ITEM 1. BUSINESS.
CORE, INC. is a national provider of employee absence management
services to Fortune 500 companies and other self-insured employers, third-party
administrators and insurance carriers. CORE's services include Integrated
Disability Management (which consist of CORE's proprietary
WorkAbility-Registered Trademark- Absence Management program, disability
reinsurance management services, social security disability benefits advocacy,
analytic consulting services, onsite job profiling analysis and workplace risk
management services, and licensing), Peer Review Analysis (which consist of
specialty physician and behavioral health review services), and other services
including Medicare coordination of benefits, health care benefits utilization
review and case management services. CORE's services are designed to prevent
absence, promote early return to work, improve productivity, and manage
disabilities from "day one" through return to work or retirement, without
compromising the quality of health care services provided to patients.
CORE's Integrated Disability Management services include monitoring the
appropriateness of absences and durations under short and long-term disability
plans, family medical leave and similar plans, and workers' compensation
programs, in order to reduce unnecessary absenteeism and its related costs of
wage replacement, hiring and training replacement personnel and lost
productivity. These services are provided through CORE's WorkAbility program,
which uses a proprietary software program developed and supported through the
statistical analysis of disability utilization data collected over a 10-year
period. CORE's WorkAbility program provides an objective, medically based method
for recommending and monitoring employees' return-to-work status. The
WorkAbility program is designed to obtain and analyze relevant medical and
work-related information with the initial onset of the employee's absence and
thus assure that the employee, attending physician and employer all have
reasonable and consistent expectations as to the projected return-to-work date.
CORE's reinsurance and group disability risk management services include
providing marketing, underwriting advice, claims, actuarial and compliance
services to its insurance company clients and risk management expertise for
reinsurers in a reinsurance facility. CORE's social security disability benefits
advocacy program provides assistance to disabled employees with obtaining their
Social Security Disability Insurance benefits.
CORE's Peer Review Analysis program provides pre-certification,
concurrent, appellate, retrospective, medical policy, quality and forensic
independent specialty physician review services for use within utilization
management programs of CORE's insurance company and self-insured corporate
clients. CORE believes its more than 330 Board certified physician reviewers
comprise the largest independent physician review service in the country.
CORE's behavioral health review program provides comparable review service by
psychiatric specialists in specialties such as general, child and adolescent
and addiction psychiatry.
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
CORE's actual results could differ materially from those contemplated by such
statements. Such statements reflect management's current views, are based on
many assumptions and are subject to risks and uncertainties, including those
described in the subsection entitled "Risk Factors," below.
HISTORY OF CORE
CORE was incorporated in Massachusetts in April 1984 under the name
Peer Review Analysis, Inc. ("PRA") to provide physician-intensive utilization
management services to commercial insurance companies and self-insured
employers. PRA became a publicly held entity in December 1991 with the
completion of an initial public offering.
In March of 1995, PRA completed its merger (the "CMI/PRA Merger")
involving Core Management, Inc., a Delaware corporation ("CMI"). CMI was
incorporated in 1990 to acquire the health and disability cost management
services business (including the WorkAbility program) of Health Data Institute,
Inc., a subsidiary of Baxter International, Inc. In April 1993, CMI acquired the
mental health case management services business of Integrated Behavioral Health,
a California corporation ("IBH"). In July 1995, CORE changed its name from Peer
Review Analysis, Inc. to CORE, INC.
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In October 1995, CORE acquired all the capital stock of Cost Review
Services, Inc. ("CRS"), a regional workers' compensation bill audit firm. In
June 1997, CORE purchased certain of the assets of Social Security Disability
Consultants and Disability Services, Inc. (collectively, "SSDC"), a disability
management services firm which provides social security disability benefits
advocacy and Medicare coordination of benefits. In July 1997, CORE purchased the
assets and certain liabilities of Protocol Work Systems, Inc. ("PWS"), a
provider of job analysis, employee physical agility testing and other loss
prevention services to the workers' compensation market. In March 1998, a
wholly-owned subsidiary of CORE, TCM Services, Inc. ("TCM"), acquired
substantially all of the assets and certain liabilities of Transcend Case
Management, Inc. ("Transcend"), a regional provider of workers' compensation
case management services. In September 1998, CORE acquired all shares of stock
of Disability Reinsurance Management Services, Inc. ("DRMS"), a full-service
reinsurance intermediary manager.
In October 1998, CORE discontinued the operations of CRS. In December
1998, TCM transferred substantially all its assets and certain liabilities to
Transcend following the exercise by Transcend of its option to reacquire the
assets, as described in the Asset Purchase Agreement dated March 17, 1998. In
June 1999, CORE sold the assets of IBH to a non-affiliated party.
CORE's executive offices are located at 18881 Von Karman Avenue, Suite
1750, Irvine, California 92612, and its telephone number at that address is
(949) 442-2100.
"WorkAbility," "Peer Review Analysis," "PRA" and "CORE" are registered
trademarks of CORE.
