ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
RightCHOICE Managed Care, Inc., (RightCHOICE, RIT or the company) is
the largest provider of managed health care benefits in Missouri, in
terms of members. As of December 31, 1998, RightCHOICE served
approximately 2.1 million members, a large proportion of whom reside
in metropolitan St. Louis, Missouri. The company offers a
comprehensive array of managed health care products and services
that the company segregates into two distinct segments. Note 14
entitled "Segment information" of Part II, Item 8, Financial
Statements and Supplementary Data, contains financial information
relating to the company's segments. The company's underwritten
segment includes preferred provider organization (PPO), point-of-
service (POS), health maintenance organization (HMO), Medicare
supplement, and specialty managed care, as well as managed indemnity
benefit plans. The company's self-funded segment includes third-
party administrator (TPA), administrative services only (ASO), and
network rental services for self-insured organizations. The types
of benefits provided by the products and services are comprised of
hospital care, ambulatory and outpatient care, physician services,
pharmacy, dental care, eye care, mental health care and health
education. The company receives premium revenue in exchange for the
assumption of both medical and administrative risks for its PPO,
POS, HMO, Medicare supplement, specialty managed care and managed
indemnity benefit plans. With respect to the TPA, ASO, and network
rental services, the company generally assumes no responsibility for
medical costs and receives compensation for the provision of
administrative services. For the year ended December 31, 1998,
approximately 63 percent of the company's revenues were from sales
to insured employer groups (typically those with fewer than 100
employees); approximately 30 percent of the company's revenues were
from underwritten sales to individuals; and approximately 7 percent
of the company's revenues were from fees paid by self-funded
employer groups (typically those with more than 100 employees).
The company was organized to own and operate all of the managed health
care business of Blue Cross and Blue Shield of Missouri (BCBSMo).
BCBSMo is the sole holder of the company's Class B Common Stock.
The holders of Class A Common Stock have one vote per share, and the
holders of Class B Common Stock have 10 votes per share. BCBSMo and
the holders of the Class A Common Stock have control over
approximately 97.6 percent and 2.4 percent, respectively, of the
combined voting power of both classes of common stock. The company
is a licensee of the Blue Cross and Blue Shield Association (BCBSA),
the national trade association of Blue Cross and Blue Shield
licensees, each of which holds exclusive right to use the Blue Cross
and/or Blue Shield names, trademarks and service marks in specific
geographic areas. Each licensee, including the company and BCBSMo,
is an independent legal organization and is not responsible for the
obligations of other BCBSA licensees. Pursuant to licenses from
BCBSA, the company has the exclusive right to do business under the
name Alliance Blue Cross Blue Shield and to use the Blue Cross
and/or Blue Shield names, trademarks and service marks for all of
the managed health care products and services it offers in 85 of the
115 counties in Missouri making up its service area. This service
area has a population of approximately 3.9 million and includes four
of the five largest cities in Missouri and excludes Kansas City. The
company cannot, however, use those trademarks or service marks
outside its licensed service area and therefore currently does
business in unlicensed areas under the names Healthy Alliance Life
Insurance Company (HALIC) and RightCHOICE Insurance Company (RIC).
The company believes that the widespread and positive recognition of
the Blue Cross and Blue Shield names, trademarks and service marks
will continue to provide a significant marketing advantage in its
service area, particularly as health care reform and competitive
pressures narrow price differences among health care benefit plans.
Additionally, the company believes that the importance of the
trademarks and service marks may lead to cooperative affiliations of
Blue Cross and Blue Shield licensees and may alleviate the need for
unbranded products. If BCBSMo were to lose its right to use the
names and trademarks, the company might also be at risk to lose the
use of these names and trademarks. Note 13 entitled "Contingencies
- Status of Blue Cross and Blue Shield trademark licenses" of Part
II, Item 8, Financial Statements and Supplementary Data, contains
information describing litigation uncertainties with respect to the
company's continued use of these names, trademarks, and service
marks.
RightCHOICE Managed Care, Inc. is a Missouri corporation, incorporated
in April 1994, doing business under the name Alliance Blue Cross
Blue Shield. Unless the context otherwise requires, the terms
"RightCHOICE," "RIT" and "the company" refer to RightCHOICE Managed
Care, Inc. and its subsidiaries. The company's corporate offices
are located at 1831 Chestnut Street, St. Louis, Missouri, 63103-
2275; telephone number (314) 923-4444.
MANAGED CARE PRODUCTS AND SERVICES
The company's established provider networks, substantial membership
base and extensive administrative and processing capabilities enable
the company to offer health care products and services tailored to
meet the full spectrum of customer needs and preferences. The chart
below illustrates the cost/choice characteristics of various managed
care benefits offered by the company.
The chart included in the company's hardcopy 10-K displays the range
of the company's managed care products relative to the product's
flexibility and health care costs. Generally, products that are more
flexible in terms of access to providers are also more expensive in
terms of health care costs. This chart can be depicted by the following
table in which products are listed in order of flexibility (more
to less) and health care costs (higher to lower).
Product Type of Network
Traditional Managed Indemnity Open Network
Alliance Programs Broad Network PPO
AllianceChoice Non-Gatekeeper POS
BlueCHOICE POS Plus Gatekeeper POS
BlueCHOICE Gatekeeper HMO
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UNDERWRITTEN PRODUCTS
PPO PRODUCT GROUP
ALLIANCE PPO
The company's Alliance PPO is one of the largest PPOs in Missouri in
terms of members and offers services to approximately 171,600
members (including approximately 41,500 members on a self-funded
basis). The company believes that the Alliance PPO network also has
the most extensive geographic coverage in Missouri, servicing 85 of
the 115 counties in the state. In the St. Louis metropolitan area,
the Alliance PPO network includes approximately 97 percent of all
hospital beds.
The company's Alliance products incorporate many of the managed care
characteristics of the company's POS and HMO products, including
physician incentives, per diem hospital rates, large case
management, pre-admission certification, concurrent review of
hospital admissions and retrospective claims review. Alliance
benefit plans also include mental health and chemical dependency
programs, optional well-child care, and vision services. This broad
range of Alliance benefit plans enables the subscriber to choose the
mix of benefits that is suited to the subscriber's needs. Higher
deductibles, coinsurance and out-of-pocket maximums and other
financial incentives encourage subscribers to use network provider
services.
The company's Alliance network is one of the largest in Missouri in
terms of geographic scope and number of providers. The company has
Alliance contracts with approximately 7,800 physicians and 96
hospitals. A HealthNet Blue PPO product is offered to both groups
and individuals in southeast Missouri. There were approximately
5,000 members enrolled in the company's HealthNet Blue PPO products
as of December 31, 1998.
