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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, 1996
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
HealthCare COMPARE Corp.
(Exact name of registrant as specified in its charter)
Delaware 36-3307583
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3200 Highland Avenue
Downers Grove, Illinois 60515
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (630) 241-7900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 21, 1997, was approximately $1,076,565,000. On that date,
there were 26,257,687 shares of Common Stock issued and outstanding. 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.
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DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Stockholders Parts I, II and IV
Proxy Statement for the Annual Meeting of
Stockholders scheduled to be held on
May 20, 1997 Parts I and III
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PART I
ITEM 1. BUSINESS
GENERAL
HealthCare COMPARE Corp. (together with its subsidiaries hereinafter
collectively referred to as the "Company" or "COMPARE") is one of the nation's
leading independent providers of medical cost management services. The Company
believes it offers the broadest selection of group health and workers'
compensation medical cost management services in the marketplace. The
Company's strategy in helping clients manage medical costs is to target the
segments of opportunity in the medical care marketplace which management
believes offer the greatest opportunities for savings. The target market for
the Company's services are multi-sited, widely dispersed payors for health care
services.
By identifying medical costs that provide savings opportunities for group
health clients, COMPARE provides cost-effective programs that facilitate the
delivery of quality medical care, coupled with convenience and freedom of
choice for benefit plan participants. By also identifying comparable
opportunities for workers' compensation clients, COMPARE provides cost
management services that focus on early return to work, while helping to
control the medical, indemnity and administrative expenses associated with
work-related injuries and illnesses.
The Company's three lines of managed care programs are:
ConfidentCare(SM) - a national HMO-type offering for self-funded plans
AFFORDABLE Care Program(R) - a nationwide group health offering
Occupational Care System(SM) - a nationwide workers' compensation offering
These managed care programs all build upon:
THE AFFORDABLE(R) MEDICAL NETWORKS--The Company's national network of
hospitals, physicians and outpatient care providers that facilitate the
delivery of quality care at fixed, negotiated rates.
COMPARE(R) MEDICAL REVIEW PROGRAMS--Clinical management programs that
facilitate the delivery of medically necessary care and identify cost-effective
treatment alternatives.
OUCH(R) SYSTEMS--Provides computer-assisted bill review and audit, fee
schedule review, and claims pricing services to maximize savings on workers'
compensation claims and integrates both the AFFORDABLE Medical Networks and the
COMPARE Medical Review Programs for workers' compensation payors.
The Company, which is a Delaware corporation, was organized in 1982. The
Company's principal executive offices are located at 3200 Highland Avenue,
Downers Grove, Illinois 60515 and its telephone number is (630) 241-7900.
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RECENT DEVELOPMENTS
In August 1996, the Board of Directors approved the repurchase by the
Company of up to 5,000,000 shares or approximately 15% of its outstanding
common stock. The Company has previously repurchased a total of 2,500,000
shares. The Company will utilize working capital to purchase shares. The
Company repurchased approximately 640,000 shares under this authorization
through March 17, 1997.
STRATEGY
COMPARE assists its clients with medical cost management through an array
of programs designed to manage specific cost elements. Its various medical
review programs help COMPARE's clients manage the number of units of medical
services (volume) while its PPO products help COMPARE's clients manage the cost
of those units of service (price). Through its OUCH Systems capabilities, the
Company provides workers' compensation bill review services nationally. These
services are coupled with the Company's review programs and PPO networks in
order to provide a comprehensive product offering in the workers' compensation
arenas where, in recent years, medical costs have been rising faster than in
the group health arenas.
COMPARE seeks to develop medical management programs designed to control
the number of health care units, such as its hospital review program. COMPARE
offers additional cost management programs which are also intended to control
the number of health care units provided, including programs concentrating on
mental health services, physical therapy and chiropractic services. COMPARE's
management believes that the continuous offering of new and improved programs
is important to the expansion of its business.
Through the AFFORDABLE Medical Network ("AFFORDABLE"), COMPARE also offers its
clients services designed to control the price of a health care unit of
service. AFFORDABLE specializes in the development of PPOs and the collection
and analysis of health care cost data. AFFORDABLE's capability to analyze
health care cost data allows it to use a client's actual history of health care
usage to structure networks of providers tailored to client needs.
With the Company's acquisition of a small indemnity insurance company in
early 1996, the Company will expand its product offering to leverage its
managed care assets of The AFFORDABLE Medical Network and its clinical
management services. In addition, the Company anticipates acquiring a 49-state
insurance shell (with no ongoing business) in 1997. This expansion of product
offering will allow the Company to provide a national HMO-like service to
self-insured, multi-sited employers. The Company is rolling out these services
and expects to see substantial growth in 1997 and beyond from these efforts.
HEALTH CARE REFORM, EXPENDITURES AND MANAGED CARE
In recent years, political, economic and regulatory influences have
subjected the health care industry to fundamental change and consolidation.
Since 1993, the Clinton Administration has proposed various programs to reform
the health care system and expressed its commitment to (i) increasing health
care coverage for the uninsured, (ii) controlling the continued escalation of
health care expenditures, and (iii) using health care reimbursement policy to
help control the federal deficit. Even though Congress
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rejected the Clinton Administration's proposals, several potential approaches
remain under consideration, including broad insurance reform proposals, tax
incentives for individuals and the self-employed to purchase insurance,
controls on the growth of Medicare and Medicaid spending, the creation of
insurance purchasing groups for small businesses and individuals, and
market-based changes to the health care delivery system. Proposals under
consideration on the federal level would also provide incentives for the
provision of cost-effective, quality health care through encouraging managed
care systems. In addition, many states are considering various health care
reform proposals. At both the federal and state level, there is growing
interest in legislation to regulate how managed care companies interact with
providers and health plan members. The Company anticipates that Congress and
state legislatures will continue to review and assess alternative health care
delivery systems and payment methodologies, and that the public debate of these
issues will likely continue in the future. Although the Company believes it is
well-positioned to respond to the stated concerns, the Company cannot predict
what impact the proposed measures may have on its business. Concern about the
proposed reform measures and their potential effect has been reflected in the
volatility of the stock prices of companies in health care and related
industries, including the Company.
The Company is monitoring developments concerning health care reform and
preparing strategic responses to the different reform scenarios. In response
to pending legislation and market pressures and in anticipation of future
health care reform, the Company is in the process of broadening and
diversifying its services so it will be less affected if health care reform
proposals are enacted.
Independent managed care firms, such as COMPARE, offer numerous programs
designed to help payors for health care control their medical costs. Unlike
HMOs, clinical management and PPO companies typically do not underwrite health
insurance or assume related risks. Clinical management and PPO services have
been offered on a commercially significant scale during approximately the last
ten years by independent firms which are engaged primarily in providing these
types of services. The industry is currently highly fragmented with numerous
independent firms providing medical utilization review and PPO services,
primarily on a regional or local level. In addition, a growing number of
health insurance carriers, HMOs and third party administrators have established
internal clinical management and PPO departments. However, due to the
tremendous resources required to develop a PPO network, these organizations
have not had nearly the same success in establishing a national PPO network as
the Company.
In workers' compensation, medical costs are rising at almost twice the
rate of general medical inflation. While medical costs are significantly less
in size, representing only about 4% of total health care expenditures, the
increase in costs are significant for employers and insurance carriers and have
risen more than 1000% since 1970. COMPARE and certain other cost management
firms offer numerous programs designed to control escalating medical expenses,
indemnity payments for lost time, reduce litigation and allow injured employees
to return to work as soon as possible. Many of the services used in group
health are also applied to the workers' compensation market. PPOs are utilized
to manage price. Clinical management services are targeted toward managing the
number of units of service, the quality of that service, and helping the
injured employee in returning to productive employment. In addition, bill
review services are applied on a national basis in the 40 states that have a
medical fee schedule and in the remaining states which allow a usual and
customary review. Additionally, at least 29 states have adopted legislation
that allows for workers' compensation managed care services, and legislation
has been proposed in other states. The combination of these services offers
workers' compensation insurance carriers and employers significant cost
savings.