INDUSTRY OVERVIEW
In recent years, large corporations have begun to recognize the
magnitude of the annual cost of occupational and non-occupational injuries and
illnesses, which according to one 1999 study represented 12.8% of total payroll
costs. These expenses present a significant challenge to corporate productivity.
CORE estimates that total U.S. costs due to injury and illness-related workplace
absence will reach $340 billion for the year 2000, double what they were in
the early 1990's.
According to industry sources, disability costs including workers'
compensation expenditures grew at an average annual rate of over 18% from 1990
through 1996, and CORE believes this growth is continuing. CORE estimates that
workers' compensation costs were approximately $80 billion in 1998. Despite the
general awareness of this high level of workers' compensation costs,
expenditures for group disability (including short-term disability and long-term
disability plans), sick pay and family leave represent a far larger share of
total expenditures estimated at 60% to 75% of total disability costs. Two
driving factors behind the increase in group disability and workers'
compensation expenditures are workplace and legislative changes. Work-related
changes that have contributed to rising benefits costs include the aging of the
active workforce, increased volatility in hiring and layoffs (which often
results in increased benefits utilization) and increased diagnoses of repetitive
stress-related injuries. Also contributing to rising disability benefit costs
and awareness are legislative changes such as the Family and Medical Leave Act
and the Americans with Disabilities Act, which mandate accommodation for family
circumstances and disabled workers, which both have a growing impact on
accommodation and lost time issues.
In response to these rising costs, a variety of insurance companies,
managed care organizations and self-insured employers have used various cost
reduction techniques, often borrowed from group health managed care, including
securing pricing concessions from providers, using case management tools, and
implementing "gatekeepers" as a means to control utilization. However, these
managed care initiatives focus almost entirely on medical costs generated after
a disability claim is received, not on the more significant productivity (lost
time) impacts of employee ill health. Furthermore, work absence duration, and
consequently disability payments, have traditionally been driven by the decision
of the treating physician. While workers' compensation cases are typically
attended by an occupational specialist, employees with non-occupational
disabilities tend to utilize their own primary care physician who have little or
no interaction with the employer and limited sensitivity to productivity (lost
time) issues.
As traditional managed care tools become standard industry-wide, they
are generating diminishing marginal savings for employers, who must find more
aggressive and sophisticated utilization review mechanisms to yield further
savings. In addition, the new-found awareness of the additional costs associated
with workplace absence has brought with it an increasing demand for cost saving
strategies that address both health care expenditures and the productivity
impact of an employee's ill health. Tight labor markets and global competition
have focused Corporate America on achieving real productivity gains. With the
importance of each job magnified, employers are actively looking for new tools
to help control
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workplace absence. Until recently, recognition and management of these
productivity costs have been impaired by their difficulty in measurement, the
fragmentation of responsibilities for disability programs within human
resources and risk management departments of most corporations and the
historical focus on group health managed care.
While a small group of companies is emerging that are applying managed
care principles to the workers' compensation industry, historically there have
been few, if any, companies focusing on the provision of managed care techniques
to the broader disabilities market. With the support of its analytic and
physician services, CORE's products provide employers with an integrated and
comprehensive approach to disability benefits management.
SERVICES AND PRODUCTS
CORE offers services and products designed to assist CORE's clients
control and monitor disability, workers' compensation and health care costs
without compromising the quality of care or services available to patients.
CORE's service lines include:
- Integrated Disability Management,
- Peer Review Analysis,
- Exiting/exited services, and
- Other service lines.
INTEGRATED DISABILITY MANAGEMENT
Integrated Disability Management includes the following products and services:
WorkAbility Absence Management Program
Disability Reinsurance Management Services
Social Security Advocacy
CORE Analytic
Protocol Work Systems
Licensing
WORKABILITY ABSENCE MANAGEMENT PROGRAM
CORE estimates that total direct and indirect expenditures for
medically-related workplace absence are 25% of the related to workers'
compensation payments. The cost of absenteeism includes wage replacement, the
costs of hiring and training replacement personnel and lost productivity.
CORE's WorkAbility Absence Management Program provides for the monitoring of
the appropriateness of absences and their duration under short and long term
disability plans, family medical leave and similar plans, and workers'
compensation programs. The program is focused on reducing unnecessary
absenteeism and the costs associated with such absences, thereby improving
workplace productivity.
The WorkAbility program is built on the foundation of a proprietary
software system developed by CORE and maintained through the statistical and
clinical analysis of disability utilization data. The WorkAbility program allows
CORE to work with employee's physicians to establish expected absence duration
using duration guidelines that are specific and objective. These guidelines are
packaged in a software module called WorkAbility On-Line Medical Protocols
(WOMP). WOMP is proprietary to CORE. The WorkAbility program, which contains
WOMP, was developed along six key absence management concepts:
DAY ONE INTERVENTION. Unlike retrospective disability review which is
triggered only after an extended employee absence or after significant
costs have been incurred, the WorkAbility program is designed to
facilitate absence management from the first day of the absence (or
sooner, in the case of planned absences such as elective surgery or
childbirth). This proactive approach allows return-to-work
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expectations to be set early with the doctor, the patient and the
workplace, and supports efforts to return patients to work on modified
hours or with modified duties.
