percent increases and are based upon loss results. Stop-loss
policies are written through our wholly owned insurance subsidiaries and can
be written for specific and/or aggregate stop-loss insurance. This is the
only insurance product that is emphasized in our sales efforts.
Clients and Marketing
We primarily market our services to national, multi-site direct
accounts, including self-insured employers, government employee groups and
multi-employer trusts with greater than 1,000 employees or members. During
2002, one client (Mail Handlers Benefit Plan), for whom we provided PPO
services and claims administration services, accounted for 21% of our total
revenues. In addition, we market our services to and through group
health and workers' compensation insurance carriers. The following are
representative clients of First Health:
Agilent Technologies, Inc. Liberty Mutual Insurance Company
Albertson's, Inc. McDonald's Corporation
American International Group Motorola, Inc.
Boilermakers National Health and National Association of Letter
Welfare Fund Carriers
Coach USA Radio Shack Corporation
ConAgra Foods, Inc. State Farm Mutual Automobile
Insurance Company
Crawford and Company The National Postal Mail Handlers
Union
Eaton Corporation The Sherwin-Williams Company
HCA Inc. Travelers Property and Casualty
Hartford Financial Services, Inc Watson Pharmaceuticals, Inc.
We presently have approximately 120 group health and workers'
compensation insurance carrier clients. Typically, we enter into a master
service agreement with an insurance carrier under which we agree to provide
our cost management services to healthcare plans maintained by the carrier's
policyholders. Our 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 our services to its policyholders, relieving us
of a significant marketing expense.
In 2002, we also launched a national consumer advertising campaign to
include print and television. It is expected that we will continue consumer
advertising as a means of raising awareness with end-user buyers.
We typically enter into standardized service contracts with our direct
accounts and master service agreements with our 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 notice given one to six months prior to
expiration. While these contracts are generally exclusive as to a client's
ability to use other PPO companies in identified geographic areas, they are
generally non-exclusive as to a client's right to provide in-house medical
review services.
Change in Revenue Reporting.
Effective for the quarter ending March 31, 2003, the Company will report its
revenue as follows:
Group Health Revenue
Workers' Compensation Revenue
Public Sector Revenue
Additionally, its group health and workers' compensation revenue will
be further broken down between PPO Services and PPO plus Administrative
Services. The Company believes this revenue presentation represents how the
Company currently sells its services. The Company is selling a predominance
of its group health PPO services coupled with administrative services
(especially claims administration) and, to a lesser extent, its workers'
compensation PPO services are often coupled with fee schedule services. If
the Company had used this presentation methodology for the years 2000
through 2002, its revenues would have been presented as follows (in
thousands):
Year ended December 31, 2000
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Group Health -------- -------- -------- -------- --------
PPO $ 36,725 $ 37,596 $ 39,469 $ 38,706 $ 152,496
PPO plus Admin Services 35,305 34,176 34,327 36,768 140,576
-------- -------- -------- -------- --------
Total Group Health 72,030 71,772 73,796 75,474 293,072
Workers' Compensation
PPO 7,545 7,657 6,738 7,767 29,707
PPO plus Admin Services 18,502 19,719 19,698 19,187 77,106
-------- -------- -------- -------- --------
Total Workers'
Compensation 26,047 27,376 26,436 26,954 106,813
Public Sector 24,398 26,736 27,833 27,889 106,856
-------- -------- -------- -------- --------
Total Revenue $ 122,475 $ 125,884 $ 128,065 $ 130,317 $ 506,741
======== ======== ======== ======== ========
EBITDA % *
Commercial 43% 43% 42% 43% 43%
Public Sector 10% 13% 16% 12% 13%
Year ended December 31, 2001
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Group Health -------- -------- -------- -------- --------
PPO $ 42,684 $ 43,605 $ 53,642 $ 60,566 $ 200,497
PPO plus Admin Services 37,789 37,045 36,656 34,387 145,877
-------- -------- -------- -------- --------
Total Group Health 80,473 80,650 90,298 94,953 346,374
Workers' Compensation
PPO 8,108 8,280 10,571 13,470 40,429
PPO plus Admin Services 21,221 20,548 22,493 26,035 90,297
-------- -------- -------- -------- --------
Total Workers'
Compensation 29,329 28,828 33,064 39,505 130,726
Public Sector 27,182 29,471 28,845 30,510 116,008
-------- -------- -------- -------- --------
Total Revenue $ 136,984 $ 138,949 $ 152,207 $ 164,968 $ 593,108
======== ======== ======== ======== ========
EBITDA % *
Commercial 46% 46% 45% 41% 44%
Public Sector 8% 10% 4% 9% 8%
Year ended December 31, 2002
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Full Year
Group Health -------- -------- -------- -------- --------
PPO $ 62,859 $ 65,561 $ 42,035 $ 40,391 $ 210,846
PPO plus Admin Services 38,002 36,322 88,831 92,186 255,341
-------- -------- -------- -------- --------
Total Group Health 100,861 101,883 130,866 132,577 466,187
Workers' Compensation
PPO 13,117 14,663 13,706 13,475 54,961
PPO plus Admin Services 26,083 27,206 27,132 25,942 106,363
-------- -------- -------- -------- --------
Total Workers'
Compensation 39,200 41,869 40,838 39,417 161,324
Public Sector 29,300 32,171 33,224 37,760 132,455
-------- -------- -------- -------- --------
Total Revenue $ 169,361 $ 175,923 $ 204,928 $ 209,754 $ 759,966
======== ======== ======== ======== ========
EBITDA % *
Commercial 44% 46% 39% 41% 42%
Public Sector 9% 4% 10% 7% 8%
* EBITDA (in the preceding table) is defined as pretax income plus
depreciation and amortization expense, plus interest expense, less
interest income. EBITDA % is defined as EBITDA divided by revenues.
Competition
We compete 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 that have
implemented their own internal cost management services. In addition, other
managed care programs, such as HMOs and group health insurers, compete for
the enrollment of benefit plan participants. We are subject to intense
competition in each market segment in which we compete and many of our
competitors have greater financial and marketing resources than we do. We
distinguish ourselves on the basis of the quality and cost-effectiveness of
our programs, our proprietary computer-based integrated information system,
our emphasis on commitment to service with a high degree of physician
involvement, the penetration of our network into secondary and tertiary
markets and our role as an integrated provider of PBM services. Due to the
quality of our services, we tend to charge more for our services than many
of our competitors.
The insurer market for workers' compensation programs is somewhat
concentrated with the top ten insurers controlling over 50% of the insured
market. We have focused our efforts on the top tier of the workers'
compensation market. Although we currently include several regional offices
of six of the top ten workers' compensation insurers among our clients, we
compete with a multitude of PPOs, technology companies that provide bill
review services, clinical case management companies and rehabilitation
companies for the business of these insurers. While experience differs with
various clients, obtaining a workers' compensation insurer as a new client
typically requires extended discussions and a significant investment of
time. Given these characteristics of the competitive landscape, client
relationships are critical to the success of our workers' compensation
products.
Employees
As of December 31, 2002, we had approximately 5,500 employees,
including approximately 2,000 employees involved in claims processing and
related activities, 1,000 employees directly administering the Mail Handlers
Benefit Plan, 800 employees in information systems, 500 employees in various
clinical management and quality assessment activities, 500 employees in PPO
development and operations, 500 employees in sales, account management and
marketing and the remainder involved with accounting, legal, human
resources, facilities, and other administrative, support and executive
functions. We also have a nationwide network of conferring physicians in
various specialties, most of whom are compensated on an hourly or per visit
basis when they are requested to render consulting services on our behalf.
None of our employees are presently covered by a collective bargaining
agreement and we consider our relations with our employees to be good.
Information Systems
Our system and suite of integrated applications utilize centralized
stores of corporate data. Our information technology consists of three
layers. The first level consists of database servers located in a secure
corporate center. We also have a backup data center in place for business
continuity. The second level consists of integrated provider, plan
participant and client corporate databases. Our suite of applications is
the third level. The modular architecture of these applications is designed
to provide flexible access to corporate databases, while maintaining tight
control of our data assets.
Government Regulations and Risk Management
Federal-Level Regulation. Managed healthcare programs are subject to
various federal laws and regulations. Both the nature and degree of
applicable government regulation vary greatly depending upon the specific
activities involved. Generally, parties that actually provide or arrange
for the provision of healthcare services, assume financial risk related to
the provision of those services, or undertake direct responsibility for
making payment or payment decisions for those services, are subject to a
number of complex regulatory schemes that govern many aspects of their
conduct and operations.
While our management and information services typically have not been
the subject of extensive regulation by the federal government, the last
decade has witnessed increased regulation of our industry. In particular,
the Health Insurance Portability and Accountability Act of 1996 (HIPAA) will
impose obligations previously unknown to managed healthcare service
providers. HIPAA is designed to reduce the amount of administrative waste
in the healthcare industry and to protect the privacy of patients' medical
information. Among other things, HIPAA establishes new requirements for the
confidentiality of patient health information and standard formats for the
secure transmission of healthcare data among healthcare providers, payors
and plans. The regulations under HIPAA will require, among other things,
that health plans give patients a clear written explanation of how they
intend to use, keep and disclose patient health information, prohibit health
plans from conditioning payment or coverage on a patient's agreement to
disclose health information for other purposes, and create federal criminal
penalties for health plans, providers and claims clearinghouses that
knowingly and improperly disclose information or obtain information under
false pretenses. The regulations regarding the standard formats for the
secure transmission of healthcare information will become effective in
October 2003 and the regulations regarding privacy issues will become
effective in April 2003.
We have formed a corporate HIPAA Administrative Simplification
Committee and Workgroup to identify processes, systems or policies that will
require modification and to implement appropriate remediation and
contingency plans to avoid any adverse impact on our ability to perform
services in accordance with the applicable standards. We are communicating
with significant third-party business partners to assess their readiness and
the extent to which we will need to modify our relationship with these third
parties when conducting EDI or e-commerce.
The cost of this compliance effort is estimated to be approximately $5
million and is already included in our EDI and E-Commerce initiatives.
However, there can be no guarantee that the costs will not materially differ
from those anticipated or that we will not be materially impacted.
Additionally, we expect to receive reimbursement directly from a number of
our clients due to the nature of the contractual arrangement with these
entities.
State-Level Regulation. Our activities are subject to state
regulations applicable to managed healthcare service providers. We believe
that we are in compliance in all material respects with all current state
regulatory requirements applicable to our business as it is presently
conducted. However, changes in our business or in state regulations could
affect the level of services that we are required to provide or could affect
the rates we can charge for our healthcare products and services.
The workers' compensation segment of our business is more sensitive to
state governmental regulation. Historically, governmental strategies to
contain medical costs in the workers' compensation field have been limited
to legislation on a state-by-state basis. For example, many states have
implemented fee schedules that list maximum reimbursement levels for
healthcare procedures. In certain states that have not authorized the use
of a fee schedule, we adjust bills to the usual and customary levels
authorized by the payor. Opportunities for our services could increase as
more states legislate additional cost containment strategies. Conversely,
we could be adversely affected if states elect to reduce the extent of
medical cost containment strategies available to insurance carriers and
other payors, or adopt other strategies for cost containment that would not
support a demand for our services.
Item 2. Properties
----------
We own seven office buildings consisting of an aggregate of
approximately 670,000 square feet of space. Our headquarters are located in
Downers Grove, Illinois and our other six offices are located in West
Sacramento, California; San Diego, California; Houston, Texas; Pittsburgh,
Pennsylvania; Tucson, Arizona; and Scottsdale, Arizona. Additionally, we
lease significant office space in Salt Lake City, Utah; Rockville, Maryland;
Milwaukee, Wisconsin; Richmond, Virginia; Tampa, Florida; and Boise, Idaho.
We also have numerous smaller leased facilities throughout the nation.
All of our 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 our
operating needs in the foreseeable future.
Item 3. Legal Proceedings
-----------------
We are subject to various claims arising in the ordinary course of
business and are parties to various legal proceedings that constitute
litigation incidental to our business. Our wholly owned subsidiary, First
Health Services Corporation, which we acquired in July 1997, continues to be
subject to an investigation by the District of Columbia Office of Inspector
General (OIG). In July 2000, the OIG issued a report evaluating the
District of Columbia's Medicaid program and suggesting ways to improve the
program. FH Services had acted as the program's fiscal agent intermediary
for more than 20 years. The OIG report included allegations that, from 1993
to 1996, FH Services, in its role as fiscal agent intermediary, made
erroneous Medicaid payments to providers on behalf of patients no longer
eligible to receive Medicaid benefits. We do not believe that the outcome
of the claim or the investigation will materially affect our business or
financial position.
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, 2002.
Executive Officers of the Company
Name Age Position
--------------------- ---- -------------------------------------------
James C. Smith 62 Chairman of the Board
Member of Board of Directors
Edward L. Wristen 51 President and Chief Executive Officer
Member of Board of Directors
A. Lee Dickerson 53 Executive Vice President
Patrick G. Dills 49 Executive Vice President, Sales and
President, CCN
Joseph E. Whitters 44 Vice President, Finance and Chief Financial
Officer
James C. Smith has served as Chairman of the Board since January 2001.