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PPO SERVICES - THE AFFORDABLE MEDICAL NETWORKS
Established in 1983, AFFORDABLE develops and manages payor-based PPO
networks throughout the country that incorporate both group health and workers'
compensation medical providers. This is the largest area of the Company's
business and is principally responsible for the significant growth in revenue
and earnings since 1989. The AFFORDABLE networks consist of hospitals,
physicians and other health care providers who offer their services to
AFFORDABLE clients at negotiated rates in order to gain access to AFFORDABLE's
growing national client base.
AFFORDABLE's hospital network currently includes approximately 2,320
hospitals in 49 states. In each case, rates are individually negotiated for
the full range of hospital services, including hospital inpatient and
outpatient services. In addition, AFFORDABLE has established outpatient care
networks (OCN) comprising approximately 207,000 physicians, clinical
laboratories, surgery centers, radiology facilities and other providers in 49
states, the District of Columbia and Puerto Rico.
Since COMPARE's acquisition of AFFORDABLE in June 1988, AFFORDABLE has
incurred substantial expense in expanding its PPO networks. The expansion has
occurred in the number of health care providers within existing areas and in
the number of networks throughout the country. AFFORDABLE has expanded the
number of hospital networks not only in major metropolitan markets, but also
has targeted secondary and tertiary markets; many of the hospitals and OCN
providers that have been added during the past few years have been in these
areas. Management expects to continue to incur significant expenses to further
expand its hospital and outpatient care networks, particularly in secondary and
tertiary markets and believes that its investment in developing these markets
has significantly differentiated it from competitors.
The following table sets forth information with respect to the approximate
number of participating providers at the end of the following years in The
AFFORDABLE Medical Network:
December 31,
------------------------------------------
1992 1993 1994 1995 1996
------ ------- ------- ------- -------
Number of Hospitals in Network 1,250 1,550 1,900 2,100 2,320
Outpatient Care Network
Providers 85,000 107,000 150,000 181,000 207,000
The AFFORDABLE networks have been developed in response to the needs of
COMPARE's national client base. These clients provide the leverage necessary
to enable AFFORDABLE to negotiate favorable rates with providers throughout the
country. The AFFORDABLE client base includes a diverse group of health care
payors, such as group health and workers' compensation insurance carriers,
third party administrators, HMOs, self-insured employers, union trusts and
government employee plans. The amalgamated buying leverage of these clients,
the Company believes, provides it with unique strength in negotiating PPO
contracts with current and prospective health care providers.
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COMPENSATION. As a fee for developing and managing PPO networks, in
virtually all cases, AFFORDABLE charges a percentage of savings realized by its
clients. The amount of this fee varies depending on a number of factors
including number of enrollees, networks selected, length of contract, and
out-of-pocket benefit co-payments.
AFFORDABLE competes with national and local firms which develop PPOs and
with major insurance carriers, third party administrators and utilization
review firms which have implemented their own preferred provider networks as
well as with firms which specialize in the collection and analysis of health
care cost data.
APPROACH TO NETWORK DEVELOPMENT
The strategy of The AFFORDABLE Medical Networks is to create a selective
network of individual providers which will meet the medical, financial,
geographic and quality needs of its clients and their beneficiaries.
AFFORDABLE contracts directly with each individual hospital and does not
contract with groups of hospitals or provider networks established by other
organizations. Management believes this provides the maximum control over the
composition and rates in the network and ensures provider stability in the
AFFORDABLE network. To further promote stability and savings in the network,
when possible, AFFORDABLE enters into multi-year agreements with its providers
with nominal annual rate increases.
The selected providers benefit from their participation in the AFFORDABLE
network through increased patient volume as patients are directed to them
through health benefit plans maintained by AFFORDABLE's clients and other
channeling mechanisms, such as COMPARE's clinical management services and PPO
InfoLine.
The network development process begins with an in-depth analysis of the
provider supply and demand in a targeted geographic area. Extensive data
analysis is performed with proprietary software on public and client data bases
to identify the utilization and cost experience of payors by hospital and
service area; to develop profiles of average lengths of stay and costs per day
and per discharge by type of service and to measure the providers performance
against established quality standards. This assessment allows AFFORDABLE to
determine and negotiate favorable rates which will result in effective savings
to clients. It also establishes the service and geographic needs of clients
which direct the selection of network providers.
Other demographic and environmental information gathered in the assessment
process such as the economic condition of the area, major businesses in the
community and applicable legal and regulatory requirements, assists in
identifying key factors which can impact the network negotiating process. Site
visits to all key hospitals are also conducted by negotiators to gain a greater
understanding of the geography of the area, the hospital physical plant and the
competitive environment.
The network consists of a full array of providers including hospitals and
outpatient providers (physicians, laboratories, radiological facilities,
outpatient surgical centers, mental health providers, physical therapists,
chiropractors, and other ancillary providers). By establishing contractual
relationships with the complete range of providers, AFFORDABLE is able to
impact the vast majority of the client's health costs and to facilitate
referrals within the network for all needed care.
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The general criteria for hospital contracting is as follows:
- - ACCESSIBILITY -- each hospital is evaluated as to whether it is
geographically accessible to current clients' employees.
- - AVAILABILITY -- each hospital's utilization and service patterns are
evaluated as to occupancy and scope of services.
- - ACCEPTABILITY -- each hospital is evaluated as to whether it falls within
current client member utilization patterns.
- - QUALITY -- each hospital is evaluated as to quality of care on a wide range
of criteria.
- - COST -- each hospital's charges are evaluated using both public data and
client data.
The general criteria for physician contracting includes:
- - Valid state licensure
- - Active DEA registration, if applicable
- - Specialty board certification, if applicable
- - Staff privileges at one or more network hospitals, where applicable
- - Professional malpractice liability coverage
- - A history of a low number of malpractice claims
- - No suspensions, limitations or revocations of hospital practice privileges
- - No sanctions or disciplinary actions as a Medicare, Medicaid or other
government provider
- - No state license investigation, restriction, suspension or revocation
- - No DEA license investigation, restriction, suspension or revocation
- - No liability insurance cancellation
- - No chronic illness or physical defect that impairs practice
- - No mental illness or chemical dependency (substance abuse)
The rate structure negotiated by AFFORDABLE maximizes the savings for the
client and gives incentives to providers to deliver cost effective care.
Unlike many other PPOs which negotiate price discounts or separate rates for
intensive care and other specialty units, AFFORDABLE strives to negotiate a
single all inclusive per diem for medical/surgical and intensive care unit days
in hospitals. The majority of the Company's hospital PPO contracts are
negotiated with an all-inclusive rate structure. The charges for hospital
outpatient care are controlled as well through reimbursement caps. Fees for
physicians and other outpatient providers are set by fee schedules established
by AFFORDABLE. The negotiated rates have resulted in typical savings of over
40% on inpatient hospital costs and 20-30% for physician and outpatient costs.
Potential providers are invited to become preferred providers by
submitting proposed rates for services in a competitive bidding process.
AFFORDABLE evaluates these proposals based on price, range of services,
geographic location, community reputation, historical utilization patterns and
indications of provider quality. AFFORDABLE negotiates with the providers and
selects those which meet the clients' objectives. After a network has been
established, AFFORDABLE provides ongoing consulting services to clients,
renegotiates contracts with providers and prepares annual evaluations which
profile for its clients the effectiveness of the network. The networks are
continuously undergoing refinements with active redevelopment activity to
expand geographic coverage and to improve rate structure as care continues to
shift to outpatient settings.
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In order to promote an ongoing and long term positive business
relationship with network providers, AFFORDABLE has established an extensive
provider relations program. Dedicated staff perform a variety of activities
including responding to hospital claims inquiries, conducting site visits,
preparing provider newsletters and participating in joint hospital/AFFORDABLE
functions which are intended to promote goodwill and increased utilization of
network providers. The Company's retention rate for hospitals has been more
than 99% and over 97% for physicians and other outpatient providers.