Through a network access and financial reinsurance agreement with Blue
Cross and Blue Shield of Kansas City (BCBSKC), RightCHOICE has
members residing in the Kansas City plan's license area that are
able to access BCBSKC's preferred networks and likewise, members of
a BCBSKC subsidiary residing in RightCHOICE's Alliance trade area
can access the Alliance preferred provider networks in that area.
As a result of the agreements, members of either plan who are
enrolled through state-wide employers or associations are able to
use the provider network of the Blue Cross and Blue Shield company
where they live. Through the financial reinsurance transaction,
RightCHOICE now shares underwriting risks and profits on the
affected members.
ILLINOIS PPO
The company offers group and individual PPO coverage through its
RightCHOICE Insurance Company subsidiary in southern Illinois. The
company utilizes the HealthLink provider network to offer these
products to the approximately one million residents in this region.
HealthLink, Inc. is the company's network rental subsidiary. These
PPO products accounted for approximately 7,000 members as of
December 31, 1998.
ALLIANCECHOICE POS
AllianceChoice POS is RightCHOICE's non-gatekeeper model POS with a
selective hospital network comprised of cost-effective providers in
the St. Louis metropolitan area. AllianceChoice provides
flexibility in selecting a provider at a premium level that is
generally higher than HMO but less than PPO premiums. The
AllianceChoice network serves approximately 130,100 members,
including both group and individual members, and includes
contractual arrangements in the St. Louis metropolitan area with
approximately 5,400 physicians and 17 hospitals.
BLUECARD PPO PROGRAM
In the first half of 1998, the company and BCBSMo achieved high member
service performance ratings that made the company eligible for the
home plan portion of the Blue Cross and Blue Shield AssociationOs
BlueCard PPO program. The BlueCard PPO program allows Blue Cross
and Blue Shield PPO and POS members access to Blue Cross and Blue
Shield PPO providers throughout the nation. As of December 31,
1998, there were approximately 136,000 Alliance and AllianceChoice
members enrolled in the program. Members who need to see a doctor
or check into a hospital while living in or traveling to another
part of the country do not pay more out of pocket for being out of
the service area's network and accessing Blue Cross or Blue Shield
PPO providers. Blue Cross and Blue Shield PPO networks are
available to 95 percent of the U.S. population.
HMO PRODUCT GROUP
BLUECHOICE HMO AND POS PRODUCTS
The company's subsidiary, HMO Missouri, Inc. (BlueCHOICE), offers a
federally qualified HMO with a service area that currently includes
61 counties in Missouri and two counties in Illinois. BlueCHOICE's
operations are concentrated in the St. Louis metropolitan area,
where it currently is the third largest HMO based upon number of
members. BlueCHOICE is an independent practice association (IPA)
model network, through which the company contracts directly with
local providers for plan members' health services. The BlueCHOICE
network, which supports both HMO and POS products, has contractual
arrangements with approximately 4,000 physicians and 60 hospitals.
The company offers its BlueCHOICE POS products in metropolitan St.
Louis, southwest Missouri, and the central region of Missouri
through the BlueCHOICE HMO network. BlueCHOICE POS is a gatekeeper
model POS plan that provides members with comprehensive coverage for
network health care services with modest copayment requirements.
When using their primary care physician as coordinator of care,
members incur the lowest out-of-pocket costs for preventive care,
referred specialist services, and inpatient services.
In some areas, the BlueCHOICE HMO and POS products are supported by
risk arrangements with certain provider groups. These products are
available in Springfield, Missouri, for both individuals and groups
through an arrangement with Primrose Health Care Services, a
physician-hospital organization jointly owned by physicians and Cox
Hospitals, one of the leading tertiary care centers in the area.
These products are also offered in the six-county area surrounding
Joplin, Missouri, through an arrangement with Freeman Health System
and in the Jefferson City, Missouri, area through an arrangement
with Jefferson City Medical Group.
HEALTHNET BLUE POS
HealthNet Blue POS is a non-gatekeeper HMO product offered to employee
groups within a seven-county region in southeast Missouri that
provides members with comprehensive coverage for network health care
services, including preventive care, in-office physician care, and
maternity coverage for a minimal office visit copay charge. At
December 31, 1998, there were approximately 16,400 group members
enrolled in the underwritten HealthNet Blue POS product.
BLUECHOICE SENIOR
BlueCHOICE Senior provides medical benefits at least as comprehensive
as Medicare benefits for persons eligible to receive Medicare (parts
A and B) at no or minimal cost to the member. Under this program,
the Health Care Financing Administration of the United States
Department of Health and Human Services (HCFA) pays a fixed premium
for coverage of each member at a rate approximating 95 percent of
the Medicare area average per capita cost, subject to annual review
and adjustment by HCFA. Effective January 1, 1999, the company
changed the BlueCHOICE Senior product name to Blue Horizons Medicare
HMO.
On January 1, 1999, the Balanced Budget Act of 1997 established a new
program called Medicare+Choice that replaced the current Medicare
risk program. Effective January 1, 1999, HCFA awarded BlueCHOICE,
which had been operating under the previous risk contract, a
Medicare+Choice contract.
BLUECHOICE MEDICAID (MC+)
The company discontinued its Medicaid product in the central Missouri
region in March 1998. This determination was made due to what the
company believes were unacceptable terms proposed by the State of
Missouri.
MEDICARE SUPPLEMENT PRODUCT GROUP
The company currently offers Medicare supplement coverage to
individuals eligible to enroll in Medicare for medical expenses in
excess of the coverage limitations of Medicare.
MANAGED INDEMNITY PRODUCT GROUP
With the exception of a short-term medical product, the company no
longer sells managed indemnity coverage, but continues to renew
coverage for those members who are enrolled in these managed
indemnity programs. The company's managed indemnity products
include fee-for-service indemnity benefits that include utilization
management and other cost control measures, but do not require use
of network providers. These products include certain cost-
containment features, such as the use of deductibles, coinsurance,
pre-admission certification, concurrent review, large case
management and retrospective review.
SPECIALTY PRODUCTS
The company offers various products to supplement its medical coverage
products. These products include prescription benefits, dental
care, eye care, mental health care and health care education.
Beginning January 1, 1999, Magellan Behavioral Health was selected
to handle utilization management for all of the company's
underwritten mental health and substance abuse programs. In March
1997, the company entered into a three-year agreement with a
pharmacy benefits manager, Express Scripts, Inc. The contract
covers approximately 453,200 members as of December 31, 1998, under
most of the company's plans. The company continues its efforts to
control rising prescription drug costs while offering members
freedom of choice. The company provides a three-tier copayment
program that encourages physicians and members to use the most cost-
effective drugs within a drug class. The program includes a higher
member copayment for brand name drugs that are included on the
company's formulary as compared to their generic equivalents. The
program also allows for the purchase of brand name drugs that are
not included on the company's formulary by requiring an even higher
(third-tier) member copayment.
