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. (Nov. 5, 1997) /FOOLWIRE/ -- On Nov. 4, 1997, Oxford Health Plans reported results for its third quarter of 1997. Total revenues for quarter were $1.064 billion, a 31% increase from $811 million a year ago. Administrative expenses were 16.8% of operating revenue for the third quarter of 1997, compared with 15.4% for the third quarter of 1996. The percentage increase was primarily attributable to increases in administrative spending and lower than expected revenue for the third quarter of 1997. That, together with a write-off of certain accounts receivable, additions to accounts receivable reserves, and an increase in reserves for medical claims, resulted in an operating loss of $132 million and a net loss of $78.2 million, or -$0.99 per share, compared with net earnings of $26.7 million, or $0.33 cents per share, in the third quarter of 1996.

ENROLLMENT. Enrollment totaled approximately 1,942,600 members at Sept. 30, 1997, an increase of more than 109,000 during the third quarter of 1997 (which includes 29,700 members added in the acquisition of Compass PPA, Inc. in Chicago). That is almost 35% higher than membership at the end of last year's third quarter, even after a rollback of 30,000 from the previous estimate of 1997 membership. The majority of new membership has come from fully insured enrollment.

OCTOBER ENROLLMENT. More than 47,400 net new members enrolled in October, bringing total membership to approximately 1,990,000 as of Nov. 1, 1997. Retention rates continue to be very high, and Oxford is doing all it can to address any impact of the recent negative publicity upon member retention. During the third quarter, the company added $222 million in annualized revenues. Along with the new members added in October, revenues are at an annualized run rate of approximately $4.68 billion.

CUSTOMER SERVICE. Oxford continues to improve its customer service. Measures of response to incoming telephone calls are very high. Oxford has added dedicated service managers, which is further increasing satisfaction according to surveys of customers and providers.

EXPANSION INTO NEW MARKETS. During the quarter, Oxford closed its deal to acquire Compass Health Plans of Chicago. In Florida, Oxford agree to acquire Riscorp Health Plans, which when combined with Oxford’s existing investment in St. Augustine’s Healthplan provides an excellent foundation for Oxford in Florida for the future.

ACCOUNTS RECEIVABLE WRITE-OFFS. Third quarter results reflect accounts receivable write-offs and terminations of non-paying individual and group customers. Additions were also made to accounts receivable reserves. These accounts receivable write-offs and additions to reserves reduced quarterly revenues and had a $42.2 million after-tax impact on earnings. These adjustments are a consequence of information recently obtained as a result of reviewing and reconciling previously delayed premium bills.

RESERVES FOR MEDICAL CLAIMS. The Company also increased reserves for medical costs payable, recording an after tax charge of $51.9 million for the quarter, as the process of reviewing and reconciling previously delayed claims revealed payment obligations that exceeded the Company's original estimates. Reserves for medical costs payable were $568 million at quarter’s end after giving effect of $247 million in advances, for a total of $815 million.

BILLING DELAYS. Oxford’s conversion to a new computer information system caused delays in billing customers and in paying claims from providers. Delays in billings caused the company to overestimate accounts receivable, as some bills turned out to be incorrect and others turned out to be uncollectable. Teams of Oxford employees were engaged in a clean-up of bills during the third quarter, and their effort identified a need for the company to adjust membership records as well as accounts receivable. The consolidated impact of these efforts became apparent in preparing financial reports for the third quarter and were immediately reported to the public. Oxford management found about them late in the day on a Friday and reported them early on Monday morning. Billings fell most behind for small-group and individual subscribers. Those subscribers represent the smallest group in Oxford’s revenue universe, and so the decision was made to focus processing time first on the large-group customer billings. Oxford was back on cycle by June, making outbound calls to all customers, reconciling bills, and working down the accounts receivable. That process identified two issues. First, many members were not showing up in the billing system at all, which meant that they hadn’t been getting billed. Second, a large number of accounts turned out to be uncollectable from customers who hadn’t used their coverage and therefore decided not to pay for it. Billing of customers is no longer delayed. November bills were mailed out on Oct. 15. Accuracy of billings continues to improve, in part because of the outbound calling initiative.

DELAYS IN PAYING CLAIMS. Delays in paying claims were also a result of slowness in the new computer system. These delays were highly publicized during the year and became a priority for the company to resolve over the past five months. Oxford cleared much of the backlog -- paying four months of claims in the past three months, for example. The delays led to underestimates of some medical claim liabilities. The company therefore increased reserves for such claims. Claims processing times have improved significantly: over 95% of claims received in July were processed with an average processing time of less than 22 days, and 89% of claims received in August were processed in an average of less than 21 days.

CLAIMS ADJUSTMENTS. Oxford had previously made advance payments to providers to mitigate their cash-flow problems. Teams from Oxford began in the third quarter to reconcile the advances with actual claims and get any excess advances refunded. During this process, some providers brought out old claims with which they had disagreed with Oxford. As Oxford examined those disputed claims, the company identified some systemic incorrect processing of certain claims types and concluded that the company needed to reprocess those categories of claims. All of this had a significant impact on Oxford’s actuarial assumptions and led management to conclude that it would be prudent to increase its reserves for claims.