PPO QUALITY ASSESSMENT
Quality assessment of network providers is a critical component in the
selection and retention process. The Company has established an intensive
program which evaluates each individual provider against standards set for
various quality indicators. Provider evaluation occurs prior to the selection
of the provider and continues while they are in the network. Providers who do
not meet standards will not be selected or invited to remain in the network.
COMPARE has made significant investment in the development of data bases to
maintain and improve the quality of the AFFORDABLE Medical Network. Physicians
employed by COMPARE are active participants in the quality assessment process.
There is an established committee of physicians which meet regularly to act on
provider selection and retention decisions based on quality issues. The
clinical expertise available through the COMPARE medical staff is a key
ingredient to the effectiveness of the quality assessment activities. The key
elements of our PPO Quality Assessment program include:
- - Networks that offer necessary and effective health care services which are
provided within an appropriate setting, in a timely fashion and in a
manner that maintains satisfaction and confidence.
- - Networks that consist of a stable base of member providers that provide a
comprehensive range of cost-effective health care services which are
within reasonable access to network members.
- - Network providers shall meet clinical and operational standards
established by the federal and state licensing bodies and other recognized
professional organizations.
- - Network providers shall meet clinical and operational standards.
- - Network providers shall monitor the quality of patient care provided in
their facilities and provide documentation upon request.
INFORMATION SYSTEMS
AFFORDABLE utilizes a broad range of proprietary information systems
applications to support its PPO business. Present information systems support
management of all aspects of provider recruitment, including maintenance of a
comprehensive data base of information about members of each PPO network.
Additional information systems are utilized to develop rate and fee objectives
and strategies prior to initiating contract negotiations with providers. The
Company has invested substantially in its information systems and anticipates
continuing these investments in the future. Currently the Company has major
upgrades underway within the Company's medical provider and claims pricing
systems for its PPO business.
AFFORDABLE also maintains an array of information systems to re-price
health care claims to the contracted rate for its clients. Clients rely on
AFFORDABLE to determine PPO contractual payments for claims submitted from
hospital PPO providers. Hospital claims are sent from the client's claims
administrator or directly from the PPO provider to AFFORDABLE for pricing at
the negotiated rates.
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In most cases, Outpatient Care Network claims are sent directly to the claims
administrator and are priced using AFFORDABLE's fee schedules. These schedules
are provided to the claims administrator on tape and are updated on a regular
basis.
Health care cost data analysis services are available to the Company's
clients for a fee on a stand-alone basis. These services provide clients with
in-depth customized information concerning their health care cost and
utilization experience. Using its internally developed proprietary software,
the Company analyzes its clients' health care claims information and benefit
plans in order to profile each client's specific health care cost problems and
evaluate appropriate cost management programs. This software also allows the
Company to simulate how changes in a benefit plan's structure will change the
overall cost of a benefit program. The Company also provides clients with
customized software products to allow further analysis of health care cost
issues.
CLINICAL MANAGEMENT SERVICES - COMPARE MEDICAL REVIEW PROGRAMS
COMPARE provides centralized clinical management programs (utilization
review and medical case management services) from its headquarters in Downers
Grove, Illinois, through an internal staff consisting primarily of allied
health professionals, licensed practical and registered nurses and physicians.
COMPARE also has a nationwide network of consulting physicians in various
specialties. Historically, COMPARE charged its clients a "capitated fee,"
i.e., a fixed monthly fee for each participant (excluding covered dependents)
in a client-sponsored health care plan. The amount of this fee varied
depending on the size of the client and the number and type of review programs
selected by the client. During the last two years or so, the Company has
concentrated on selling its clinical management services coupled with its PPO
services. As a result, the fee is an "add-on" to the PPO fee. For other
services, including case management, COMPARE charges fees on an hourly basis
rather than a capitated basis.
COMPARE's approach to medical management is based on the development of
clinically valid review criteria and procedures using the resources of its
professional staff as well as resources external to COMPARE. Review criteria
are structured so that a review coordinator or case manager can review the
majority of cases presented. If a proposed hospital admission or outpatient
service fails to meet established criteria, a COMPARE-employed or retained
physician (or other doctoral level practitioner such as a Doctor of
Chiropractic or Doctor of Psychology) reviews the case and may contact the
patient's provider to obtain additional information.
Clients who purchase COMPARE's clinical management programs advise their
participants and dependents of review requirements. A participant or his or
her attending physician utilizes a clinical management program by calling one
of COMPARE's toll-free numbers prior to the proposed hospitalization or
outpatient service or within two business days of an emergency admission or
outpatient service. The telephone lines at COMPARE's headquarters are
currently staffed five days a week, eleven and one-half hours a day (calls
placed at other hours are answered by a recorded message with the opportunity,
in some circumstances, for the caller to leave recorded information.) From
these calls, COMPARE's clinical management staff gathers the demographic and
medical information necessary to enable it to perform a review and enters this
information into COMPARE's proprietary review system. Based on this
information and using COMPARE's clinically valid and proprietary review
criteria, COMPARE determines whether it can recommend certification for the
proposed hospitalization or outpatient service as medically necessary under the
participant's health care plan.
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Upon completion of the review, COMPARE notifies the participant, the
attending physician and other affected providers of the outcome of the review.
It also notifies its 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 benefit plan. COMPARE does not practice
medicine and its services are advisory in nature. All decisions as to the
payment or denial of benefits and about eligibility or coverage under the
benefit plan are made only by the claims administrator. All decisions as to
the patient's medical treatment are made by the patient and the attending
physician, not by COMPARE.
COMPARE provides standard educational materials which can be used by its
clients for advising participants of the utilization management services.
COMPARE also works with clients in developing customized materials for this
purpose. Participants can call COMPARE on a toll-free line if they have
questions regarding its services. Clients and their claim administrators can
also obtain additional information from the Client Services staff.
COMPARE provides its clients with standardized reports, on a regular
basis, which contain information that enables them to analyze the effectiveness
of COMPARE's services.
CLINICAL MANAGEMENT PROGRAMS
COMPARE offers several clinical management programs from which its clients
may select. Most of COMPARE's clients subscribe to its Hospital Review
Program, which serves as the base to which COMPARE's other programs may be
added. Over 90% of COMPARE's clients subscribe to at least one additional
COMPARE program. COMPARE also offers its programs on a stand-alone basis,
without requiring participation in its Hospital Review Program. The following
is a summary of the Company's principal programs currently being offered.
HOSPITAL REVIEW. COMPARE's Hospital Review Program is designed to reduce
a client's hospitalization costs by identifying (for the purposes of benefit
plan coverage only) hospital admissions and lengths of stay which can be
considered medically unnecessary or excessive compared to established national
criteria. COMPARE's Hospital Review Program involves a review by COMPARE
personnel of the medical necessity of proposed hospital admissions under the
participant's benefit plan, as well as the proposed length of a patient's stay.
Additionally, COMPARE remains actively involved during the hospitalization in
reviewing and monitoring the patient's length of stay. This same process is
applied to workers' compensation admissions.
CASE MANAGEMENT. The medical Case Management Program is designed to
provide clients with a careful review of all cases which involve complex high
cost or chronic diseases, conditions or catastrophic illnesses. Through
periodic reviews, COMPARE's nurse case managers and physicians identify and
inform benefit plan administrators of potentially large claim cases. If
requested to do so by the plan administrator, COMPARE renders ongoing case
management services for an hourly fee. These services consist primarily of
conferring with the attending physician and other providers to identify
cost-effective treatment alternatives. Such alternatives may include moving a
patient from an acute care hospital to less expensive settings -- often the
home -- as soon as the patient's physician determines that it is safe and
medically feasible. If such a move requires a home nursing service or medical
equipment, COMPARE serves as a referral for alternative available services,
provides recommendations regarding continued usage of these services and
negotiates discounts with the providers
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where network providers are not appropriate or not available. In all cases,
the decision as to whether to proceed with the course of treatment initially
prescribed by the attending physician or the more cost-efficient alternative
identified by COMPARE is made by the patient and his physician. Clients which
select stand-alone case management independently identify those cases which
involve potentially high cost diseases, conditions or procedures and refer such
cases to COMPARE to identify cost-effective treatment alternatives.
