Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (May 26, 1997) --

OUR POLITICAL HEALTH

IT IS OFFICIAL

A Federal District Court in Denver issued a temporary restraining order halting the Denver-area Medicare competitive bid demonstration project. The restraining order is effective until June 12, when a hearing on the American Association of Health Plans (and others) motion for a preliminary injunction will be held.

QUALITY OVERSIGHT WITHOUT BUREAUCRACY?

Dennis O'Leary, M.D., president of the Joint Commission on Accreditation of Healthcare Organizations called for a "rational, comprehensive framework for quality evaluation," during congressional testimony. He said any meaningful quality oversight system must consist of developing patient-focused performance standards, applying performance standards on-site, where patient care is delivered, routinely collecting, reporting and using results of patient care, and providing understandable, useful reports to the public on managed care organizations.

The Joint Commission envisions this public/private partnership to be one in which government outlines the criteria important to certification, such as performance-based standards, an expectation for an on-site evaluation process, and performance measures to be used. Then it is up to accrediting bodies, such as the Joint Commission, to carry out the monitoring process on the government's behalf.

O'Leary went on to state the Joint Commission "seeks a strong partnership with the public sector as a means of providing government with the best available evaluation expertise without creating an additional bureaucracy or taxpayer burden." It was not clear from the Joint Commission's press release how the government would come up with the criteria for certification without additional taxpayer funding or how the data would be collected without additional bureaucracy (one of the definitions of bureaucracy is "red tape"), since somebody is ultimately going to be providing someone else information they aren't currently.

AWARD WINNING QUALITY?

Health care organizations may soon be able to participate in the successful Malcolm Baldrige National Quality Award Program (MBNQAP). The president of the MBNQAP Foundation announced a $15 million fund drive to endow proposed health care and education categories. The National Institute of Standards and Technology (NIST) manages the Baldrige Award Program for the Department of Commerce. Pledges to the endowment will be contingent upon congressional approval of funding for NIST to establish new categories.

"OPERATION RESTORE TRUST"

Two years ago, President Clinton launched "Operation Restore Trust" which focused on five states: California, Florida, New York, Texas and Illinois, and targeted anti-fraud and abuse efforts on three high-growth program areas of Medicare and Medicaid: home health agencies, nursing homes, and durable medical equipment suppliers. Health and Human Services (HHS) secretary, Donna Shalala announced this week that the program had identified $187.5 million in restitution, fines, settlements and other identified overpayments while total spending on "Operation Restore Trust" was $7.9 million (a 23 to 1 return). Shalala said, "This is a model that works. Now it's time to take what we've learned and use it broadly and aggressively." Accordingly, the program will be expanded over the next two years to Arizona, Colorado, Georgia, Louisiana, Massachusetts, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, and Washington.

I found it curious that the Health Care Financing Administration (HCFA) press release on this pointed out that total HHS spending for anti-fraud, waste and abuse efforts in Medicare and Medicaid is $599 million in FY 1997, up from $452 million five years earlier ("Operation Restore Trust" was 1.3% of the total spent). However, there was no discussion on the rate of return of the other 98.7% of the money spent. Maybe HCFA could issue an additional release and let us know how successful their total waste, fraud and abuse efforts have been.

AND ANOTHER SURVEY

The May 12th edition of Medical Economics discussed a recent survey of 23,763 patients conducted by the American Hospital Association and The Picker Institute, in which almost three-quarters of the respondents gave the health care system overall marks of very good or excellent

MANAGED CARE MALPRACTICE

Texas will become the first state to allow patients to sue managed care organizations for medical malpractice if decisions to deny or delay treatment cause injury, effective September 1, 1997.

BYE BYE BLUES...

Blue Cross and Blue Shield of Colorado (BCBSCO) submitted an updated plan of conversion to the Colorado Division of Insurance this week. The plan was amended to simplify the conversion and to address several issues raised about the original proposal to allow BCBSCO to become a for-profit stock insurance company. The amended plan will be the subject of public hearings scheduled for later this summer across Colorado.