PROPRIETARY TECHNOLOGY AND DATABASE. CORE began developing its
WorkAbility program in 1986. The WOMP protocols are regularly updated
using COREbase, a database of more than 650,000 disability and workers'
compensation records collected by CORE over a period of more than 10
years. This database-driven updating process allows CORE to field
absence duration guidelines that are based on actual return-to-work
experience. The database continues to grow as CORE adds more clients,
and as clients integrate across more lost time benefits.
CLINICAL COLLEGIALITY AND CREDIBILITY. The WorkAbility program is based
on conducting a clinically credible dialog with an employee's physician
to reach agreement on an appropriate return-to-work plan. The clinical
depth and complexity of the WOMP protocols support this activity by
providing a foundation of clinical credibility. Our approach is focused
on making this dialog a collegial interaction.
CONCURRENT REVIEW. In addition to the initial recommendation of an
appropriate return-to-work plan, the WorkAbility program includes
ongoing review of the progress of the case. The information from these
subsequent reviews add to the cumulative database driving the
development of the protocol system, thereby ensuring that the
guidelines serve both the initial review, as well as the sequential
reviews over time as an illness or injury progresses toward return to
work.
COMPLETE WORKFORCE COVERAGE. The WorkAbility program is designed to
cover all workplace absences, not only the longer term and more costly
absences. The WOMP protocols cover over 10,000 clinical endpoints for
medical conditions and surgical procedures. The breadth of the
protocols ensures consistent return-to-work planning, regardless of
whether the condition causing the absence is a result of workplace
injury covered by workers' compensation or an injury occurring outside
of the workplace covered by a disability plan.
FLEXIBILITY. The system is designed to allow CORE to customize the
product and services to meet client needs and culture. The guidelines
are based on a statistical distribution so that a client can choose how
to monitor and to manage durations. The system generates communications
that are all customized to the client's benefit plan. In addition,
depending on the technical capability of the client, other modalities
such as e-mail, intranet and internet can be used to disseminate
information on claim approvals and status.
The WorkAbility software system is used by customer service
representatives and registered nurse reviewers to assess each disability claim
in the early stages of an employee's absence. Under the WorkAbility program, the
employee contacts CORE and the employee's eligibility for the benefit is
assessed using information previously supplied by the employer and loaded onto
CORE's system. Once eligibility is determined, CORE's nurse reviewer contacts
the employee's physician or office staff (depending on the severity of the
case). The nurse reviewer enters information on the diagnosis and severity of
the condition into CORE's proprietary WorkAbility system. The return-to-work
plan is established by the nurse using the WorkAbility program's automated
clinical protocols. The protocols consider such factors as the employee's age
and general health, job requirements, symptoms and severity of the condition,
diagnosis of the attending physician, treatment plan, medical procedure(s)
performed, prognosis for recovery and comorbid factors in establishing a
recommended absence duration.
To assure consistency, reviews are guided by program standards based on
both statistical and clinical analysis and, in certain circumstances, are
referred to physicians for further review. If CORE and the attending physician
agree with respect to the anticipated absence duration, letters stating the
expected return-to-work date are sent to the employee and physician on the date
the review is completed. The employer is notified of the return-to-work date
electronically. If the employee's physician disagrees with the suggested
return-to-work plan (as occurs in less than 15% of the cases), the case is
referred to a WorkAbility physician advisor who will discuss the case with the
treating physician. In the event that they cannot reach agreement, the case is
referred to the employer for consultation to determine whether or not an
independent medical examination (IME) should be requested. IMEs are required in
fewer than 2% of the cases. If the employee's condition or medical treatment
changes during the absence or the employee is not ready to return to work on the
expected date, a request for an extension of the absence is reviewed on a
case-by-case basis using the WOMP duration guidelines with the additional
information provided by the attending physician and/or patient.
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In general, CORE's WorkAbility services are advisory only. The
attending physician and the patient remain responsible for determining the
work-absence period and all other aspects of the plan of treatment. Generally,
the employer or other payor is responsible for making all decisions with respect
to the payment or denial of benefits under the applicable benefits plan. Certain
clients, including Bell Atlantic Corporation, have delegated to CORE the
authority to decide whether an employee is eligible for benefits under the
client's plan.
In addition to direct absence management activities, the WorkAbility
program provides to clients reports that track utilization and cost trends and
return-to-work plan performance. In addition to the standard report package,
clients can obtain additional services, such as adding health care claims to
provide a more complete picture of the clinical factors and costs associated
with disability. Clients with integrated benefits often customize the reporting
packages to present their utilization separately by plan (e.g. short-term
disability, long term disability) as well as on a combined basis.