The factors considered in determining the appropriate level of clinical
management include:
- - The anticipated degree of case complexity.
- - The intensity of resources needed to manage the case.
- - The potential variability in cost, quality and/or clinical outcomes.
COMPARE has defined three broad levels of case management intensity:
- - TERTIARY CASE MANAGEMENT focuses on long-term or complex clinical
scenarios for which there are significant quality, cost and clinical
outcome risks. Cases that benefit from tertiary case management
include those which involve multiple providers, complex or long-term
treatment plans, multiple levels or sites of care, and an extended
period of lost time. Tertiary case management requires the expertise of
our most experienced registered nurses and frequently includes input
from a COMPARE Medical Director.
- - In comparison to tertiary case management, SECONDARY CASE MANAGEMENT
focuses on less complex medical situations in which there are moderate
cost, quality and clinical outcome risks. Cases which benefit from
secondary case management include those with a need for coordination and
management of medical services on an ongoing basis.
- - PRIMARY CASE MANAGEMENT is the least complex level of intervention and
focuses on short-term or episodic health care services. This level of
case management intensity is appropriate for situations in which focused
and limited involvement by COMPARE will achieve the optimal cost,
quality and clinical outcome.
The Medical Management process for Workers' Compensation keeps track of an
injured worker's care and identifies opportunities for cost-effective
alternative care and treatment with the goal of returning the worker to the
client's work force or to reach Maximum Medical Improvement (MMI) as soon as
medically feasible. The Medical Manager is responsible for the overall
coordination of the many comprehensive services that may be needed, such as
review of rehabilitation and chiropractic care, home health services and
others, with a constant focus on the injured worker's ability to return to
productivity.
REFERRAL MANAGEMENT. For clients who prescribe to COMPARE's
point-of-service program, referral to specialists is managed through the
Clinical Management area. When a referral from a primary care physician to a
specialist is required, a patient calls the toll-free telephone number. These
referrals are reviewed and authorized for a specified period of time.
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PPO REDIRECTION AND INFOLINE. For clients who prescribe to COMPARE's
clinical management program and the AFFORDABLE Medical Network, COMPARE will
attempt to redirect the patient to a PPO hospital or outpatient provider
located near the patient. Additionally, the clients' participants can call PPO
InfoLine to ascertain a network provider of their choosing who is within a
reasonable proximity to their place of residence or work. By utilizing a PPO
network hospital or outpatient provider, the payor and the patient will achieve
savings from what the billed charges would otherwise be.
ONCALL BY AFFORDABLE. This is a 24-hours-a-day, 7-days-a-week service
that ties together the full range of COMPARE'S managed programs by providing
participants with a single source for guidance through the health care delivery
system. The services of this program include:
- - Help members obtain answers to general medical questions;
- - Assist members to make informed health care decision;
- - Provide educational materials to increase member comprehension of
diseases and treatments;
- - Locate appropriate network providers;
- - Facilitate communication between providers and members;
- - Identify patient situations that may be appropriate for referral to
Clinical Management Services;
- - Initiate pre-certification for medical and mental health care;
- - Answer claims questions and inquiries; and
- - Answer pharmacy program questions or referrals.
This service is offered to clients who participate in the full range of
network and clinical management programs.
OTHER CLINICAL MANAGEMENT PROGRAMS:
- Managed Surgical Opinion - Prospective Chiropractic Review
- Mental Health Review Services - Maternity Line
- Disability Management - CHAMPUS Select
PHYSICIAN RESOURCES
COMPARE believes that its full-time in-house physician staff is an
invaluable resource in its clinical management programs. The staff now
includes experienced board certified physicians in such specialties as family
practice, internal medicine, cardiology, gynecology, urology, orthopedics,
psychiatry, pediatrics, and surgery as well as other doctoral level
practitioners such as clinical psychology and chiropractic medicine. In
addition, COMPARE has a nationwide network of consulting physicians in the
significant specialties. This physician staff is crucial to the development
and maintenance of up-to-date clinically valid review criteria and protocols
and the network quality assessment efforts. This staff consults with first
level reviewers, reviews cases which fail to meet criteria and discusses those
and other complex cases with participants' attending physicians.
INFORMATION SYSTEM
Management of COMPARE believes that COMPARE's interactive, on-line
computer-based information system has been a major factor in its ability to
provide clients with healthcare cost management services. This information
system is comprised of four parts: proprietary software, a
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database of hospital utilization norms, a database of patient-specific
information and an automated data reporting and transmission capability.
COMPARE's proprietary software programs record and access patient and
provider information. This allows COMPARE personnel to access utilization
norms and standards as part of the review process or to analyze cost data in
negotiating reimbursement rates with health care providers. COMPARE's
proprietary software generates extensive internal reports to supplement the
review process by informing reviewers when specific follow-up activities, such
as case management screening, are required to be performed by COMPARE
personnel. In addition, COMPARE's proprietary software also generates
extensive reports for its clients. These reports typically itemize all cases
reviewed or cases involving PPO services and detail the effectiveness of the
services provided. If so requested, COMPARE will customize these reports to
fit the needs of a particular client.
The hospital utilization norms database consists of information against
which COMPARE analyzes a participant's proposed treatment plan in order to
determine whether the proposed length can be certified as medically necessary.
This data base has been compiled from commercially available information.
COMPARE has enhanced this database to include proprietary information derived
from its experience in performing utilization management services.
The patient-specific database consists of data that has been collected
concerning each proposed hospital admission, including patient demographics,
medical history and diagnostic and procedural information. COMPARE's review
personnel can access the current status of the patient's case to identify more
cost-effective treatment alternatives. Currently the Company is in the midst
of a major system rewrite and enhancement to its utilization management
information systems.
COMPARE's information system also has the capability of sending
machine-readable computer tapes or information by electronic transfer directly
to the computers of third party payors and/or clients in order to expedite
claims administration. All correspondence confirming COMPARE's recommendations
with respect to a prescribed treatment plan is automatically generated and sent
to the attending physician, participant and plan administrator by the system.
OUCH SYSTEMS
The Company provides comprehensive workers' compensation medical bill
review services through a sophisticated computer system that enforces
administration policies, applies state specific workers' compensation fee
schedules, checks for billing infractions and applies provider contract
discounts. Since all of these functions are consolidated and automated, the
Company believes it reduces paperwork and costs associated with claims
processing and is highly cost effective for larger workers' compensation
entities who generally process in excess of 100,000 bills annually. Since
these system capabilities are integrated with its utilization management and
PPO services, the Company believes it offers one of the most comprehensive
workers' compensation medical cost management programs in the industry. OUCH's
workers' compensation program was introduced in California in 1986.
MARKETING. COMPARE markets the workers' compensation programs to
insurance carriers, third party administrators, state workers' compensation
funds, and self-insured, self-administered companies. The Company's payor
clients include at least some offices of six of the ten largest workers'
compensation insurers and the largest industrial company in the world.
Worksite posters, provider
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directories (either paper or electronic) and other materials provided by
its payor clients encourage injured employees to utilize The AFFORDABLE
provider network.
BILL REVIEW. Services offered by the Company include a computer assisted
review of medical provider billings to ensure accuracy and adherence to
established rates and billing rules. In 40 states, including California,
Texas, Arizona, Michigan, Ohio and Florida, a schedule of presumed maximum fees
(fee schedule) has been established for workers' compensation medical claims.
The review process corrects errors a provider makes in applying these fee
schedules. OUCH Systems also reviews whether the appropriate level of service
was billed. Provider network discounts are applied as well during the review.