SELF-FUNDED PRODUCTS
ADMINISTRATIVE AND NETWORK SERVICES
As of December 31, 1998, the company serviced self-funded health plans
covering approximately 1,658,200 members. These arrangements
include TPA, ASO and network rental contracts of varying complexity.
The company assists self-funded employers in designing benefit
packages, claims processing, adjudication and administration,
utilization management, generation of management reports and other
related matters. The company also enables employees with self-
funded health plans to access the company's aforementioned PPO and
HMO provider networks and to realize savings through the company's
favorable provider arrangements, while allowing employers the
ability to design certain health benefit plans in accordance with
their own requirements and objectives.
HEALTHLINK, INC.
HealthLink, Inc. (HealthLink), a regional managed health care
organization, serves a seven-state area in the Midwest, providing
health care network rental and utilization review services primarily
to unions, commercial insurers and corporations that fund their own
health plans. HealthLink is not an insurance company and does not
assume any underwriting risks. Its revenues are derived from
network rentals and administrative services fees. HealthLink had
835,600 PPO administrative services members and 450,000 workers'
compensation members as of December 31, 1998. In addition,
HealthLink owns HealthLink HMO, Inc. (HealthLink HMO), a Missouri
HMO with approximately 68,500 members as of December 31, 1998,
primarily located in the greater St. Louis area. HealthLink HMO is
a state-qualified health maintenance organization, licensed in
Missouri, Illinois and Arkansas, that provides health care services
principally for a predetermined, prepaid periodic fee to enrolled
subscriber groups and individuals of selected insurance companies.
THE EPOCH GROUP, L.C.
The EPOCH Group, L.C. (Epoch), a limited liability company, is a joint
venture between the company and BCBSKC which combined their third-
party administrator (TPA) businesses to streamline operations,
develop new geographic markets, and provide new administrative
services to new types of businesses, such as health care provider
organizations. Epoch is owned equally by the company and a
subsidiary of BCBSKC. Three TPA companies were combined to form
Epoch -- Healthy Benefit Alliance, Inc. and Pension Associates
Incorporated (both formerly owned by the company) and LaHood &
Associates (20 percent owned by the company and 80 percent owned by
BCBSKC prior to the transaction). Epoch serves approximately 260
businesses primarily in the Midwest as of December 31, 1998.
"SAFE HARBOR" STATEMENT
Except for the historical information contained herein, this Annual
Report contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These
statements typically, but not exclusively, are identified by the
inclusion of phrases such as "the company anticipates," "the company
believes," "the company expects," "the company plans," "the company
intends," and other phrases of similar meaning. Such forward-
looking statements involve known and unknown risks, uncertainties,
contingencies and other factors that may cause the company's actual
results of operations, financial condition or business performance
to be materially different from the results of operations, financial
condition or business performance expressed or implied by such
forward-looking statements. Factors that could cause or contribute
to such differences include, but are not limited to: the possibility
that court approval of the final settlement agreement, as amended,
entered into with the Missouri Attorney General and Department of
Insurance (DOI), referenced elsewhere herein, would not be obtained,
or if obtained could include conditions that are not acceptable to
the parties; the possibility that all remaining contingencies and
conditions to the parties' obligations to effect the proposed
settlement transaction would not be met or otherwise satisfied; the
Office of Personnel Management audit of BlueCHOICE; pending
litigation, including the subscriber class action litigation;
potential loss of "Blue Cross" and "Blue Shield" licenses by BCBSMo,
the company and its controlled affiliates; government regulation and
health care reform; Missouri Consolidated Health Care Plan issues;
market competition and consolidation; escalating health care costs;
dependence on sales to individuals; recontracting efforts and
potential nonrenewal of subscriber and provider agreements; voting
control by BCBSMo; changes in key management; variability of
operating results and stock price; Credit Agreement restrictions;
the Year 2000 issue; and other factors discussed under the caption
entitled "Factors that May Affect Future Results of Operations,
Financial Condition or Business" of Part I, Item 1 of this Annual
Report, the caption in Note 13, entitled "Contingencies" of Part II,
Item 8 of this Annual Report, and elsewhere in the company's SEC
reports.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS
The statements included in this Annual Report regarding future
financial performance and results and the other statements herein
that are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements may include, but are not limited to,
projections of earnings, revenues, income or loss, capital
expenditures, plans for future operations and financing needs,
matters relating to the proposed settlement agreements, as amended,
as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some
of which cannot be predicted or quantified. Future events and
actual results, performance and achievements could differ materially
from those set forth in, contemplated by or underlying the forward-
looking statements. Factors that could cause actual results to
differ materially (the Cautionary Statements) include, but are not
limited to, those set forth below. Should one or more of the risks
or uncertainties set forth below materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially
from those indicated. Undue reliance should not be placed on the
Cautionary Statements, which speak only as of the date of this
Annual Report. The company undertakes no obligation to release
publicly any revisions to the forward-looking statements after the
date of this Annual Report to reflect events or circumstances after
the date of this Annual Report or to reflect the occurrence of
unanticipated events.
CONTINGENCIES
Reference is made to the information detailed in Note 13 entitled,
"Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data, under the captions: OPM Audit, Subscriber
class action litigation, Agreement for settlement of certain
litigation matters and reorganization of the company, and Status of
Blue Cross and Blue Shield trademark licenses. The following
factors should be read in conjunction with such information, which
is incorporated by reference in its entirety in the following
sections.
OPM AUDIT
At this time, management is unable to determine the final dollar
amount that may be required to resolve the Office of Personnel
Management (OPM) audit findings. There can be no assurance that
the resolution of these findings will not have a material adverse
effect on the company and the market for its stock. The OPM audit
relates to the company's BlueCHOICE subsidiary and any additional
funding to BlueCHOICE as a result of audit findings associated with
the OPM audit, or otherwise, may require approval under the
company's Credit Agreement, and there can be no assurance that such
approvals could be obtained. See "Credit Agreement Restrictions"
below.
AGREEMENT FOR SETTLEMENT OF CERTAIN LITIGATION MATTERS AND
REORGANIZATION OF THE COMPANY
On September 20, 1998, the company and certain of its affiliates
entered into various settlement agreements with certain state
agencies, including the Missouri Attorney General and the DOI,
which, if consummated, would resolve the outstanding litigation and
regulatory disputes between the company and its affiliates and the
State of Missouri, and create an independent health care
foundation. On March 12, 1999, the company, BCBSMo, the Missouri
Attorney General and the DOI entered into an Amendment to
Settlement Agreement (the amendment) in response to the report of
the special master, described below. On March 15, 1999, Judge
Thomas J. Brown III of the Circuit Court of Cole County, Missouri
stated on the record during an informal status hearing that he has
continued concerns about the settlement agreements, as amended.