DISABILITY REINSURANCE MANAGEMENT SERVICES
DRMS, acquired by CORE in September 1998, is a reinsurance intermediary
providing turnkey disability reinsurance and management services for insurance
company clients marketing other forms of employee benefit products such as
medical, dental, and group life insurance. DRMS provides a comprehensive array
of services designed to increase its clients success at marketing disability
products. These services include strategic planning, sales and marketing,
product development, actuarial, underwriting, claims management and compliance
services. DRMS' customer-focused team uses proprietary systems to provide
creative solutions and day-to day decisions quicker and more efficiently than
its competitors.
As a reinsurance intermediary, DRMS does not assume insurance risk.
Reinsurance risk protection to DRMS' clients is provided through the Disability
Alliance for Reinsurance Treaties ("DART"). The lead reinsurer for DART assumes
the risk from DRMS clients and passes on portions of it to a group of
participating reinsurers. In addition to managing the reinsurance risk, DRMS
provides accounting and administrative services to DART.
During 1999, DRMS began providing additional long-term disability
services to CORE customers. Through DRMS, CORE also provides an insurance option
to CORE clients. Finally, DRMS' network of insurance contacts bring
opportunities for CORE to provide services to insurance carriers.
SOCIAL SECURITY ADVOCACY
CORE's social security disability benefits advocacy program includes
claim file reviews, auditing, designing and implementing Social Security
assistance programs, and representation and assistance with Social Security
claims and appeals. CORE's model is unique in that it integrates all aspects of
the Social Security process, producing a streamlined, efficient and effective
service.
CORE ANALYTIC
In addition to the services provided to WorkAbility clients, CORE
Analytic provides data analysis and consulting services directly to large
corporate clients. These services include in-depth customized information
concerning their disability and health care costs and utilization experience.
Health care costs, disability costs and workers' compensation costs are often
under separate departments in a large employer (human resources, benefits and
risk management), which has historically impaired corporations' ability to
recognize the magnitude of, and to manage, these costs. The basic objectives of
CORE's Analytic services are to help employers and insurers obtain better value
for their disability, workers' compensation and health care expenditures with a
company's specific goals in mind. CORE assists in identifying the best means to
reduce the total costs of these benefits or slow the rate of increase, enhance
the appropriateness and quality of care, predict future benefit costs and
increase the return on investment from managed care programs. CORE's Analytic
consulting services can coordinate and analyze information on a company-wide
basis and use the client's information and CORE's proprietary disability and
medical cost data analysis methodologies to simulate changes in a benefit plan's
structure and the resulting impacts on overall benefit program cost. For
example, CORE serves as a data partner to several Fortune 500 companies and
provides quarterly "CORE Impact Reports" on integrated claims experience of the
client covering disability, workers' compensation and group health benefits.
PROTOCOL WORK SYSTEMS
The JobSafe program of CORE's Protocol Work Systems division provides
on-site job profiling and functionality assessments in a program that compares
the physical agility of each worker with the actual demands of the job to create
a
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safer working environment. The JobSafe program is tailored to each client's
specific facility to help ensure compliance with the Americans with Disabilities
Act, Occupational Safety Health Administration regulations and quality control
requirements of ISO 9000. The program begins with an on-site tour of the
client's facility. The tour is followed by a meeting with supervisors,
interviews with employees, and the collection of measurement and weight
statistics. Job descriptions then are created, videotapes are produced with
descriptive commentary for each job, and finally, physical agility testing of
each employee is conducted. The process culminates with a compilation of
information for the client, along with instructions on how to operate the
program.
LICENSING
In addition to the key role the WOMP protocols plays within the
WorkAbility software system, the WOMP protocols have also been licensed by CORE
to third parties as a separate product. These WorkAbility protocols are updated
annually to, among other things, reflect recent advancements in medical
technology and procedures, and to update the recommended disability durations
using the collective experiential data collected by CORE through its services to
clients.
PEER REVIEW ANALYSIS
Peer Review Analysis includes the following products and services:
Physician Review Services
Behavioral Health Review
PHYSICIAN REVIEW SERVICES
CORE's independent specialty physician review program, known
commercially as Peer Review Analysis or PRA, provides pre-certification,
concurrent, appellate, retrospective, medical policy, quality and forensic
physician review services for use with existing utilization management
programs of clients, including insurance carriers that service the group
health, disability and workers' compensation markets, and other managed care
companies. CORE believes its more than 330 Board certified physician
reviewers comprise the largest independent physician review organization in
the country. CORE's consulting relationship with this large base of
physicians has positioned CORE to offer an independent external appeal review
service, which is mandated under several state laws and generally requires
specialty-matched reviews. CORE believes that appellate review is one of the
growing sectors of the otherwise mature health care utilization management
industry.