Additionally, through the system, we are able to go beyond "traditional" bill
review services to provide enhanced systems savings by reorganizing non-related
services, upcoding and unbundling of charges and other features. Finally, bill
review data is integrated with medical management and quality assessment
activities.
An agreement was entered into with Electronic Data Systems Corporation
("EDS") primarily to utilize its extensive data processing and communications
networks. EDS modified its comprehensive bill review and audit processing
system to handle workers' compensation claims and integrated the system with
COMPARE'S clinical management programs. Systems development occurred
throughout the latter half of 1989, with operations beginning in the first
quarter of 1990.
Bill Review decreases workers' compensation payors' administrative costs
because HealthCare COMPARE Corp. maintains virtually all aspects of the
program, including:
- - Technical support through a technical response help desk
- - User training and documentation
- - Database management
- - The ability to process from single or multiple sites.
HealthCare COMPARE Corp. offers three variations of the Bill Review program:
- - Systems Lease: The systems technology is brought to the client's office
where their staff performs bill review.
- - Service Bureau: Bills are sent to COMPARE'S processing centers and
COMPARE keys the bills and performs bill review.
- - EDI Service Bureau: Clients electronically transmit key data elements to
COMPARE and COMPARE performs bill review.
COMPENSATION. The Company generally receives an agreed upon percentage of
total savings generated for clients through bill reviews plus a per-bill fee,
including provider network discounts, adjustments to applicable billing rules
and regulations and utilization reviews. Savings are generally calculated as
the difference between the amount medical providers bill OUCH Systems' payor
clients and the amount COMPARE recommends for payment.
CUSTOMERS AND MARKETING
COMPARE primarily markets its services to national multi-sited direct
accounts, including self-insured employers, government employee groups and
multi-employer trusts. In addition, COMPARE
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markets its services to and through group health and workers' compensation
insurance carriers and third party administrators. The following are
representative customers of COMPARE:
Arthur J. Gallagher & Co.
American Postal Workers Union Health Plan
American Chambers Insurance Company
Boilermakers National Trust and Welfare
Fund
Celtic Life Insurance Company
ConAgra, Inc.
First Health Strategies, Inc. (ALTA)
General Motors Corporation
Government Employees Hospital Association
Kemper National Insurance Company
Liberty Mutual Insurance Company
McDonald's Corporation
NALCO Chemical Company
National Association of Letter Carriers
National Health Laboratories, Inc.
Norwest Corporation
Pacific Telesis Group
R. E. Harrington, Inc.
RETA Trust
Sedgwick James
State Farm Mutual Automobile Insurance
Company
Texas Instruments
The Sherwin-Williams Company
Travelers/AETNA
United Airlines, Inc.
Walgreen Company
Wausau Insurance Companies
COMPARE presently has 50 group health and workers' compensation insurance
carrier clients. Typically, COMPARE enters into a master service agreement
with an insurance carrier under which COMPARE agrees to provide its cost
management services to health care plans maintained by the carrier's
policyholders. COMPARE's services are offered not only to new policyholders,
but also to existing policyholders at the time their policies are renewed. The
insurance carrier's sales and marketing staff ordinarily has the responsibility
for offering COMPARE's services to its policyholders, thus relieving COMPARE of
a significant marketing expense.
COMPARE typically enters into standardized service contracts with its
direct accounts and master service agreements with its insurance carrier and
third party administrator clients. These contracts and agreements have
automatically renewable successive terms of between one and three years, and
are generally terminable upon one to six months' notice prior to their
expiration. These contracts are generally non-exclusive and permit the client
to provide medical review services on an in-house basis; however, these
contracts are generally exclusive as to the client's ability to use other PPO
firms during their term.
During 1994 and 1995, the Company's contract with Government Employees
Hospital Association (a plan covering certain government employees) accounted
for 14% and 13%of revenues, respectively.
Additionally, during 1995 the Company had a contract with the National
Association of Letter Carriers (a plan covering certain federal government
employees) which accounted for 10% of revenue in 1995.
No customer accounted for 10% of the Company's revenues, individually,
during 1996.
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INTEGRATED PRODUCTS
The Company has introduced a number of new services during the last few
years that incorporate various features of COMPARE's clinical management and
PPO services in order to provide clients increased opportunities for medical
cost savings. Common characteristics of these new services include:
- More aggressively managed and more selective provider networks.
- More aggressive risk sharing financial arrangements with providers.
- Improved communication and linkage with members and participants.
- Longer term contracts with providers.
- Intensive medical case management intervention.
These programs constitute important elements of the Company's risk
products and programs it is in the process of introducing.
MANAGED TRANSPLANT SYSTEM. As medical technology advances, new and more
complicated procedures, such as transplants, have been developed. In an
attempt to assist the Company's clients in meeting these technological advances
and their related costs, COMPARE has developed The Managed Transplant System.
This program has been designed to facilitate the cost-effective use of
high quality transplant services through an integrated system whereby case
management staff assists in the coordination of the process from the
determination of the need for a transplant through follow up care for one year
after the transplant is performed.
The goals of The Managed Transplant System include:
- - Enhancing quality of care and favorable outcomes through case management
and direction of patients to a selected number of transplant programs that
meet stringent quality and performance standards;
- - Reducing health care costs by contracting a cost-effective package rate
with high quality transplant centers that have a proven performance record
of desirable outcomes;
- - Improving predictability of transplant costs by establishing fixed fees
that share risk with the providers and spread payment out over a one-year
period.
This program requires clients to implement special benefit plan provisions
designed to enhance participation in the system.
The Managed Transplant System enables clients to consider covering their
insureds for transplant procedures of proven medical value. The program
includes a coordination by case managers to assist patients, their families and
our clients throughout the process. Furthermore, by using network facilities
and providers, the patient is treated by providers with a proven track record
for quality care. A case manager is involved in the case from the time the
need for a transplant has been identified through one year following the
surgery. The intensity of case management involvement varies, depending on the
complexity of the case.
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Transplants included in the program include: heart, lung, heart/lung,
liver, kidney, kidney/pancreas and bone marrow (both allogenic and autologous).
MANAGED PHARMACY PROGRAM. COMPARE has developed a Managed Pharmacy
Program designed to assist clients in reducing health care costs through
negotiated pricing for pharmaceutical products, a drug formulary, and case
management services. Pharmacy related costs are one of the fastest growing
components of medical care.
As part of developing this program, the Company has integrated the Managed
Pharmacy Program with its Hospital Networks and Outpatient Care Networks. This
blending of networks provides additional benefits by increasing the cost
effectiveness of physician prescribing habits and encouraging patients to
purchase medications from network providers.
To provide a more complete and effective medical cost management system,
the Company has linked the Managed Pharmacy Program with COMPARE's case
management services to identify high utilizers of prescription drugs, to
intervene where appropriate for case management services and to encourage the
adoption of cost effective treatment plans. This approach identifies
alternatives which enable our clients and their members to control potentially
unnecessary medical costs not only for pharmacy expenses, but also for other
medical and behavioral health treatment services.
COMPARE POINT OF SERVICE PROGRAM. The Point of Service Program is
comparable to a "gatekeeper" approach whereby primary care physician (PCP)
coordinates his/her patients' use of the health care system. The traditional
gatekeeper approach has been set up to attain two major objectives: (1) to
coordinate and manage a patient's course of treatment and (2) to control costs
and utilization.
The Company has developed a program to more effectively address both
client objectives for, and drawbacks to, current approaches. In addition to
coordinating the course of treatment and controlling costs and utilization, the
objectives of the Company's Point of Service Program are to:
- - Support primary care physicians in their role as patient advocate while
enhancing their expertise through COMPARE's extensive clinical resources.
- - Reward primary care physicians with a reimbursement program that fairly
compensates them for the time which they invest in managing
cost-effective patient treatment;
- - Encourage the use of primary care network providers as the first course
of treatment and network providers, in general, as required;
- - Provide early case identification of complex or chronic patients who
could benefit from case management intervention; and,
- - Maintain the element of choice for the patient's selection of their
physician.