He had served as the Chief Executive Officer from January 1984 through
December 2001.
Edward L. Wristen joined First Health in November 1990 as Director of
Strategic Planning. He served in various senior and executive level
positions from 1991 through August 1998. In September 1998, Mr. Wristen
became Chief Operating Officer. In January 2001, Mr. Wristen became
President of the Company. In January 2002, Mr. Wristen became Chief
Executive Officer of the Company. Mr. Wristen has over 20 years experience
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. He was appointed President of CCN in August 2001.
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.
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.
---------------------------------------------------------------------
Our common stock has been quoted on the Nasdaq National Market under the
symbol "FHCC" since our 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 our common stock on the Nasdaq
National Market and the approximate number of holders of record of our
common stock is set forth under "Common Stock" in our 2002 Annual Report to
Stockholders. Information concerning our dividend policy is set forth under
"Dividend Policy" in our 2002 Annual Report to Stockholders. All such
information is incorporated herein by reference.
Item 6. Selected Financial Data.
-----------------------
Selected financial data for each of our last five fiscal years is set
forth under "Selected Financial Data" in our 2002 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
our 2002 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 our 2002 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 our 2002
Annual Report to Stockholders on the pages indicated below and are
incorporated herein by reference.
Financial Statements: Page No.
-------------------- -------
Report of Independent Auditors 35
Consolidated Balance Sheets as of
December 31, 2001 and 2002 36-37
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 2001 and 2002 38
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2000, 2001 and 2002 39
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2000, 2001 and 2002 40-41
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2000, 2001 and 2002 42-43
Notes to Consolidated Financial Statements 44-62
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 our executive officers is set forth under
the caption "Executive Officers of the Company" in Part I. Other
information regarding our executive officers, as well as certain information
regarding First Health's directors, will be included in the Proxy Statement
for our Annual Meeting of Stockholders to be held on May 13, 2003 (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 our previous filings under either the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
or in any of our 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.
Item 14. Controls and Procedures
-----------------------
Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Rule 13a-15
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Based upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective. Disclosure controls and procedures are controls
and procedures that are designed to ensure that information required to be
disclosed in Company reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the
date we carried out this evaluation.
PART IV
Item 15. 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 27
and 28 of this report.
(2) Consolidated Financial Statements Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves.
Schedule IV - Reinsurance
(3) Exhibits
(b) Reports on Form 8-K:
None
First Health Group Corp.
Schedule II - Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2002, 2001 and 2000
Balance at Additions Charged Adjustments Balance at
Beginning to Revenues or and End of
Description of Period Expenses Charge-offs Period
------------ ---------- ---------- ----------- ----------
Year Ended December 31, 2002
-----------------------------
Allowance for Doubtful Accounts $14,327,000 $ 600,000 $ (145,000)(2) $14,782,000
========== ========== =========== ==========
Contractual Reserves (4) $18,152,000 $23,893,000 $ (818,000) $41,227,000
========== ========== =========== ==========
Accrued Restructuring Expenses $36,475,000 $ 2,250,000(1) $(27,332,000)(3) $11,393,000
========== ========== =========== ==========
Year Ended December 31, 2001:
-----------------------------
Allowance for Doubtful Accounts $10,811,000 $ 4,003,000(2) $ (487,000) $14,327,000
========== ========== =========== ==========
Contractual Reserves (4) $23,401,000 $(4,435,000) $ (814,000) $18,152,000
========== ========== =========== ==========
Accrued Restructuring Expenses $ 4,249,000 $41,113,000(1) $ (8,887,000) $36,475,000
========== ========== =========== ==========
Year Ended December 31, 2000:
----------------------------
Allowance for Doubtful Accounts $10,844,000 $ -- $ (33,000) $10,811,000
========== ========== =========== ==========
Contractual Reserves (4) $14,203,000 $ 9,229,000 $ (31,000) $23,401,000
========== ========== =========== ==========
Accrued Restructuring Expenses $ 5,149,000 $ -- $ (900,000) $ 4,249,000
========== ========== =========== ==========
(1) Additions in 2001 represent accrued restructuring expenses that
were included in the purchase accounting adjustments related to the
acquisition of CCN Managed Care, Inc., not charged to expenses. In
2002, additions include accrued restructuring expenses that were
included in the purchase accounting adjustments related to the CAC and
HCVM acquisitions, not charged to expenses.