AUDIT. The New York State insurance regulators have been involved in a periodic audit of Oxford, and they requested an audit of the company’s reserves. KPMG Peat Marwick conducted the review and recommended a $13 million (pre-tax) increase in reserves, which Oxford has done. The regulators have made certain other recommendations that Oxford management thought were constructive and is therefore implementing. The regulators are also reviewing Oxford’s action plans for protecting customers and providers going forward.

LAWSUITS. As a result of the large drop in the stock price, a number of class-action lawsuits have been initiated. At this stage the company cannot predict the outcome of the lawsuits, but the company and individual defendants believe that they have substantial defenses to all claims and assertions and will vigorously defend themselves. Oxford is insured against such lawsuits.

OPERATING RESULTS. Net of effects of the revenue adjustment from prior quarters and the extraordinary items, third quarter revenues were $1.117 billion and medical expenses were $898 million (for a medical loss ratio of 81.6%). That, together with the $177 million in marketing, general and administrative expense, resulted in pretax earnings of $42 million and net earnings of $24.8 million, or $0.31 per share.

CHANGED ASSUMPTIONS. Oxford is not changing its estimates for its commercial business, which represents 73% of Oxford’s total revenues and over 80% of its membership base. The 1998 pricing guidance, averaging a bit above a 3.5% increase across all commercial business lines, remains in effect. The company is revising its estimate of Medicare expenses, however, as new information indicates an acceleration of Medicare in-patient expenses. During the year Oxford saw a rise in short-stay admissions in the Medicare population. Although this rise may turn out to be a temporary one, the company will revise its estimates to reflect an assumption that the change is a permanent trend. Revised projections of Medicare expense are the principal driver of lower profit projections. Oxford identified these adjustments after working through significant claim backlogs and getting current in billing customer accounts.

RECENT INITIATIVES. The specialty management initiative continues to enjoy great success. The number of cases under contract doubled since the last earnings report, and the expectation is to increase that by more than 50% by year-end. Over 700 physicians provide services through the initiative, and 1145 members are involved. The alternative medicine program is proving to be even more popular than Oxford had expected. There are now more than 2100 providers in that network and 35,000 members have joined the program, which is an additional offering to Oxford’s regular programs.

Q4 GUIDANCE. For the fourth quarter, guidance remains at an estimate of net earnings of $0.25 to $0.27 per share. That excludes a one-time gain of $0.50 per share that will appear in Q4 due to the sale of Oxford’s interest in Health Partners Inc. That estimate could change as Oxford monitors enrollment trends and other factors.

1998 GUIDANCE. Oxford had originally projected a gain of 655,000 fully-insured members in 1998. The company has seen no material impact of negative publicity on membership trends at this time but is nevertheless reducing that estimate to a conservative value of 587,000. That would lead to revenue of $5.7 billion for 1998, which assumes $60 million in investment income, as well. Of course, these are estimates and could change. On the expense side, Oxford is increasing its assumptions for Medicare expense. For purposes of constructing a model, assume an approximate 13.6% increase in monthly medical expenses, going forward. On the commercial side, expenses are essentially flat, because most of them are locked in contractually and Oxford does not expect any changes going forward. But to be conservative, factor in a 3.5% increase in the commercial business, excluding pharmacy, and leave the pharmacy trend at approximately 10%. The baseline model also increases estimated administrative expenses to 16% of revenues for all of 1998. From all information available, these baseline adjustments provide conservative estimates of profits. This scenario creates an estimate of 1998 earnings of $1.32 per share. From there, each one percentage-point savings in the Medicare increase is worth 7.4 cents per share. On the commercial side, each one percentage-point savings in expense would result in a gain of 23 cents per share in earnings. On administrative costs, each one-half percentage point reduction from the 16% figure picks up another 20 cents per share. The goal of the company is to pick up as many percentage points and half-points as possible.

MEDICARE PLAN CHANGES. Oxford has some flexibility with respect to 1998 and complete flexibility for 1999 to modify its Medicare offerings, benefits, premiums, market areas and marketing strategies, and other factors so as to achieve the company’s target of a 5% profit margin on all business lines. Management is reviewing those options.

STOCK BUYBACK. In response to a question, management said that they do not rule out a stock buyback, but there are no specific plans to do so at this time.

ADDITIONAL COMMENTS. Management believes that the fundamentals of the business remain sound. After the write-offs, the company remains profitable going forward. Cash and investments are over $650 million, and shareholders’ equity is over $645 million, with no long-term debt. Company founder and chairman Stephen Wiggins is completely devoted to the recovery of Oxford and has cleared his calendar to focus on this and to communicate openly with all stakeholders.

* 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.