MANAGED MATERNITY SYSTEM. The Managed Maternity System is designed to
reduce the high incidence of premature labor and to achieve high quality,
cost-effective prenatal care through the integration of maternity case
management with a special network of providers. The program
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encompasses all expectant mothers--patients expected to have a normal delivery
as well as mothers at high risk for maternal and/or fetal complications
(premature birth).
The goals of the program are to:
- - Encourage patients' use of cost effective, high quality network providers;
- - Work cooperatively with network physicians so that quality care is
provided in the most appropriate and least costly manner;
- - Monitor maternity care provided from the first trimester through delivery
and continuing with identified infant services through the first year of
life;
- - Identify mothers who may be at high risk for pregnancy complications
and/or pre-term birth for early maternity management services;
- - Promote positive outcomes for mothers and infants through patient and
physician education and reimbursement incentives.
The maternity case management component of the program includes: initial
and follow-up risk assessments; ongoing patient and physician education; case
management coordination of services for mothers with pregnancy complications;
provision of ongoing support to high risk patients and for infants with serious
medical complications and/or conditions during the first year of life.
The network is composed of: obstetricians who have agreed to accept
packaged rates and have met special credentialing criteria, including adherence
to the American College of Obstetrics and Gynecology (ACOG) guidelines;
neonatologists; perinatologists; home health agencies which can provide high
tech home care; and hospitals with obstetrical services and level 2 and 3
nurseries. The package rates include two types of payment: one is a blend of
C-section/normal delivery rate, and the other is a high risk rate for cases
that demand intensive oversight by the patient's obstetrician. The
obstetricians contract for these set rates, and COMPARE determines on a
case-by-case basis which rate is appropriate.
RISK PRODUCTS AND INSURANCE COMPANY ACQUISITION
As an extension of the Company's cost management services, in February
1996 the Company acquired American Life and Health Insurance Company and a
subsidiary insurance company (collectively, "American"). American is a small
medical indemnity insurer with licenses in 26 states and approximately $8
million in annual premiums. The maximum purchase price will be approximately
$11.5 million, subject to the satisfaction of certain contingencies. The
acquisition was accounted for as a purchase.
The Company acquired American in order to obtain the infrastructure and
licenses to enable the Company to leverage its managed care assets into various
medical plans for multi-sited employers. The medical plans will provide
employers HMO-like performance due to the effect of COMPARE'S provider networks
and medical management expertise which have been developed over the last
decade.
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In 1996, American's A. M. Best rating was upgraded to A- from B+.
The Company also is seeking to acquire a 49-state licensed insurance
company (which has ceased writing new business and whose existing policies will
be fully reinsured) in order to expand the states in which the Company can do
business.
COMPARE has developed, in conjunction with its risk products users, a
single source of accountability for all elements of their health plan, and all
at a guaranteed cost. The Company calls this product "The Total Cost
Guarantee".
The Company's product promotes the continuity of care through a single
point of entry into the health care delivery system. By calling OnCall by
AFFORDABLE, the 24-hour, seven days a week toll-free number, employees can
obtain information on all aspects of their health benefit program. This
includes information ranging from preventative care and claims status, to
inquiries regarding network providers and benefit plan coverage.
The program integrates the Company's PPO network of providers, the
AFFORDABLE Medical Networks, with Clinical Management Programs. Access to our
national network of providers, including specialty and sub-specialty care such
as Maternity and Transplant, gives unparalleled provider coverage not only
locally but throughout the country.
Claims administration is provided through the Company's internal
capabilities, which have been developed since the time of the American
acquisition, and is integrated throughout the entire process so as to take
advantage of the potential synergies and competencies.
For a single guaranteed cost, the Company's clients can be assured of a
comprehensive health care benefit plan that ensures the earliest possible
impact on patient care which provides a higher quality of employee healthcare
at a lesser cost.
Plan Design
In each employer's case, the Company will require adoption of a benefit
plan with significant out-of-pocket costs be assumed by the employee if they
access a non-contracted PPO provider (generally a 30% differential).
Program Features
The Company's risk products generally include the following:
- - All medical claims incurred during the effective plan year.
- - All managed care fees, including complete Clinical Management Programs and
24-hour, 7-day OnCall by AFFORDABLE program.
- - Employee communications.
- - Access to The AFFORDABLE Medical Networks.
- - Claims administration services.
- - Premium for aggregate stop loss policy.
- - All implementation fees.
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- - The Company's Managed Pharmacy Program.
- - The Company's Managed Transplant Program.
- - The Company's Managed Maternity Program.
COMPETITION
COMPARE competes in a highly fragmented market with national and local
firms specializing in utilization review and PPO cost management services and
with major insurance carriers and third party administrators which have
implemented their own internal cost management services. In addition, other
health care programs, such as HMOs, compete for the enrollment of benefit plan
participants. COMPARE is subject to intense competition in each market segment
in which it competes. Many of COMPARE's competitors are significantly larger
and have greater financial and marketing resources than COMPARE.
COMPARE competes on the basis of the quality and cost-effectiveness of its
programs, its proprietary computer-based information system and its emphasis on
commitment to service and high degree of physician involvement. Due to the
quality of the services offered, COMPARE tends to charge more for its services
than many of its competitors.
The insurer market for workers' compensation programs is somewhat
concentrated with the top ten insurers controlling over 50% of the insured
market. The loss or addition of any one of these insurers could have a
material impact on revenues. OUCH currently has as clients at least some
offices of six of the top ten insurers. While experience differs with various
clients, obtaining a new client requires extended discussions and significant
time.
EMPLOYEES
As of December 31, 1996, COMPARE had approximately 1,500 employees,
including approximately 290 employees involved in PPO negotiations and
development; 290 involved with bill review and claims pricing activities; 260
employees in various review and quality assessment activities; 200 in
information systems, 180 in sales and marketing and the remainder involved with
accounting, human resources, client services, and other administrative, support
and executive functions. COMPARE also has a nationwide network of conferring
physicians in various specialties, most of whom are compensated on an hourly or
per visit basis when requested by COMPARE to render consulting services. None
of the Company's employees are presently covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
GOVERNMENT REGULATIONS AND RISK MANAGEMENT
The Company believes that its methods of operation are in compliance with
applicable laws, including statutes and regulations relating to PPO and
clinical management operations.
Although COMPARE believes that its level of Directors' and Officers' and
Errors and Omissions insurance coverage is appropriate, no assurance can be
given that insurance coverage would protect it from loss in the event of any
litigation or adverse interpretation of statutes and regulations by
governmental or other bodies. Further, there is no assurance that such
insurance will be available at all times in the future.
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ITEM 2. PROPERTIES
COMPARE owns three office buildings consisting of approximately 385,000
square feet of space. One is in Downers Grove, Illinois where the Company is
headquartered, and the other two are in West Sacramento, California and
Scottsdale, Arizona (purchased in January, 1997). These locations house the
majority of the Company's colleagues. Additionally, the Company leases
facilities in the Detroit, Dallas, Atlanta, Boston and New York City areas.
The remaining locations' leases represent less than 50,000 square feet.
All of the Company's buildings and equipment are being utilized, have been
maintained adequately and are in good operating condition. These assets,
together with planned capital expenditures, are expected to meet the Company's
operating needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
COMPARE is subject to various legal proceedings arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these pending suits will not have a material adverse effect on the business or
financial condition of COMPARE.
In January 1996, the Seventh Circuit Court of Appeals reversed the United
States District Court and dismissed all counts of a consolidated class action
complaint filed against the Company and two of its executive officers. The
dismissed complaint, which alleged violations of the federal securities laws,
was filed in April 1993, purportedly on behalf of all persons who purchased the
Company's common stock between December 28, 1992 and March 30, 1993. The
plaintiffs declined to appeal this decision.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1996.