When a client's nurse reviewer determines that a case does not meet
the client's established criteria, the nurse reviewer will forward a referral to
CORE. The referral describes the principal diagnosis of the patient and the
reason for referral for physician review. In most instances the reason for
referral is based upon a question of medical necessity or therapeutic benefit of
a proposed treatment plan. CORE's independent physician reviews the case
information, which will have been previously entered into CORE's data processing
systems, and then telephones the attending physician to ascertain any additional
clinical data, the attending physician's rationale for the proposed treatment
plan or the proposed length of hospital stay. Based on discussions with the
attending physician, including, when appropriate, discussions of possible
alternative treatment plans, and using clinical judgment as well as criteria
based on national norms, CORE's physician makes a recommendation concerning the
appropriateness of the proposed or revised treatment plan.
CORE then notifies its client of its recommendation regarding the
medical necessity or appropriateness under the client's health care benefit plan
of the proposed treatment plan, hospitalization or length of stay. If the
proposed hospitalization is not certifiable as such under the plan, the payor
typically denies or reduces the payment of benefits for the proposed
hospitalization. The decision of the payor may be appealed by the patient or the
attending physician. In such event a second CORE independent physician of the
same specialty who was not involved in the original decision will review the
case on the merits of the clinical criteria or any additional information.
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Reviews under CORE's specialty physician review program are managed
from CORE's offices, and the majority of all review decisions are completed
within 24 hours of referral. In most instances, CORE's physician review services
are advisory in nature. Determinations as to the payment or denial of benefits
are typically made by the third party payor, and the patient and the attending
physician make decisions as to the patient's medical treatment.
CORE is certified by the American Accreditation HealthCare Commission
("AAHC/URAC") to perform various utilization review functions. AAHC/URAC is a
nationally recognized organization that has developed standards to encourage the
availability of effective, efficient and consistent utilization review of health
care services throughout the United States. One of AAHC/URAC's objectives is to
establish standards for the procedures used to process appeals of utilization
review determinations. Many of CORE's clients rely on CORE's specialty physician
and behavioral health review services to comply with AAHC/URAC's appellate
procedures.
BEHAVIORAL HEALTH REVIEW
CORE's behavioral health review program provides psychiatric review
services similar to CORE's specialty physician review services by psychiatrists
who are supported by a team of multi-specialty physicians. CORE's independent
psychiatrists include specialists in various psychiatric specialties such as
general psychiatry, child and adolescent psychiatry and addiction psychiatry.
CORE believes that its multi-specialty psychiatrists and CORE's emphasis on
intensive specialty review distinguish it from psychiatric review performed by
other utilization management firms and better addresses the more subjective
nature of many behavioral health reviews.
EXITING/EXITED SERVICES
Operations within the exiting/exited services line ceased in 1999. The line had
included the following products and services:
Regional workers' compensation field case management (CRS and TCM)
Regional workers' compensation bill audit (CRS)
Integrated Behavioral Health (IBH)
On June 21, 1999, CORE sold the assets of IBH, a provider of mental
health case management services, to a non-affiliated third party. This sale
completed our strategic decision to focus on building CORE's leadership position
in employee absence management services and to exit certain businesses in which
market leadership or sufficient profit margins did not appear to be attainable.
Both CRS and TCM were exited during 1998.
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OTHER SERVICE LINES
Other service lines includes the following products and services:
Utilization Review and Case Management
Medicare Coordination of Benefits
UTILIZATION REVIEW AND CASE MANAGEMENT
CORE provides medical and behavioral health utilization review and case
management services to Fortune 500 companies and other self-insured employers,
third-party administrators ("TPAs") and an insurance carrier. CORE's services
are designed to evaluate the medical necessity and appropriateness of health
care services prescribed for participants in health care benefits plans,
including hospital admissions, proposed length of hospital stay, use of
outpatient facilities and other treatment alternatives. In cases of high cost
diseases, conditions or catastrophic illnesses, CORE may also render case
management services of individual cases in order to assure that cost-effective
treatment alternatives are utilized. Clients may elect to contract for all of
the services offered under the programs or, in the alternative, may elect to
contract for only certain portions of services offered.
CORE provides its utilization review services and case management
services through a staff consisting primarily of registered nurses and
physicians. Clients which utilize CORE's utilization review programs advise
their participants of review requirements including the requirement to contact
CORE within a specified period of time. From these contacts, CORE's medical and
behavioral health review staff gathers the necessary personal and medical
information and enters this information into CORE's review system. Based on this
information and using CORE's review criteria, CORE conducts its review.
For cases requiring intensive case management, CORE assigns a nurse
case manager to the case. These nurse reviewers work with providers and insurers
to provide the appropriate health care benefits to patients facing catastrophic
or chronic illness.
CORE plans to continue to offer these services to support our existing
clients, especially those who have integrated their medical and disability case
management programs. Our ability to manage catastrophic cases with an absence
management perspective continues to provide value to CORE by building
relationships with providers and expanding our clinical credibility.
MEDICARE COORDINATION OF BENEFITS
Through its SSDC subsidiary, CORE provides services to help large
employers identify those employees or retirees who should be receiving Medicare
benefits. CORE then assists the client in establishing or documenting Medicare
primacy, identifying the health care plan payments and costs that can be offset
by Medicare, and implements an overpayment recovery program.
Because this product is geared toward the large employer client, one of
CORE's target markets, CORE will continue to market and provide these services.
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CLIENTS AND MARKETING
CORE has over 350 customers across the country, including numerous
Fortune 500 companies. Revenues from Fortune 500 companies accounted for
approximately 69% of total revenues in 1999. The following is a selected list of
CORE's clients which, CORE believes, is representative of its overall client
base:
- BELL ATLANTIC CORPORATION
- BMW
- BRISTOL-MYERS SQUIBB
- CHAMPION INTERNATIONAL CORPORATION
- CNA INSURANCE COMPANY
- COMMONWEALTH OF VIRGINIA
- DAIMLERCHRYSLER
- DANA CORPORATION
- GENERAL ELECTRIC CORPORATION
- GTE COMMUNICATIONS SYSTEM CORPORATION
- LIBERTY MUTUAL INSURANCE COMPANY, INC.
- MEDICAL MUTUAL OF OHIO
- MOTOROLA CORPORATION
- PCS HEALTH SYSTEMS, INC.
- RELIASTAR FINANCIAL CORP.
CORE markets its services primarily to national, direct accounts,
including self-insured employers, and through group health and disability
insurance carriers and third party administrators.
During 1999 and 1998, Bell Atlantic Corporation represented 19% and
21%, respectively, of total revenues. No other client represented more than 10%
of total revenues. During the years ended December 31, 1999 and 1998, CORE's
five largest clients represented 43% and 45%, respectively, of total revenue.
CORE typically enters into service agreements with its clients.
These agreements have automatically renewable successive terms of between one
and three years, but are generally terminable upon 60 to 90 days notice. They do
not generally provide for minimum payments and are usually non-exclusive.
Certain contracts include provisions that the fees payable to CORE can vary
based upon CORE's performance and the savings achieved by the client under the
contract.
For many of its programs, CORE charges its clients a "capitated fee"
(i.e., a fixed per employee per month ("PEPM") fee or a fixed per employee per
quarter fee). The amount of this fee varies depending on the number and type of
review programs selected by the client and the size of the client. For other
services, CORE charges fees on an hourly, per case, percentage of risk premium
(for turnkey and reinsurance management services) or percentage of cost recovery
(for social security advocacy and Medicare programs) basis rather than a
capitated basis. Notwithstanding the outcome of CORE's review, decisions as to
the payment or denial of benefits and eligibility or coverage under the benefit
plan are typically made by the administrator of the participant's health care
plan, not by CORE.
The patient and the attending physician always make decisions as to the
patient's medical treatment, not CORE. However, for several clients, CORE
accepts fiduciary responsibility for their disability benefit programs. CORE's
confidence in its clinical decisions permits it to assume these
responsibilities. CORE charges increased fees to those clients for which it
serves as a plan fiduciary.
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INFORMATION SYSTEMS
CORE's key products and services are supported by administrative
software that was developed and is maintained by in-house staff. Each of these
software programs incorporates e-mail and other external data exchange features
for client and remote user communications.
CORE's wide area network ("WAN") is designed to support the
organization's rapid growth. A scalable architecture has provided flexibility,
allowing for timely deployment of upgraded facilities in response to the
business' needs. Additionally, CORE provides for alternative backup WAN
capability that will assure continuous business operations during network
outages. Another ongoing initiative within information systems development is
the continual implementation of available information technology to
significantly enhance the productivity of all CORE's key products and services.
This includes, specifically, the integration of imaging, network fax computer
integrated telephony, and Internet technologies into the workflow. Additionally,
CORE's largest WorkAbility client has direct access to real-time information via
an Extranet. This "self service" model application provides for both the
initiation, as well as, the checking of status on claims on a near 24 hours by
seven days per week basis.
The WorkAbility-Plus system, CORE's multi-tier, client/server
technology based application, has provided for the ability to migrate rapidly
into expanding business opportunities. CORE continues to expand its industry
leading capabilities in regard to the family medical leave ("FML") business.
Totally integrated with other absence management capabilities, the FML module
provides robust capabilities tailored to Federal guidelines as set forth in the
Family and Medical Leave Act and other state sponsored legislation. This
architecture is designed to allow for client server operation and rapid feature
development. Additionally, CORE continues to evolve the system capabilities in
regard to the management and payment of long-term disability claims. Integration
with software developed by CORE's subsidiary, DRMS, was completed in 1999. The
WorkAbility-Plus application utilizes software architecture that provides
maximum flexibility in attaching industry-standard databases to support growth
and varying client needs. CORE believes that this architecture will support the
integration of additional absence management capabilities.
Funding for the initial development of CORE's WorkAbility software
(original version) was provided by Chrysler Motor Corporation ("Chrysler") in
exchange for a perpetual, non-exclusive, non-transferable license to use such
software. Ownership of the WorkAbility software has been retained by CORE, which
has the exclusive right to market the software to others.
GOVERNMENT REGULATION; HEALTH CARE REFORM
A number of states, including several of those in which CORE transacts
business, have extensive licensing and other requirements applicable to CORE's
business. Additionally, CORE's clients, including insurance companies, are
subject to regulations that indirectly affect CORE.
The laws of many states regulate the provision of health care
utilization management services. These regulations generally require the
provider of utilization management services to be reasonably accessible by
telephone to doctors and patients, to have adequately qualified personnel, to
provide physicians and patients a procedure to appeal determinations of
non-reimbursement, and to maintain the confidentiality of patient records. Other
states regulate the provision of claims administration services and preferred
provider organizations which may affect CORE. CORE believes it is in compliance
with all applicable regulations governing the provision of managed health care
services in the states where CORE is subject to such regulations, as currently
in force and as currently interpreted.
CORE's operations depend upon its continued good standing under
applicable laws and regulations. To date, the cost of compliance has not been
material. Such laws and regulations, however, are subject to amendment or new
interpretation by authorities in each jurisdiction. If amended regulations or
new interpretations of federal or state laws or regulations arise, CORE, may
have difficulty complying without significant expense or changes in operations.
CORE is unable to predict what additional government regulations, if any,
directly or indirectly affecting its business may be promulgated. Although CORE
believes that it is currently in compliance with applicable regulations in those
states in which it is subject to regulation, CORE's business could be adversely
affected by a revocation of or failure to obtain required licenses and
governmental approvals, a failure to comply with applicable regulations or
significant changes in regulations applicable to its clients.
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In addition to existing government health care regulation, there have
been numerous initiatives at the federal and state levels, as well as by
third-party payers, for comprehensive reforms affecting the payment for and
availability of health care services. CORE believes that such initiatives will
continue during the foreseeable future. CORE is unable to predict what, if any,
reform initiatives may be adopted, or what effect, if any, their adoption may
have on CORE.
COMPETITION
CORE presently competes in two different markets: (1) managed
disability and workers' compensation and (2) health care utilization management.
The managed disability and workers' compensation market is a developing
market, which is highly competitive. Competitors include both new companies
focused solely on the workers' compensation market and large established
disability insurance carriers who have traditionally dealt with disability from
an underwriting rather than an employee productivity perspective. Some of the
competitors are significantly larger and have greater financial and marketing
resources than CORE. CORE competes on the basis of quality and
cost-effectiveness in this market, and CORE believes that its proprietary
disability management protocols and database of clinically defined disability
episodes give it a significant competitive advantage.
The health care utilization management market is fragmented but is
consolidating rapidly as national health care reform and other forces drive
independent utilization review and cost management firms into niche markets or
to consolidation with large insurance carriers and provider groups. The health
care utilization management market is also highly competitive. Competitors
include large established insurance carriers and large managed care
organizations. Some of the competitors are significantly larger and have greater
financial and marketing resources than CORE. CORE competes on the basis of
quality, cost-effectiveness and service.
EMPLOYEES AND PHYSICIAN CONSULTANTS
In addition to its available staff of over 330 physician consultants
covering the major medical specialties, CORE has over 625 employees. Generally,
CORE's physician consultants are paid by CORE on a per hour or per case review
basis. Almost all of CORE's physicians are retained by CORE as independent
contractors and also maintain active practices. The majority of CORE's
physicians work between 5 and 20 hours per week for CORE. Compensation to CORE's
reviewers is not related to any cost savings achieved by CORE's clients.
RISK FACTORS
The factors listed below represent certain important factors CORE
believes could negatively affect its business. These factors are not intended to
represent a complete list of the general or specific risks that may affect CORE.
Investors should recognize that other risks may be significant, presently or in
the future, and the risks set forth below may affect CORE to a greater extent
than indicated.
RELIANCE ON WORKABILITY-REGISTERED TRADEMARK- PROGRAM. Part of CORE's
strategy is to focus its growth efforts on, and commit significant
management, marketing and other resources to expanding, its managed
disability services, and in particular its WorkAbility disability
management program. CORE's focus on its managed disability services may
not ultimately be profitable.
CORE's managed disability services depend on its WorkAbility computer
software. CORE's ability to continue to derive revenue from the
WorkAbility software depends, in part, on maintaining its proprietary
and confidential nature. CORE relies on a combination of database size,
trade secret, copyright, trademark and contractual protections to
establish and protect its proprietary rights to the WorkAbility
software. The precautions taken by CORE may not be adequate to prevent
misappropriation or re-creation of CORE's database. In addition, these
protections and precautions will not prevent development by independent
third parties of competitive technology or products, and some companies
have developed products which, to some extent, perform functions
similar to those performed by the WorkAbility software.
DEPENDENCE ON KEY CLIENTS. Contracts with several key clients account
for a substantial portion of CORE's
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revenues. The majority of CORE's contracts with its clients, including
those with its major clients, permit cancellation by the client upon 90
days' notice, while certain other of CORE's contracts permit immediate
cancellation under certain circumstances. The failure to renew, the
exercise of cancellation rights or a significant reduction in the
volume of services requested by CORE's clients, could have a material
adverse effect on CORE. See "Business-Clients and Marketing."