(2) Additions in 2001 represent allowance for doubtful accounts that
were included in the purchase accounting adjustments related to the
acquisition of CCN Managed Care, Inc., not charged to expenses. In
2002, adjustments include a $3 million reduction related to the true-
up of the CCN allowance for doubtful accounts.
(3) Amount includes a reclass of $5.2 million of purchase accounting
reserves to deferred income tax liability. Amount also includes a
$14.4 million reduction to the CCN restructuring reserve for a true-up
of the liability amounts.
(4) Contractual reserves represent reserves for items such as non-
covered services, ineligible members, other insurance, performance
guarantees, etc. These amounts are netted against gross accounts
receivable in the consolidated balance sheets.
First Health Group Corp.
Schedule IV - Reinsurance
Years Ended December 31, 2002, 2001 and 2000
Percentage
Ceded Assumed of Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
----------- -------------- ---------- ---------- ---
Year ended 12/31/02:
-------------------
Life insurance in force: $157,963,000 $ (150,501,000) $ 5,420,000 $12,882,000 42%
=========== ============== ========== ========== ===
Premiums:
Life insurance 1,813,000 (1,705,000) 32,000 140,000 23%
Accident and health
insurance 18,986,000 (4,142,000) 557,000 15,401,000 4%
----------- -------------- ---------- ---------- ---
Total premiums $ 20,799,000 $ (5,847,000) $ 589,000 $15,541,000 4%
=========== ============== ========== ========== ===
Year ended 12/31/01:
-------------------
Life insurance in force: $172,677,000 $ (163,781,000) $ -- $ 8,896,000 --%
=========== ============== ========== ========== ===
Premiums:
Life insurance 2,129,000 (2,032,000) 37,000 134,000 28%
Accident and health
insurance 16,491,000 (2,860,000) 907,000 14,538,000 6%
----------- -------------- ---------- ---------- ---
Total premiums $ 18,620,000 $ (4,892,000) $ 944,000 $14,672,000 6%
=========== ============== ========== ========== ===
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%
=========== ============== ========== ========== ===
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/Edward L. Wristen
----------------------------
Edward L. Wristen, President
and Chief Executive Officer
Date: March 24, 2003
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 24, 2003:
Signature Title
------------------------------ ------------------------------------
/s/James C. Smith Chairman of the Board
------------------------------ Director
James C. Smith
/s/Edward L. Wristen President and Chief Executive Officer
------------------------------ Director (Principal Executive Officer)
Edward L. Wristen
/s/Joseph E. Whitters Vice President, Finance and Chief
------------------------------ Financial Officer (Principal Financial
Joseph E. Whitters and Accounting Officer)
/s/Michael J. Boskin Director
------------------------------
Michael J. Boskin
/s/Daniel Brunner Director
------------------------------
Daniel Brunner
/s/Raul Cesan Director
------------------------------
Raul Cesan
/s/Robert S. Colman Director
------------------------------
Robert S. Colman
/s/Ronald H. Galowich Director
------------------------------
Ronald H. Galowich
/s/Harold S. Handelsman Director
------------------------------
Harold S. Handelsman
/s/Don Logan Director
------------------------------
Don Logan
/s/William Mayer Director
------------------------------
William Mayer
/s/John C. Ryan Director
------------------------------
John C. Ryan
/s/David Simon Director
------------------------------
David Simon
CERTIFICATIONS
I, Edward L. Wristen, certify that:
1. I have reviewed this annual report on Form 10-K of First Health Group
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Edward L. Wristen
President and Chief Executive Officer
I, Joseph E. Whitters, certify that:
1. I have reviewed this annual report on Form 10-K of First Health Group
Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
f) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Joseph E. Whitters
Vice President, Finance and Chief Financial Officer
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, 2002 and 2001, and for each of the three years in
the period ended December 31, 2002 and have issued our report thereon, dated
February 14, 2003 (which expressed an unqualified opinion and included an
explanatory paragraph related to the adoption of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets"); such
consolidated financial statements and report are included in the Company's
2002 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 15. 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 14, 2003
INDEX TO EXHIBITS
Exhibit No. Description
----------------------------------------------------------------------------
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} (4)
3.3. Restated Certificate of Designation of Preferences, Rights
and Limitations. {3.3} (1)
3.4. Amended and Restated By-Laws of the Company. {3.4} (1)