The settlement agreements, as amended, are described further in
Note 13, "Contingencies - Agreement for settlement of certain
litigation matters and reorganization of the company," of Part II,
Item 8, Financial Statements and Supplementary Data, and such
description is incorporated by reference in its entirety in this
section. On November 4, 1998, the Circuit Court of Cole County,
Missouri appointed a special master for the purpose of, among other
things, collecting and analyzing information related to the
proposed settlement. On February 10, 1999, the special master
recommended that the proposed settlement agreement "not be approved
in its present form" and recommended that the Circuit Court
"withhold a ruling on the settlement agreement to give the parties
and the amici curiae consumer groups an opportunity to meet and
confer, and engage in a good faith effort to address" concerns that
were noted by the special master in his report. The parties and
the amici curiae conferred about the concerns noted by the special
master in his report and entered into the amendment as a result of
such discussions. There can be no assurance that the transactions
contemplated by the settlement agreements, as amended, will receive
the necessary court approval as an acceptable alternative to
dissolution of BCBSMo, that all conditions and contingencies
included in the settlement agreements, as amended, will be
satisfied, or that the transactions set forth in the settlement
agreements, as amended, will be effected. The failure to
consummate the transactions contemplated by the settlement
agreements, as amended, could have a material adverse effect on the
company and the market for its stock.
The transactions contemplated by the proposed settlement agreements,
as amended, described elsewhere herein include the resolution and
dismissal of all of the current litigation with the DOI and the
Missouri Attorney General described elsewhere herein. If BCBSMo,
the company, the DOI, and the Missouri Attorney General do not
resolve these matters as provided in the settlement agreements, as
amended, or if, in the alternative, BCBSMo or the company does not
prevail in all of these matters, it is possible that BCBSMo could
be dissolved, the license of BCBSMo and the company to use the Blue
Cross and Blue Shield trade names and marks could be terminated, an
event of default could occur under the company's Credit Agreement,
BCBSMo could be required to dispose of some or all of the company's
shares of Class B Common Stock at times and in quantities that
could be detrimental to the market for the company's stock, and
other actions could be taken by BCBSMo, the Missouri Attorney
General, the DOI, the BCBSA or others, all of which could have a
material adverse impact on the company and the market for its
stock.
SUBSCRIBER CLASS ACTION LITIGATION
On March 15, 1996, a class action suit was filed against the company,
BCBSMo, HealthLink, and certain officers of the company. On
November 4, 1998, the St. Louis Circuit Court issued its judgment
and order granting the motion of the defendants to dismiss the
action for lack of standing and entering judgment in favor of the
defendants. The plaintiffs' counsel appealed the St. Louis Circuit
Court's order. The obligations of the parties to consummate the
transactions contemplated by the settlement agreements, as amended,
described above under "Agreement for settlement of certain
litigation matters and reorganization of the company" are
conditioned upon, among other things, the satisfactory final
resolution of this litigation.
STATUS OF BLUE CROSS AND BLUE SHIELD TRADEMARK LICENSES
If BCBSMo's and the company's litigation with the DOI and the Missouri
Attorney General is not resolved in a manner that is in the best
interests of the BCBSA, the marks and the other licensees of the
BCBSA, then the company's licenses to use such names and marks may
be terminated. In addition, the licenses may be terminated if
BCBSMo, the company, or certain subsidiaries of the company are
unable to achieve certain financial benchmarks as required by the
BCBSA. The loss of such licenses and the obligation of the company
to pay a $25 per enrollee termination fee and provide notice of
termination to enrollees and the resultant event of default under
the company's Credit Agreement would have a material adverse effect
on the company and the market for its stock.
CREDIT AGREEMENT RESTRICTIONS
The company's revolving Credit Agreement with its existing lenders
contains certain restrictions on the company and its subsidiaries,
including requirements as to the maintenance of net worth and
certain financial ratios, restrictions on payment of cash dividends
or purchases of stock, restrictions on acquisitions, dispositions
and mergers, restrictions on additional indebtedness and liens,
limitations on indebtedness of the company's subsidiaries,
maintenance of the licenses to use Blue Cross and Blue Shield names
and marks and certain other matters. There can be no assurance that
the company will be able to achieve and maintain compliance with the
prescribed financial ratio tests or other requirements of the
revolving Credit Agreement. As described under the caption in Note
13 entitled "Contingencies - Status of Blue Cross and Blue Shield
Trademark Licenses" of Part II, Item 8, Financial Statements and
Supplementary Data, the loss of the licenses would result in an
event of default under the Credit Agreement.
The company amended its Credit Agreement in the fourth quarter of 1997.
The failure to obtain any waivers or similar amendments that might
be needed in the future to remain in compliance with such
requirements would, among other things, reduce the company's ability
to respond to adverse industry conditions and could have a material
adverse effect on the company's operations, financial condition or
business.
MCHCP ISSUES
The Missouri Consolidated Health Care Plan (MCHCP), which is a
Missouri public agency that purchases health care coverage for
employees of the State of Missouri and of selected public entities
that have been admitted into the MCHCP, is currently the largest
customer group served by BlueCHOICE, a subsidiary of the company.
In 1995, the company, after bidding on certain Requests for
Proposal from MCHCP, was awarded a contract to furnish various
managed care products to employees of the State of Missouri and to
public entities. The contract was for an initial one-year term
with four one-year renewal terms. In a lawsuit that the company
filed against MCHCP on August 28, 1997, the company contended,
among other things, that under the language of the applicable
contract, MCHCP had express and implied duties to negotiate the
amount of any rate increase that might become effective for each
succeeding one-year renewal term. It was the company's position
that if no agreements to the negotiated rates could be reached,
MCHCP's sole remedy was to request bids from other insurers. The
Circuit Court of Cole County, Missouri, on March 19, 1998, ruled in
favor of MCHCP with respect to such claim and certain other claims.
The company determined not to appeal the decisions of March 19, and
on June 10, 1998, the company and MCHCP agreed to mutually dismiss
the lawsuits. The company will, therefore, be held contractually
bound to serve the MCHCP members if the contract is extended at the
option of the MCHCP through the year 2000 at the rate contracted
for in 1995, with annual rate increases, if any, which are far less
than necessary to permit the company to recover its costs in
serving those members.
In the third quarter of 1997, the company took a pre-tax charge of
$29.5 million, which was based upon actuarial estimates, including
projected limited rate increases, and projected enrollment and
medical cost trends accounted for through the year 2000 in
accordance with generally accepted accounting principles.
Management of the company reviews the adequacy of this reserve on
an ongoing basis. If the actual number of the company's members
through MCHCP grows at a rate in excess of the rate used in the
company's actuarial estimates (whether due to the increase
generally in MCHCP members, decrease in the number of MCHCP
contractors or otherwise), or if the projected limited rate
increases and medical cost trends should differ materially from
those assumed in the company's actuarial estimates, then the amount
of the reserve recorded to date could be insufficient to cover all
future losses that may be associated with the MCHCP contract, and
such losses could have a material adverse effect on the company and
the market for its stock.
In addition, the company's revolving Credit Agreement (described
above) provides that the company's subsidiaries, including
BlueCHOICE, may not issue surplus notes to the company in an
aggregate principal amount in excess of $40 million. As the
aggregate principal amount of surplus notes issued by such
subsidiaries to the company currently approximates $40 million, any
additional funding required by any subsidiaries of the company,
including BlueCHOICE, as a result of additional losses or reserves
associated with the MCHCP contract, or otherwise, must, absent
approval of the lenders under the Credit Agreement, be funded from
sources other than surplus notes. No assurances can be given that
such approval would be granted or that additional sources of
funding could be obtained. See "Credit Agreement Restrictions"
above.
GOVERNMENT REGULATIONS AND HEALTH CARE REFORM
The company operates its managed health care business principally
through wholly-owned subsidiaries whose business is subject to
extensive federal, state and local laws and regulations. There can
be no assurance that the company will be able to obtain or maintain
required governmental approvals or licenses or that any current or
proposed federal and state legislation or other regulatory reform
such as President Clinton's Patient's Bill of Rights, the Balanced
Budget Act of 1997, the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Missouri House Bill 335 (HB335),
and mandatory benefits (e.g. mandatory maternity benefits), that
have all increased the regulatory requirements imposed on the
company and its subsidiaries, will not have a material adverse
effect on the company's business or results of operations in the
future.
COMPETITION AND CONSOLIDATION
The health care industry is highly competitive. The company has
numerous competitors in its PPO, POS and HMO operations, many of
which have substantially greater financial and other resources than
the company. Because the company's existing business operations
(excluding its HealthLink subsidiary) are primarily confined to
markets within or contiguous to the state of Missouri, the company
currently is unable to subsidize losses in these markets with
profits from other markets. The company believes that certain
larger, national competitors are able to subsidize losses in the
Missouri market with profits from other markets in which they
operate and may pursue such a strategy in the company's markets in
an effort to increase their market share. Health care providers are
consolidating into larger health care delivery enterprises and their
increased bargaining power may lead to a reduction in the gross
margins of the company's products and services. The company also
faces competition in its markets from a trend among some health care
providers to combine and form their own networks in order to
contract directly with employer groups and other prospective
customers for the delivery of health care services.
ESCALATING HEALTH CARE COSTS
The company's profitability depends in large part on predicting and
effectively managing medical costs under its managed care plans. A
variety of external factors affecting the delivery and cost of
health care, including increased costs and utilization of high-
technology diagnostic testing and treatments, the increasing cost
and utilization of prescription medications, the rising costs of
malpractice insurance, efforts in the medical community to avoid
malpractice claims, higher operating costs of hospitals and
physicians, the aging of the population and other demographic
characteristics, changes in federal and state health care
regulations, and major epidemics may adversely affect the company's
ability to predict and control health care costs and claims. Other
relevant factors affecting the company's ability to control health
care costs include higher outpatient and drug utilization, medical
and drug cost trends, and growth of business in regions with less
cost-efficient networks.
DEPENDENCE ON SALES TO INDIVIDUALS
Sales of the company's health care benefit products to individuals
comprise a substantial portion of the company's business. The
medical loss ratio attributable to some components of the company's
individual business is significantly lower than that of the
company's insured group business. As a result, individual business
accounts for a proportionately greater percent of the company's
operating income. The company's overall margins would be adversely
impacted by a reduction in the relative percent of its business
represented by certain individual products or by an increase in the
medical loss ratio for individuals enrolled in those products. The
company believes that the success of the individual business is more
dependent than that of its group business on the management of
health care costs through product design, pricing decisions and the
application of appropriate underwriting standards. There can be no
assurance that the profitability of this business will be sustained
or that the company will not experience unanticipated increases in
claims.
POTENTIAL NONRENEWAL OF SUBSCRIBER AND PROVIDER AGREEMENTS
The company's profitability is dependent upon its ability to obtain and
maintain contracts with employee groups and individual consumers
that generally are renewable annually. The company's profitability
is also dependent, in large part, on its ability to contract on
favorable terms with hospitals, physicians and other health care
providers. There can be no assurance that the employee groups,
individual consumers, subscribers or providers will renew their
contracts or enter into new contracts with the company or, in the
case of provider contracts, will not seek terms that are less
profitable to the company in connection with any such renewal.
CONTROL BY BCBSMO
BCBSMo has voting control on all stockholder actions, including the
sale or merger of the company, a sale of substantially all of its
assets and the election of all of the company's directors. BCBSMo
may have interests with respect to its ownership of the company that
diverge from those of the company's public shareholders. There can
be no assurance that the company will not be adversely impacted by
the control that BCBSMo has with respect to matters affecting the
company.
DEPENDENCE ON KEY MANAGEMENT
The company depends to a significant extent on key management members.
There can be no assurance that the loss of current key management
would not result in a material adverse effect on the company's
results of operations, financial condition or business.
VARIABILITY OF OPERATING RESULTS AND STOCK PRICE
The company's results of operations could be adversely affected by the
timing of new product and service introductions, competitive pricing
pressures, contract renegotiations with customers and providers,
fluctuations in the medical loss ratio (due to changes in
utilization, timing of submission of claims presented for payment in
the period and the unpredictability of unusually large claims),
increases in commission expense and general and administrative
expenses, changes in interest rates, acquisitions, governmental and
regulatory actions, overall market conditions, and other factors.
The company's stock price may experience significant price and
volume fluctuations in response to these and other internal and
external factors that cause variations in its results of operations
and in the volatility of the stock markets generally.
YEAR 2000 ISSUE
Reference is made to the information included under the caption
"Outlook - Year 2000 issue," of Part II, Item 7, Management's
Discussion and Analysis, which information is incorporated by
reference in its entirety in this section. There can be no
assurance that the company or any third party upon which the
company depends will be able to achieve Year 2000 readiness or will
have sufficient contingency plans, which could have a material
adverse effect on the company and the market for its stock.
ADDITIONAL FACTORS
Additional risks and uncertainties that may affect future results of
operations, financial condition or business of the company include,
but are not limited to: demand for and market acceptance of the
company's products and services; the effect of economic and industry
conditions on prices for the company's products and services and its
cost structure; the ability to develop and deliver new products and
services and adapt existing products and services to meet customer
needs and expectations; the ability to keep pace with technological
change, including developing and implementing technological advances
timely and cost effectively in order to lower its cost structure, to
provide better service and remain competitive; adverse publicity, or
negative reports by brokerage firms, industry and financial analysts
regarding the company, its parent or BCBSA or their products or
services that may have the effect of reducing the reputation,
goodwill or customer demand for, or confidence in, the company's
products or services; the ability to attract and retain capital for
growth and operations on competitive terms; the financial and
operational impact that evolving theories of recovery, including
punitive damage theories, related to coverage reimbursement
decisions for various treatments, may have on the managed care
industry generally, or the company in particular; and changes in
accounting policies and practices.
STRATEGIES
The company's 1999 plans involve an operating strategy intended to
improve the company's financial performance by (i) managing the
consolidated medical trend, including pharmacy, (ii) achieving and
sustaining superior levels of service, (iii) maintaining enrollment
while adjusting prices to attain profit targets, (iv) reducing core
overhead expenses, and (v) strengthening the public appreciation for
the Blue Cross and Blue Shield names and trademarks. In addition,
on an ongoing basis, the company plans to continue to evaluate and
consider potential combinations with other health care benefit
plans.
SALES AND MARKETING STRATEGY
The company's strategy includes retaining current underwritten member
levels through target marketing efforts. The company's marketing
operations vary depending upon the segment to which sales efforts
are directed; individuals (i.e. direct pay), small employer groups
(which the company defines as groups from 2 to 99 employees) and
large employer groups (which the company defines as groups of 100
employees or more). These efforts include the creation of a small
group marketing unit to improve the company's ability to support
sales in an efficient and timely manner. The company's independent
broker networks and direct sales staff market the full range of the
company's managed care products and services to new customers, and
manage existing accounts to ensure client satisfaction and
retention. Independent brokers are compensated pursuant to
commission arrangements that vary depending on the particular
company products and services sold.
Marketing efforts are supported by market research conducted internally
as well as public relations efforts and advertising programs that
utilize telemarketing, radio, television, direct mail and other
media.
MEDICAL MANAGEMENT
In general, the company controls medical costs by increasing financial
incentives to members to use network providers and partnering with
providers to ensure the cost-efficient delivery of quality health
care. The company believes that the development of common economic
incentives with certain hospitals, physician groups and other
selected health care providers will be a key element in gaining a
competitive advantage and future growth. The company continues to
pursue arrangements with providers that are intended to develop a
cooperative relationship through shared risk, financial incentives
and joint input into decision-making processes in order to manage
the medical and administrative costs of health care delivery more
efficiently.
The company recognizes the physician's expertise in managing patient
care and wants to ensure that physicians maintain autonomy in the
practice of medicine by offering physician groups incentives to
lower medical costs while achieving high levels of patient
satisfaction and quality care. The company's philosophy is to
manage provider networks rather than to manage members. The
company's BlueCHOICE HMO Physician Group Partners Program (PGPP)
provides incentives to primary care physicians to improve quality
and patient satisfaction while reducing costs and providing
physician-participants with an appealing incentive package.
Currently, approximately 44 percent of the BlueCHOICE Commercial
panel of primary care physicians in metropolitan St. Louis are
enrolled in the program.
GENERAL AND ADMINISTRATIVE COST REDUCTIONS
Throughout the past several years, the company has made significant
investments in technologies designed to re-engineer many customer
service and claims processes that are expected to result in
significant savings in administrative costs. See "Technology and
Information Systems" that follows for additional detail. The
company plans to continue to pursue initiatives to streamline
operations and reduce general and administrative expenses. In
addition, the company's management continually strives to find ways
to reduce its costs. In 1997, the company completed the relocation
of its St. Louis-based claims, customer service, billing and
provider services functions to the company's Springfield, Missouri,
facility and a new facility in Cape Girardeau, Missouri.
Approximately 200 jobs were relocated to Cape Girardeau with an
additional 100 relocated to Springfield. The move was expected to
result in annual salary and benefit cost savings of $3.0 million in
1998. The company incurred total charges to earnings of $7.8
million during 1996 and 1997 for costs associated with the
relocation. At the end of 1998, the company announced a strategic
realignment of business operations, including a reduction of
approximately 135 positions, or approximately 7.5 percent of the
company's work force. Half of this reduction was completed by the
end of 1998, with the remainder of the positions scheduled to be
eliminated by June 1999, primarily through attrition. Other
elements of the realignment plan include reductions in the use of
outside consultants, software costs, travel, entertainment and other
expenses, and changes in employee health care benefits. The company
took a $0.9 million non-recurring restructuring charge in the fourth
quarter of 1998 related to this strategic realignment plan.
COMPETITION
The managed care industry is highly competitive, both nationally and in
the company's market area. Participants compete for members
primarily on the basis of price (considering premium rates,
copayments, coinsurance and deductibles), scope and design of
benefits, access to providers and reputation of the plan sponsor and
participants. The company also competes with other managed care
organizations for contracts with hospitals, independent physicians,
physician groups and other providers.
In the metropolitan areas of St. Louis and Kansas City and other
regions in Missouri, the managed care market is highly competitive,
with a number of established competitors offering a variety of
benefit plans. The penetration of managed health care is
substantially less in other regions of Missouri where the company
competes more with traditional indemnity plans and smaller networks.
The company's major competitors include: commercial insurance
carriers, other HMOs, PPOs, POSs, TPAs, utilization review
companies, and others, many of which are operated as part of a
regional or national network. Many competitors that have regional
or national networks have broader geographic coverage, larger total
memberships, and in many instances have greater financial resources
than the company. The company also faces competition in its markets
from a trend among some health care providers to combine and form
their own networks in order to contract directly with employer
groups and other prospective customers for the delivery of health
care services.
The company expects to increase premium rates on a per member per month
basis by approximately 9 percent to 10 percent during 1999. The
company believes that these price increases will be accepted by the
market as indicated by the company's January 1999 underwritten
enrollment consisting of 468,800 members, compared to December 1998
underwritten enrollment of 464,700. Because approximately one-third
of the company's underwritten business historically renews during
the first month of each year, the company believes that the January
results are an early indication that the company's strategy of
maintaining membership at increased premium levels is working.
TECHNOLOGY AND INFORMATION SYSTEMS
Document imaging technology and re-engineering efforts are improving
the efficiency with which the company handles the massive volume of
claims it receives and processes each day. More than 71 percent of
all claims received by the company are currently electronic
transactions that are processed by the automated systems, requiring
little or no manual intervention.
The company believes that its management information systems represent
a key component of the company's medical and administrative cost
reduction operating strategy by providing the company with extensive
detailed information regarding customer and provider utilization.
These systems also facilitate quality service to members and
providers in connection with the company's claims and customer
service functions. In 1995, the company embarked on a multi-year
information and operations strategy (IOS) project that is designed
to further improve how the company delivers managed care to members.
See "Outlook - Information and operations strategy" of Part II, Item
7, Management's Discussion and Analysis, for more information on the
IOS project.
Currently, the primary business functions of the company are supported
by an integrated transaction processing system. This interactive
system supports the majority of the company's core processing
functions (claims processing, customer services, enrollment, member
billing and claim disbursements) through a set of integrated
databases. The company believes that this integrated approach helps
to assure product flexibility across a broad range of managed care
products and provides an integrated, consistent source of claim and
subscriber information. As IOS brings RightCHOICE new managed care
capabilities, it will replace the company's core processing systems,
and the company believes that IOS will generate savings in both
medical and administrative expenses.
The company's data warehouse initiative allows the company to turn
information about providers, members, and claims into a solid
foundation upon which to make strategic business decisions. This
initiative underscores the company's commitment to putting
information directly in the hands of the people who manage the
business. Company employees now have access to many levels of
detailed data focusing on medical expenses, revenues and membership.
In January 1996, the company began converting its computer systems to
be Year 2000 compliant - see "Outlook - Year 2000 issue" of Part II,
Item 7, Management's Discussion and Analysis, for more information
related to the company's Year 2000 compliance efforts.
REGULATION
Government regulation of the products and services offered by the
company varies from jurisdiction to jurisdiction and is subject to
change. The company and its subsidiaries are primarily subject to
the insurance laws and regulations of the States of Missouri and
Illinois, the insurance laws and regulations of the other
jurisdictions in which the company and its subsidiaries are licensed
or authorized to do business and certain federal laws and
regulations. These insurance laws and regulations generally give
state and federal regulatory authorities broad supervisory,
regulatory and administrative powers over insurance companies and
insurance holding companies with respect to most aspects of their
insurance businesses. This regulation is intended primarily for the
benefit of the policyholders of the insurance companies. The
company is in litigation relating to its compliance with various
federal and state regulations - see Note 13 entitled "Contingencies"
of Part II, Item 8, Financial Statements and Supplementary Data.
INSURANCE HOLDING COMPANY REGULATION
The company is subject to regulation as a member of an insurance
holding company. Missouri and Illinois insurance holding company
laws and regulations generally require members of insurance holding
companies to file with the respective Departments of Insurance
certain reports describing capital structure, ownership, financial
condition, certain intercompany transactions and general business
operations. Missouri insurance holding company laws and regulations
require prior regulatory approval or, in certain circumstances,
prior notice of, certain material intercompany transfers of assets
as well as certain transactions between insurance companies, their
parent holding companies and affiliates.
INSURANCE COMPANY REGULATION
The operations of the company's subsidiaries, HALIC, BlueCHOICE,
HealthLink HMO, Inc. (HealthLink HMO), and RIC, are subject to
regulation and supervision by regulatory authorities of the various
jurisdictions in which they are licensed to conduct business.
Regulatory authorities exercise extensive supervisory power over
insurance companies and health maintenance organizations in regard
to licensing; the amount of reserves that must be maintained; the
approval of forms and insurance policies used; the nature of, and
limitation on, an insurance company's investments; periodic
examination of the operations of insurance companies; the form and
content of annual statements and other reports required to be filed
on the financial condition of insurance companies; and the
establishment of capital requirements for insurance companies. The
aforementioned subsidiaries of the company are required to file
periodic statutory financial statements in each jurisdiction in
which they are licensed. Additionally, these subsidiaries are
periodically examined by the insurance departments of the
jurisdictions in which they are licensed to do business.
RISK-BASED CAPITAL REQUIREMENTS
In 1993, Missouri adopted statutory risk-based capital (RBC)
requirements for life and health insurance companies. In 1998,
Missouri adopted the RBC requirements for health maintenance
organizations which the National Association of Insurance
Commissioners (NAIC) adopted the same year. The formula for
calculating such RBC requirements, set forth in instructions adopted
by the NAIC, is designed to take into account asset risks, insurance
risks, interest rate risks and other relevant risks with respect to
the individual insurance company's business. Under these laws, life
and health insurance companies and health maintenance organizations
must submit a report of their RBC level as of the end of the
previous calendar year.
Because the total adjusted capital of HALIC, RIC, BlueCHOICE, and
HealthLink HMO, determined in accordance with the RBC instructions
adopted by the NAIC on a fully phased-in basis, exceed all RBC
minimum requirements, the company believes that the RBC requirements
will not have any immediate impact upon HALIC, RIC, BlueCHOICE, or
HealthLink HMO or their operations. If in the future the RBC
results were to decline, the RBC requirements could have a material
effect upon their operations and the amount of regulatory oversight
to which they are subject.
RESTRICTIONS ON DIVIDENDS
Insurance laws and regulations restrict the payment of dividends by
life insurance companies and health maintenance organizations in a
holding company structure. Such laws generally limit the dividends
which a life insurance company may pay to an amount which, together
with the amount of dividends and distributions paid by the insurance
company during the immediately preceding 12 months, does not exceed
the greater of (i) 10 percent of the insurance company's surplus as
regards policyholders as of the preceding December 31 or (ii) the
insurance company's net gain from operations for the preceding
calendar year. For all other insurers (including HMOs), such laws
generally limit the dividends that a company may pay to an amount
which, together with the amount of dividends and distributions paid
by the company during the immediately preceding 12 months, does not
exceed the lesser of (i) 10 percent of the insurer's surplus as
regards policyholders as of the preceding December 31 or (ii) the
net investment income for the 12-month period ending as of the
preceding December 31. Any proposed dividend in excess of these
amounts is deemed to be an "extraordinary dividend" and requires
prior approval by the Director of Insurance of the company's state
of domicile.
At December 31, 1998, HALIC, BlueCHOICE, RIC, and HealthLink HMO had
surplus of approximately $78.3 million, $15.0 million, $1.2 million,
and $4.6 million, respectively. At December 31, 1998, the company's
insurance subsidiaries did not have a significant amount of
dividends available for payment without the prior approval of the
appropriate Director of Insurance.
HMO REGULATION
Federally qualified HMOs, such as BlueCHOICE, are subject to health
care-related regulation by both state and federal regulatory
authorities. State-qualified HMOs, such as HealthLink HMO, Inc.,
are also subject to state regulatory authorities. As a federally
qualified HMO, BlueCHOICE must file periodic reports with, and is
subject to, regulation and review by the U.S. Department of Health
and Human Services and certain other federal authorities. Among the
areas regulated by federal and state law are procedures for quality
assurance, enrollment requirements, covered benefits, relationships
between the HMO and its health care providers, and the company's
financial condition, including reserves and cash flow requirements.