RISKS RELATED TO GROWTH STRATEGY. Part of CORE's strategy is to
continue its internal growth and, as strategic opportunities arise in
the managed disability services market, to pursue relationships with
other companies in related lines of business. As a result, CORE is
subject to certain growth-related risks, including the risks that it
will be unable to retain personnel or acquire other resources necessary
to service such growth adequately. Expenses arising from CORE's efforts
to increase its market penetration may have a negative impact on
operating results. In addition, suitable opportunities for strategic
relationships or acquisitions may not arise or, if they do arise, the
transactions contemplated thereby may not be completed. See
"Business-Strategy."
UNCERTAINTY OF FUTURE PROFITABILITY. Although profitable in 1999, 1997
and 1996, CORE recorded net losses of $3,760,000 for 1998. CORE may not
be able to maintain profitability on a quarterly or annual basis.
Moreover, the level of profitability, if any, cannot be accurately
predicted. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXPOSURE TO PROFESSIONAL LIABILITY. CORE, through its managed care
services, makes recommendations regarding benefit plan coverage and
work absence periods based upon judgments of the appropriateness of
proposed medical treatment plans and length of absence. In certain
instances CORE can determine or deny such coverage or absence periods.
Consequently, CORE has and may in the future become subject to claims
related to adverse medical consequences or for the costs of services
denied and claims, such as malpractice, arising from the errors or
omissions of health care professionals. A successful claim against CORE
could have a material adverse effect on CORE's financial position and
results of operations. Furthermore, claims against CORE, regardless of
their merit or eventual outcome, may involve substantial defense costs.
Procedures implemented by CORE to limit its liability may not be
effective and litigation to which CORE is or may become subject may
adversely affect its financial position or results of operations. CORE
maintains professional liability insurance and such other coverages as
CORE believes are reasonable in light of its experience to date.
However, such insurance may not be sufficient to protect CORE from
liability or may not continue to be available to CORE at reasonable
cost or at all.
GOVERNMENT REGULATION; HEALTH CARE REFORM. The health care industry is
subject to extensive federal and state regulation relating to
licensure, conduct of operations and prices for services. A number of
states, including several of those in which CORE transacts business,
have extensive licensing and other regulatory requirements applicable
to CORE's business, including utilization review and workers'
compensation. These requirements include compliance with federal and
state prohibitions on the offer or receipt of payment for patient
referral or other items or services. CORE's clients, including
insurance companies, are also subject to regulations which indirectly
affect CORE. Regulation in the health care field is constantly
evolving. CORE can not predict what additional government regulations,
if any, may directly or indirectly affect its business. Although CORE
believes it is in material compliance with applicable statutes,
licensing requirements and regulations in those states in which it is
subject to regulation, a revocation of or failure to obtain required
licenses and governmental approvals, a failure to comply with
applicable statutes or regulations or significant changes in
regulations applicable to its clients could adversely affect CORE's
business. See "Business-Government Regulation; Health Care Reform."
In addition to existing government health care regulation, there have
been numerous initiatives at the federal and state levels, as well as
by private third-party payers, for comprehensive reforms affecting the
payment for and availability of health care services. CORE believes
that such initiatives will continue during the foreseeable future. CORE
can not predict what, if any, reform initiatives may be adopted, or
what effect, if any, their adoption may have on CORE.
RELIANCE ON DATA PROCESSING CAPABILITIES. CORE's business in general,
and its WorkAbility disability management program in particular,
depends on the ability to continuously store, retrieve, process and
manage data. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors or
other computer problems could have a material adverse effect on CORE's
business.
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COMPETITION. The markets in which CORE operates are highly competitive.
In addition to other utilization management and disability management
companies, CORE competes with insurance companies, third-party
administrators and preferred provider organizations. Many of CORE's
competitors are larger and have greater financial and other resources
than CORE. Competitive factors in CORE's markets may have an adverse
effect on CORE. See "Business-Competition."
DEPENDENCE ON KEY PERSONNEL. CORE's success will depend to a
significant extent upon the skills of a number of executive officers
and key employees. In addition, CORE's success will depend to an extent
on its ability to recruit credentialed physicians for CORE's peer
review activities. The future loss of the services of one or more key
persons could adversely affect CORE.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices for CORE's
Common Stock and the securities of certain other companies in the
health care industry have historically been significantly volatile. The
trading price of the Common Stock could continue to significantly
fluctuate due to uncertainties regarding the businesses of CORE,
announcements or actions by competitors, developments involving CORE's
relationships with key clients, government regulation, fluctuations in
quarterly results and other factors. These broad market fluctuations,
as well as general economic conditions and the financial performance of
CORE, may adversely affect the market price of CORE Common Stock. See
"Price Range of Common Stock."