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EXECUTIVE OFFICERS OF THE COMPANY
NAME AGE POSITION
------------------- --- --------------------------------------------
James C. Smith 56 President and Chief Executive Officer
Daniel Brunner 53 Executive Vice President,
Government Affairs
Mary Anne Carpenter 51 Executive Vice President, Service Products
A. Lee Dickerson 47 Senior Vice President, Provider Networks and
OUCH Systems Administration
Patrick G. Dills 43 Executive Vice President, Managed Care Sales
Ronald H. Galowich 61 Secretary
Lottie A. Kurcz 42 Senior Vice President, Risk Products
Susan T. Smith 46 General Counsel
Joseph E. Whitters 38 Vice President, Finance and
Chief Financial Officer
Edward L. Wristen 45 Executive Vice President, Risk Products
James C. Smith has served as President and Chief Executive Officer and
director of COMPARE since January, 1984.
Daniel Brunner, a director of the Company, has been Executive Vice
President, Government Affairs since January, 1994. Prior to that, he was
Corporate Operating Officer in charge of government affairs since February,
1992. Mr. Brunner has served as President of AFFORDABLE since April, 1983.
Mary Anne Carpenter has held various senior management positions in the
Company. In March, 1994, she became Executive Vice President, Clinical
Operations and Claims Repricing. Prior to joining the Company, Ms. Carpenter
held various positions in the health care industry.
A. Lee Dickerson joined HealthCare COMPARE Corp. 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 HealthCare COMPARE Corp. in 1988 as Senior
National Director, Sales and Marketing. Mr. Dills was promoted to Executive
Vice President, Managed Care Sales in January, 1994. Prior to joining COMPARE,
Mr. Dills held various senior sales positions at M&M/Mars, and various
divisions of Mars, Inc. for the prior six years.
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Ronald H. Galowich has served as Secretary of the Company since 1983,
General Counsel from 1983 to March, 1997, Executive Vice President of the
Company from 1983 to May, 1994 and Chairman of the Board of Madison Group
Holdings, Inc., a multipurpose business and investment company, since 1990.
Lottie A. Kurcz joined HealthCare COMPARE Corp. in 1986 as Manager of
National Accounts. Since joining COMPARE, Ms. Kurcz has held various senior
sales and marketing positions; and prior to her promotion in January, 1994 to
Senior Vice President, Risk Products and Product Management, she was Vice
President, Marketing. Prior to joining COMPARE, Ms. Kurcz held various senior
positions in private industry.
Susan T. Smith has served as and General Counsel of the Company
since February, 1997. She was Associate General Counsel from September 1994
and joined the Company in July 1992. Prior to joining COMPARE, Ms. Smith was a
partner in a large Denver law firm where she headed the firm's healthcare law
practice.
Joseph E. Whitters joined the Company as Controller in October, 1986 and
has served as its Vice President, Finance since August, 1987 and its Chief
Financial Officer since March, 1988.
Edward L. Wristen joined COMPARE in November, 1990 as Director of
Strategic Planning and was promoted to Vice President, Managed Outpatient Care
Programs, in April, 1991. In February, 1992, he became Executive Vice
President and Corporate Operating Officer in charge of Provider Networks. In
January, 1994, Mr. Wristen became Executive Vice President, Risk Products.
Prior to joining COMPARE, Mr. Wristen was President of Parkside Data Services,
a subsidiary of Parkside Health Management Corporation, a firm engaged in data
and analytic services, from March, 1989 to November, 1990. From February, 1987
to February, 1989 Mr. Wristen was Chief Operating Officer and Executive Vice
President of Addiction Recovery Corporation, a regional chain of chemical
dependency hospitals. Mr. Wristen has over 18 years experience in the health
care industry.
The Company's officers serve at the discretion of the Board of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been on the Nasdaq National Market under
the symbol "HCCC" since the Company's initial public offering on May 29, 1987.
Information concerning the range of high and low sales prices of the Company's
Common Stock on the Nasdaq National Market and the approximate number of
stockholders of record of the Common Stock is set forth under "Common Stock" in
the Company's 1996 Annual Report to Stockholders. Information concerning the
Company's dividend policy is set forth under "Dividend Policy" in the Company's
1996 Annual Report to Stockholders. All of such information is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data of the Company for each of its last five fiscal
years is set forth under "Selected Financial Data" in the Company's 1996 Annual
Report to Stockholders. Such information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The information required by this item is set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the Company's 1996 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are contained in the
Company's 1996 Annual Report to Stockholders on the pages indicated below and
are incorporated herein by reference.
FINANCIAL STATEMENTS: PAGE NO.
--------
Report of Independent Auditors 23
Consolidated Balance Sheets as of
December 31, 1995 and 1996 24
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 25
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1995 and 1996 26-27
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 28-29
Notes to Consolidated Financial Statements 30-36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain of the information respecting executive officers required by this
Item is set forth under the caption "Executive Officers of the Company" in Part
I. Other information respecting executive officers, as well as the required
information regarding directors, will be included in the Proxy Statement for
the Company's Annual meeting of Stockholders to be held on May 20, 1997 (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 provided, however, that
neither the Report of the Compensation Committee of the Board of Directors on
Executive Compensation nor the Performance Graph set forth therein shall be
incorporated by reference herein, in any of the Company's previous filings
under either the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, or in any of the Company's future filings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Proxy
Statement and is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
a) The following documents are filed as part of this report:
(1) The Index to Financial Statements is set forth on page 25 of this
report.
(2) Financial Statements Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves.
(3) Exhibits
(b) Report on Form 8-K:
The Company did not file a current report on Form 8-K during the last
quarter of fiscal 1996.
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HEALTHCARE COMPARE CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Additions
Balance at Charged to Adjustments Balance at
Beginning Costs and and End of
Description of Period Expenses Charge-offs Period
- --------------------------------- ---------- ---------- ------------ ----------
Year Ended December 31, 1996:
- ---------------------------------
Allowance for Doubtful Accounts $2,807,000 $(200,000) $( 34,000) $2,573,000
========== ========== ============ ==========
Accrued Restructuring Expenses $1,436,000 $69,000 $(364,000) $1,141,000
========== ========== ============ ==========
Year Ended December 31, 1995:
- ---------------------------------
Allowance for Doubtful Accounts $3,874,000 $(620,000) $(447,000) $2,807,000
========== ========== ============ ==========
Accrued Restructuring Expenses $2,570,000 $(100,000) $(1,034,000) $1,436,000
========== ========== ============ ==========
Year Ended December 31, 1994:
- ---------------------------------
Allowance for Doubtful Accounts $4,106,000 $505,000 $(737,000) $3,874,000
========== ========== ============ ==========
Accrued Restructuring Expenses $2,906,000 $700,000 $(1,036,000) $2,570,000
========== ========== ============ ==========
28
29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
HealthCare COMPARE Corp.
Downers Grove, IL 60515
We have audited the consolidated financial statements of HealthCare COMPARE
Corp. as of December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996 and have issued our report thereon, dated
February 17, 1997; such consolidated financial statements and report are
included in your 1996 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of HealthCare COMPARE Corp. listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based upon our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Chicago, IL
February 17, 1997
30
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.
HEALTHCARE COMPARE CORP.
By: /s/James C. Smith
James C. Smith, President
and Chief Executive Officer
Date: March 25, 1997
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 25, 1997:
SIGNATURE TITLE
------------------------- ---------------------------------------------
/s/Thomas J. Pritzker * Chairman of the Board
-------------------------
Thomas J. Pritzker
/s/James C. Smith President, Chief Executive Officer,
------------------------- Director (Principal Executive Officer)
James C. Smith
/s/Robert J. Becker, M.D. * Chairman Emeritus
-------------------------
Robert J. Becker, M.D.