HEALTHCARE STOCKS IN THE NEWS

A Florida subsidiary of ROTECH MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROTC)") else Response.Write("(Nasdaq: ROTC)") end if %> has reached a settlement with the U.S. Attorney for the Middle District of Florida in a civil action related to Medicare claims the government believes it erroneously paid between 1987 and 1989. This matter has been in litigation since May 1995. RoTech has continuously disagreed with the factual and legal basis of the government's claim and states they remain confident that it was in compliance with all material Medicare and other legal requirements related to this matter. The company, in an effort to reduce legal defense costs and to preserve internal resources has paid $612,500 (approximately $380,000 on an after tax basis) to resolve the matter. The payment represents a portion of the estimated disputed claims and related interest over approximately 10 years. For the week, RoTech was up $1/4 (1.7%), closing at $15 1/8.

EMCARE HOLDINGS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EMCR)") else Response.Write("(Nasdaq: EMCR)") end if %> agreed to pay $7.75 million to settle allegations it overcharged several federal health care insurance programs. The firm will pay the federal government $6.5 million and various states $1.2 million. The Department of Justice said EmCare hired a billing firm (Emergency Physicians Billing Services) to submit claims on its behalf and that the firm billed for services more extensive and expensive than those actually performed. For the week, EmCare was up $1 1/8 (4.0%), closing at $29 1/2.

VENCOR, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> announced it has received a request for additional information from the Department of Justice in connection with its $16 a share tender offer for all of the outstanding shares of TRANSITIONAL HOSPITALS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THY)") else Response.Write("(NYSE: THY)") end if %>. As a result, the Hart-Scott-Rodino waiting period, which was originally scheduled to expire May 22, 1997, will be extended and expire 10 days after substantial compliance by Vencor with the request or its earlier termination by DOJ. For the week, Vencor was up $1 (2.5%), closing at $40 1/4, while Transitional was down $1/8 (0.8%), closing at $15 1/4.

A study of the medical uses of a medical version of super glue finding it superior to stitches in closing many types of wounds was published in the current issue of the Journal of the American Medical Association. The study received financial support from the manufacturer of the glue, CLOSURE MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLSR)") else Response.Write("(Nasdaq: CLSR)") end if %>. Closure was the subject of a Motley Fool Daily Double write up on 4/18/97. For the week, Closure was up $1 (5.3%), closing at $20.

JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> and BIOPSYS MEDICAL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIOP)") else Response.Write("(Nasdaq: BIOP)") end if %>, which produces products for minimally invasive breast biopsies, announced they have executed a definitive agreement providing for a stock-for-stock merger valued at approximately $310 million. The amount of Johnson & Johnson stock that would be issued in the merger for each Biopsys medical share would be the result of dividing $27.55 by the average closing price per Johnson & Johnson share for the 20 trading days preceding the date of the last full trading day prior to a meeting of Biopsys Medical stockholders to approve the merger. In the event of an unsolicited alternative transaction with Biopsys medical, there would be a fee payable to Johnson and Johnson of $10 million and Johnson & Johnson would have an option to acquire from Biopsys medical 19.9% of Biopsys Medical common stock at $27.55 a share. For the week, Johnson & Johnson was down $1 3/8 (2.2%), closing at $59 7/8, while Biopsys was up $1/8 (4.7%), closing at $26 3/4.

MEDAPHIS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MEDA)") else Response.Write("(Nasdaq: MEDA)") end if %> announced the initial public offering of its entire interest in its wholly-owned subsidiary, HEALTHCARE RECOVERIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HCRI)") else Response.Write("(Nasdaq: HCRI)") end if %>, representing 9.8 million shares of the common stock at a public offering price of $14 a share. Medaphis will use the net, after-tax proceeds of approximately $115 million to reduce outstanding bank debt. Healthcare Recoveries, Inc. provides subrogation and related recovery services to private healthcare payers. Medaphis's CEO said the divestiture allows the company to better focus on their "core business of delivering business management services and information products to healthcare providers." For the week, