Conference Call, 05/06/97 Oxford Health Plans Q1

FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)

Oxford Health Plans
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %>
800 Connecticut Ave.
Norwalk, CT 06856
(203) 851-2308
http://www.oxhp.com

ANN ARBOR, Mich. (May 6, 1997) /FOOLWIRE/ -- Oxford Health Plans Inc. reported its first quarter results this morning.

ENROLLMENT. Oxford's enrollment totaled approximately 1.74 million members at March 31, 1997, an increase of over 200,000 during the first quarter of 1997 -- the best quarter ever -- and a 45% increase over the end of last year's first quarter. Not only are all lines of business growing but all regions are also showing growth ahead of expectations. Approximately 62,000 net new members have enrolled since the end of March 1997, bringing total membership to over 1.8 million as of May 1, 1997.

     March 31, l997 1996 Increase %

      Freedom Plan 1,143,500 806,600 41.8
      HMO 224,300 151,100 48.4
      Medicare 134,600 80,800 66.6
      Medicaid 189,900 123,500 53.8
      Self-funded 46,500 38,400 21.1
      Total Membership 1,738,800 1,200,400 44.9

Medicaid membership increased primarily through the further implementation of the program in Pennsylvania, where reimbursement is good. Oxford had a drop in enrollment in New York, by design, because NY reimbursement is unrealistically low. Oxford is now breaking even with its NY Medicaid program, and the State is now considering adding more funds to the system, potentially as much as $120 million. If that occurs, Oxford will begin to pursue Medicaid in NY once again. Regarding Philadelphia, Oxford just began selling its commercial products there in January; that market is now showing meaningful growth, enrolling approximately 1200 members per month.

REVENUES AND EARNINGS. Total revenues for the quarter ended March 31, 1997 reached $987.3 million, a 50% increase from $658.1 million a year ago. Based on enrollment to date, the annualized revenue run rate is in excess of $4.1 billion. Operating earnings jumped 80% to $60.0 million compared with $33.2 million in the first quarter of 1996. Net earnings increased 86% to $34.4 million, or $0.42 per share, from $18.5 million, or $0.25 per share, in the prior year's first quarter. Operating margin remains very strong at 4.7%, which compares with 4.1% for last year's first quarter. Net margin in the quarter was 3.5%, versus the year-ago 2.8%. Guidance on 1997 revenues is for approximately $4.3 billion

PREMIUM INCREASES. In New York, premium increases are 0-2% for Oxford's HMO product, 6-8% for the small-case Freedom Plan, and 3-6% for large-case. Enactment of the New York Health Care Reform Act of 1996 (NYHCRA) added 2% to all New York premiums. In New Jersey, premium increases are 0-2% for HMO, no change for small-case, and 0-2% for large-case. In Connecticut, premium increases are 4-5% for HMO, small-case, and large-case.

EXPENSES. The Company's medical-loss ratio (MLR) for first quarter of 1997 was 80.2% compared with 79.9% in the first quarter of 1996. The increase is primarily attributable to increased pharmacy costs and higher hospital reimbursement costs in (NYHCRA). Pharmacy costs will be up 12% to 15% in 1997. Oxford has renegotiated an agreement with its pharmacy benefits administrator to manage costs as drug prices continue to trend upward in the market. Physician costs are projected to be flat for 1997. Medical cost management in general is the component of Oxford's business that is improving most rapidly, and the company continues to expect the MLR for the full year to be in the range of 79.7% to 80.0%, which may be better than what some analysts had been projecting.

ADMINISTRATIVE EXPENSES. Administrative expenses were 15.4% of operating revenue for the first quarter of 1997, compared with 16.4% for the first quarter of 1996. This increase is attributable to efforts in the quarter to expand into new market areas and additional staff hired to improve service. Guidance for the full year is for a range of 15.5% to 15.8%, which is up slightly due to new market expansion, including into the Chicago area, offset by projected declines in MLR.

NYHCRA. Oxford is very pleased with its MLR in light of the challenges presented by NYHCRA. NYHCRA shifted costs of graduate medical education from hospitals to insurers, with the expectation that hospitals would reduce their rates to insurers accordingly. Insurers had a difficult time getting these rate reductions, however, and many insurers are still without new contracts with hospitals. In Oxford's case, the company was very successful and has negotiated agreements with 96 out of 100 affected hospitals. The remaining four are small hospitals, and it is Oxford's choice not to sign a contract with them yet.

BALANCE SHEET. The company added $33 million to reserves despite an enormous effort to reduce backlogs in claims payments (see below) and an additional $90 million in advance payments made to hospitals that were waiting for payments as a consequence of the contract renegotiations associated with NYHCRA. Those payments are not charges but rather are advances on expected claims -- a goodwill gesture by Oxford toward some hospitals that were strapped for cash as a result of the NYHCRA-related renegotiations. Balance sheet reserves are at 80 days, which returns towards the company's historic levels as claims payment processing has improved following a period of slowdown associated with the conversion to a new computer system. The balance sheet also continues to show higher levels of premiums receivable resulting from delays in billing associated with the systems conversion. Medical costs payable continue to reflect delays in claims payments associated with this system conversion and renegotiation of hospital contracts under the New York Health Care Reform Act, but the increase has been mitigated by progress in paying backlogged claims and advance payments to physicians and hospitals totaling $89.4 million as of March 31, 1997.

SYSTEMS CONVERSION. May billings are being processed more quickly than they were in April. The company is still approximately three weeks off its normal cycle; next month that should be down to two weeks, and the month after that, one week. Oxford is rebounding nicely from the service hiccup, which was exacerbated by old, "dirty" data in the system and various software conversion problems. With a significant commitment of people and resources to resolve the problems created by the computer upgrade, Oxford was able in April to process and pay over 85% of new clean claims from physicians within 30 days of receipt. Oxford continues toward its near-term goal of processing and paying 90% of new clean claims in 30 days or less, and Oxford's target is 100%.

CUSTOMER SERVICE. Yesterday, Oxford issued a press release in an effort to communicate honestly with its customers and all of its publics to describe the company's progress, to apologize for any service disruptions, and to correct some misleading news and misconceptions in the marketplace and among customers. Oxford has a massive communication plan to keep in close touch with healthcare providers and customers and to get the company back to its award-winning levels of service. New members are being enrolled now within two to three days, renewals are processed within 10 days, ID cards issued within seven days. Telephone wait times have been cut in half. The goal is to mail billings by the 20th of each month. Oxford is better for having gone through this experience: it put the "fight" back into the company, and the new system will be of great benefit going forward.

SPECIALTY MEDICAL CARE (SMC) TEAMS. This new approach to managing specialty care is realizing savings of 18% to 20% over Oxford's historical costs. Teaching hospitals, community hospitals, and physician teams are aggressively responding to this program. Oxford is getting bids in all markets, with especially competitive rate proposals coming from teams in Philadelphia. Approximately 435 members are currently in these case arrangements, and that number will ramp up as Oxford expands the program as quickly and intelligently as possible.

COMPANY REPOSITIONING. Oxford has just completed a very successful launch of its repositioning as the "Health and Healing Company." The intention is to communicate to all of the company's publics what Oxford is doing and how it is distinctive and to differentiate Oxford from the traditional HMO category. For example, Oxford's SMC business puts it on a path that not only will change the way the company manages medical costs but also begins to create a decidedly more encouraging future for the entire company. Oxford's "Dedicated Service Managers" (DSM) is a "one stop shopping" approach in which a specific professional is solely responsible for managing all aspects of service for a group of 3,000 to 5,000 members, often residing in a specific neighborhood. The goal is to have all of Oxford's service managers converted to the DSM program by year's end. Oxford's Alternative Medicine program is also developing well, with approximately 90 employer groups enrolled in it. This new program has brought some very favorable public attention to the company, and the medical community is being more supportive of this alternative approach than Oxford had anticipated. Oxford's electronic commerce program, at www.oxhp.com, has been launched. The "Oxford On Call" help-desk program allows members to phone a healthcare professional to get medical information. All of these things differentiate Oxford in ways that are unmatched by any other health plan.

MEDICARE. It's still too early to say what the final Medicare budget and plan enacted by the federal government will be; however, the Republican leadership in perhaps more convinced than ever that the Clinton proposals are ill-advised. One possibility is that federal funding for graduate medical education could change in ways similar to what just occurred in New York. If that should happen, Oxford's experience with managing the consequences of NYHCRA will serve it well.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.