3.5. Amendment, dated as of May 20, 1987, to Amended and
Restated By-Laws of the Company {3. 5} (2)
3.6. Amendment to Amended and Restated By-Laws of the
Company.{3.6} (3)
3.7. Amendment to Amended and Restated By-Laws of the Company.{3.7} (3)
4. Specimen of Stock Certificate for Common Stock. {4} (2)
10.1. Form of Consulting Physician Agreement, {10.1} (2)
10.2. Form of Consulting Specialist Agreement. {10.2} (2)
10.3. 1995 Employee Stock Option Plan. (10.3) (5)
10.4. Agreement dated as of September 1, 1995 between HealthCare COMPARE
Corp. and Electronic Data Systems. {10.4} (6)
10.5. 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. {10.5} (7)
10.6. 1998 Stock Option Plan {10.6} (8)
10.7. 1998 Directors Stock Option Plan {10.7} (9)
10.8. Employment Agreement dated May 1, 1999 between First Health
Group Corp. and Ed Wristen. {10.8} (10)
10.9. Employment Agreement dated May 1, 1999 between First Health Group
Corp. and Susan T. Smith. {10.9} (10)
10.10. Employment Agreement dated May 1, 1999 between First Health Group
Corp. and A. Lee Dickerson. {10.10} (10)
Exhibit No. Description
----------------------------------------------------------------------------
10.11. Employment Agreement dated May 1, 1999 between First Health Group
Corp. and Joseph E. Whitters. {10.11} (10)
10.12. Employment Agreement dated May 1, 1999 between First Health Group
Corp. and Patrick G. Dills. {10.12} (10)
10.13. Option Agreement dated as of May 18, 1999 by and between the
Company and James C. Smith {10.13} (11)
10.14. Option Agreement dated as of May 18, 1999 by and between the
Company and James C. Smith {10.14} (11)
10.15. 2001 Stock Option Plan {10.15} (12)
10.16. Option Agreements dated March 20, 2002 between First Health
Group Corp. and Edward L. Wristen. {10.16} (13)
10.17. Director's Stock Option Plan {10.17} (14)
10.18. 2002 Stock Option Plan {10.18} (15)
10.19. Stock Purchase Agreement dated as of May 18, 2002, among the
Company and HCA-the Healthcare Company and VH Holdings,
Inc. {10.19} (16)
10.20. Agreement and Acknowledgment with respect to the Stock Purchase
Agreement, dated as of August 16, 2002, among the Company
and HCA-the Healthcare Company and VH Holdings, Inc.
{10.20} (16)
10.21. Credit Agreement among the Company as borrower, Bank of America,
N.A. as administrative agent, certain subsidiaries of the
Company as guarantors; and other financial institutions
party thereto as lenders {10.21} (17)
10.22. Employment Agreement dated January 1, 2002, as amended on
September 17, 2002 between First Health Group Corp. and
James C. Smith
10.23. 2002 Restatement of the First Health Group Corp. Retirement
Savings Plan.
10.24. First Amendment to the 2002 Restatement of the First Health Group
Corp. Retirement Savings Plan.
10.25. Second Amendment to the 2002 Restatement of the First Health Group
Corp. Retirement Savings Plan.
10.26. Health Benefits Services Agreement dated as of January 1, 2003,
among the National Postal Mail Handlers Union and First
Health Group Corp.
10.27. Agreement dated as of April 15, 2002, among the National
Postal Mail Handlers Union, First Health Life and Health
Insurance Company, Cambridge Life Insurance Company and
Federal Employee Plans, Inc.
11. Computation of Basic and Diluted Earnings Per Share.
13. 2002 Annual Report to Stockholders.
21. Subsidiaries of the Company.
23. Consent of Deloitte & Touche LLP
99.1. Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Edward L. Wristen
99.2. Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 - Joseph E. Whitters
Exhibit No. Description
----------------------------------------------------------------------------
{ } 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) Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission on July 12, 1988.
(4) 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.
(5) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on September 20, 1995.
(6) 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.
(7) 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.
(8) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15, 1998.
(9) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on December 15, 1998.
(10) Annual Report on Form 10-K for the year ended December 31,
1999 and filed with the Securities and Exchange Commission
on March 24, 2001.
(11) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on March 19, 2002
(12) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on March 19, 2002
Exhibit No. Description
----------------------------------------------------------------------------
(13) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on August 15, 2002.
(14) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on August 15, 2002.
(15) Registration Statement on Form S-8 as filed with the
Securities and Exchange Commission on August 15, 2002.
(16) Current Report on Form 8-K as filed with the Securities
and Exchange Commission on August 27, 2002.
(17) Quarterly Report on Form 10-Q as filed with the Securities
and Exchange Commission on May 13, 2002.