THIRD-PARTY ADMINISTRATOR (TPA) REGULATION
Under Missouri and Illinois laws and regulations, the company,
HealthLink HMO, and Epoch, the company's 50 percent-owned
subsidiary, are required to obtain a certificate of authority from
the appropriate Departments of Insurance in connection with certain
of their benefit administration services and are subject to various
statutory requirements, including record-keeping and retention;
fiduciary obligations with respect to premiums collected;
limitations on commissions and fees; and certain notice and
reporting requirements. Certain TPA activities are also subject to
the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
PREFERRED PROVIDER ORGANIZATION (PPO) REGULATION
Under Illinois and Indiana laws and regulations, HealthLink is required
to obtain a certificate of authority from the Departments of
Insurance in connection with its PPO services and is subject to
various statutory requirements, including certain provider and
client contracting requirements and notice and reporting
requirements.
UTILIZATION REVIEW REGULATION
Under Missouri laws and regulations, the company and HealthLink are
required to obtain a certificate of authority from the applicable
Department of Insurance in connection with their utilization review
services and are subject to various statutory requirements,
including certain notice and reporting requirements.
EMPLOYEES
The company employed approximately 1,800 full time employees (including
370 HealthLink employees) as of December 31, 1998, compared to 1,700
full time employees (including 300 HealthLink employees) as of
December 31, 1997, none of whom is subject to a collective
bargaining agreement. At the end of 1998, the company announced a
strategic realignment of business operations, including a reduction
of approximately 135 positions, or approximately 7.5 percent of the
company's work force. Half of this reduction was completed by the
end of 1998, with the remainder of the positions scheduled to be
eliminated by June 1999, primarily through attrition. The company
believes that its employee relations are good.
EXECUTIVE OFFICERS
Name Age Position
John A. O'Rourke 55 Chairman of the Board, President,
Chief Executive Officer and Director
Sandra Van Trease 38 Senior Executive Vice President and
Chief Operating Officer; Chief
Financial Officer
Angela F. Braly 37 Executive Vice President, General
Counsel and Corporate Secretary
Stuart K. Campbell 37 Senior Vice President, Client
Services
Michael Fulk 51 Senior Vice President and Chief
Marketing Executive
Herbert B. Schneiderman 53 Senior Vice President, Medical
Delivery Systems
Connie L. Van Fleet 46 Senior Vice President and
Chief Information Officer
David G. Williams, M.D. 42 Senior Vice President and
Chief Medical Officer
David T. Ott 44 President, Chief Executive Officer
and Director of HealthLink
Courtney B. Walter 43 Executive Vice President and
Chief Financial Officer of
HealthLink
Edward J. Tenholder 47 Executive Vice President and
Chief Operating Officer of Blue
Cross and Blue Shield of Missouri
|
John A. O'Rourke was named Chairman and Chief Executive Officer of
RightCHOICE in February 1997, and President in March 1997. Mr.
O'Rourke came to RightCHOICE from his position as President and CEO
of HealthLink. Mr. O'Rourke took the leadership of HealthLink in
1985, when the company was first incorporated. Earlier, Mr.
O'Rourke was Deputy Director of the Office of Health Maintenance
Organizations in the U.S. Department of Health and Human Services.
Sandra Van Trease was named Senior Executive Vice President, Chief
Operating Officer and Chief Financial Officer in December 1998. She
joined the company in June 1994 and was promoted to CFO in November
1995. Prior to joining the company, she was a Senior Manager with
Price Waterhouse LLP.
Angela F. Braly was named Executive Vice President, General Counsel and
Corporate Secretary of RightCHOICE in January 1999. Ms. Braly acted
as Interim General Counsel of RightCHOICE from September 1997
through December 1998 while a member of the St. Louis law firm of
Lewis, Rice & Fingersh, L.C. Ms. Braly joined Lewis, Rice &
Fingersh, L.C. in January 1987 and was involved there in the
corporate representation of HealthLink when it was acquired by
RightCHOICE in August 1995.
Stuart K. Campbell was named Senior Vice President, Client Services, in
August 1997. Mr. Campbell joined RightCHOICE as Chief Internal
Auditor in September 1994 and was named Corporate Compliance Officer
in 1996. Prior to joining the company, Mr. Campbell was a Senior
Manager with Price Waterhouse LLP.
Michael Fulk joined RightCHOICE as Senior Vice President and Chief
Marketing Executive in January 1998. Mr. Fulk joined RightCHOICE
from United HealthCare, Birmingham, Alabama, where he was Senior
Vice President of Sales and Marketing. Earlier, Mr. Fulk served as
the top sales and marketing executive for United HealthCare's HMO,
POS, and PPO operations in Texas, Alabama, Louisiana, Tennessee,
Arkansas, Mississippi and the Gulf Coast.
Herbert B. Schneiderman joined RightCHOICE as Senior Vice President,
Medical Delivery Systems, in June 1995. Mr. Schneiderman came to
RightCHOICE after 21 years at Saint Louis University Hospital/Saint
Louis University Health Sciences Center, the last seven as Chief
Executive Officer.
Connie L. Van Fleet was named Senior Vice President and Chief
Information Officer in November 1997. Ms. Van Fleet joined the
company in 1990 and most recently served as Vice President, Business
Analysis and Development. Prior to joining the company, Ms. Van
Fleet was with Metropolitan Life Insurance Co.
David G. Williams, M.D. was named Senior Vice President and Chief
Medical Officer of the company in August 1998. He came to
RightCHOICE from Blue Cross and Blue Shield of Tennessee (BCBST),
where he was Regional Medical Director. During his time with BCBST,
Dr. Williams also served as Medical Director for the plan's Medicare
and Medicaid HMO programs. He previously served as Medical Director
for the South Texas Healthcare Alliance and of the city of Corpus
Christi, Texas.
David T. Ott was named President and Chief Executive Officer of
HealthLink in March 1997. Mr. Ott had been Executive Vice President
of HealthLink since July 1990. Mr. Ott joined HealthLink in 1986 as
Director of Marketing and later was promoted to Vice President of
Sales and Marketing.
Courtney B. Walter was named Executive Vice President and Chief
Financial Officer of HealthLink in March 1997. Mr. Walter has been
with HealthLink since 1993. Prior to joining HealthLink, Mr. Walter
worked for Ernst & Young LLP, MetLife Health Care Management
Corporation and Spectrum Emergency Care.
Edward J. Tenholder was named Executive Vice President and Chief
Operating Officer of Blue Cross and Blue Shield of Missouri in
September 1997. Mr. Tenholder has been with the Blue Cross and Blue
Shield organization since 1979, most recently as Senior Vice
President of Client Services and Corporate Support of the company.
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