/s/Joseph E. Whitters * Chief Financial Officer
------------------------- (Principal Financial and Accounting Officer)
Joseph E. Whitters
/s/Ronald H. Galowich * Secretary
------------------------- Director
Ronald H. Galowich
/s/Michael J. Boskin * Director
-------------------------
Michael J. Boskin
/s/Burton W. Kanter * Director
-------------------------
Burton W. Kanter
/s/David Simon * Director
-------------------------
David Simon
/s/Daniel Brunner * Executive Vice President, Government Affairs,
------------------------- Director
Daniel Brunner
/s/Robert S. Colman * Director
-------------------------
Robert S. Colman
/s/Harold S. Handelsman * Director
-------------------------
Harold S. Handelsman
/s/Don Logan * Director
-------------------------
Don Logan
* By: /s/ Joseph E. Whitters
Joseph E. Whitters, Attorney in Fact
29
31
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2.1. Omitted
3.1. Restated Certificate of Incorporation of the Company. {3.1} (1)
3.2. Amendment to Restated Certificate of Incorporation of the Company. {3.2} (9)
3.3. Restated Certificate of Designation of Preferences, Rights and Limitations. {3.2} (1)
3.4. Amended and Restated By-Laws of the Company. {3.3} (1)
3.5. Amendment, dated as of May 20, 1987, to Amended and Restated By-Laws of the Company {3.4} (2)
3.6. Amendment to Amended and Restated By-Laws of the Company.{3.5} (6)
3.7. Amendment to Amended and Restated By-Laws of the Company.{3.6} (6)
4. Specimen of Stock Certificate for Common Stock. {4} (2)
9. Omitted
9.1. Omitted
9.2. Omitted
10.1 to 10.10. Omitted
10.11. HealthCare COMPARE Corp. 1987 Stock Option Plan, as amended and restated. {4} (5)
10.12. Amendment No. 1 to HealthCare COMPARE Corp. Stock Option Plan, as amended and restated {10.12} (6)
10.13.-10.24 Omitted
10.25. Form of Consulting Physician Agreement, {10.20} (2)
10.26. Form of Consulting Specialist Agreement. {10.21} (2)
10.27-10.35. Omitted
30
32
Exhibit No. Description
----------- -----------
10.36. HealthCare COMPARE Corp. 1989 Employee Stock Purchase Plan. {10.36} (7)
10.37-10.45. Omitted
10.46. Employment Agreement dated as of May 23, 1991 by and between COMPARE and Joseph E. Whitters {10.46} (10)
10.47.-10.53 Omitted
10.54. Form of Indemnification Agreement entered dated June 19, 1989 between OUCH and executive officers and directors
of OUCH (Incorporated by reference to Exhibit B of definitive proxy materials filed by OUCH with the SEC on
April 7, 1989) {10.54} (11)
10.55-10.62. Omitted
10.63. Agreement dated as of May 26, 1989 between OUCH and Electronic Data Systems Corporation (Incorporated by reference
of Exhibit 10.17 of Annual Report on Form 10-K for the fiscal year ended December 31, 1989 filed by OUCH with
the SEC on March 16, 1990) {10.63} (11)
10.64.-10.66 Omitted
10.67. Employment Agreement dated as of April 3, 1991 by and between COMPARE and Edward L. Wristen. {10.67} (13)
10.68. Omitted
10.69. Second Restatement of the HealthCare COMPARE Corp. Retirement Savings Plan. {10.69} (14)
10.70. HealthCare COMPARE Corp. Director's Option Plan dated May 23, 1991. {10.70} (14)
10.71. HealthCare COMPARE Corp. Stock Option Plan (for employees of OUCH). {10.71} (14)
10.72. Employment Agreement dated as of July 1, 1993 by and between COMPARE and James C. Smith. {10.72} (15)
10.73. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.73} (15)
31
33
Exhibit No. Description
----------- -----------
10.74. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.74} (15)
10.75. Option Agreement dated as of July 1, 1993 by and between the Company and James C. Smith. {10.75} (15)
10.76. Employment Agreement dated as of July 1, 1993 by and between COMPARE and Daniel S. Brunner. {10.76} (15)
10.77.-10.79 Omitted
10.80. PPO Agreement dated January 1, 1996 between the Company and Government Employees Hospital Associations, Inc.
{10.80}
10.81. PPO Agreement dated October 1, 1990 between the Company and National Association of Letter Carriers. {10.81}
10.82 First Combined Amendment to the PPO Agreement, each dated October 1, 1990, between AFFORDABLE HealthCare Concept
and National Association of Letter Carriers Health Benefit Plan.
10.83 Second Amendment to the PPO Agreement, each dated October 1, 1990, as amended between AFFORDABLE HealthCare
Concept and National Association of Letter Carriers Health Benefit Plan.
10.84 Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp. and National Association
of Letter Carriers.
10.85 First Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp.
and National Association of Letter Carriers.
10.86 Second Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp.
and National Association of Letter Carriers.
10.87 Third Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp.
and National Association of Letter Carriers.
10.88 Fourth Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE Corp.
and National Association of Letter Carriers.
32
34
Exhibit No. Description
----------- -----------
10.89 Fifth Amendment to the Utilization Management Agreement dated January 1, 1989 between HealthCare COMPARE
Corp. and National Association of Letter Carriers.
10.90 Retainer Agreement dated January 1, 1994 between HealthCare COMPARE Corp. and Ronald H. Galowich.
10.91 Employment Agreement dated July 1, 1992 between HealthCare COMPARE Corp. and Lottie A. Kurcz.
10.92 Employment Agreement dated May 23, 1991 between HealthCare COMPARE Corp. and Mary Anne Carpenter.
10.93 Employment Agreement dated August 21, 1990 between HealthCare COMPARE Corp. and Patrick G. Dills.
10.94 HealthCare COMPARE Corp. 1995 Employee Stock Option Plan. (4.1) {18}
10.95 Employment Agreement dated January 1, 1997 between HealthCare COMPARE Corp. and James C. Smith.
10.96 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith.
10.97 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith.
10.98 Option Agreement dated as of January 1, 1997 by and between The Company and James C. Smith.
10.99 Agreement dated as of September 1, 1995 between HealthCare COMPARE Corp. and Electronic Data Systems.
11. Statement of computation of earnings per share.
13. 1996 Annual Report to Stockholders.
22. Subsidiaries of the Company.
23. Consent of Deloitte & Touche LLP
24. Powers of Attorney of certain officers and directors of the Company.
27. Financial data schedules of the Company.
33
35
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) Amendment No. 3 to Registration Statement, as filed with the Securities and Exchange Commission on May 29, 1987.
(4) Annual Report on Form 10-K for the fiscal year ended August 31, 1987, as filed with the Securities and Exchange
Commission on November 27, 1987.
(5) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on January 12, 1988.
(6) Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on July 12, 1988.
(7) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on January 18, 1989.
(8) Annual Report on Form 10-K for the year ended August 31, 1989, as filed with the Securities and Exchange
Commission on November 28, 1989.
(9) Annual Report on Form 10-K for the year ended December 31, 1990, as filed with the Securities and Exchange
Commission on March 30, 1991.
(10) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on November 1, 1991.
(11) Registration Statement of Form S-4, as filed with the Securities and Exchange Commission on January 27, 1992.
(12) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on March 4, 1992.
(13) Annual Report on Form 10-K for the year ended December 31, 1991 as filed with the Securities and Exchange
Commission on March 27, 1992.
(14) Annual Report on Form 10-K for the year ended December 31, 1992 as filed with the Securities and Exchange
Commission on March 26, 1993.
34
36
Exhibit No. Description
----------- -----------
(15) Annual Report on Form 10-K for the year ended December 31, 1993 as filed with the Securities and Exchange
Commission on March 25, 1994.
(16) Registration Statement on Form S-8, as filed with the Securities and Exchange Commission on December 27, 1994.
(17) Annual Report on Form 10-K for the year ended December 31, 1994 as filed with the Securities and Exchange
Commission on March 24, 1995.
(18) Registration Statement on Form S-8 as filed with the Securities and Exchange Commission on September 20, 1995.
(19) Annual Report on Form 10-K for the year ended December 31, 1995 as filed with the Securities and Exchange
Commission on March 27, 1996.
35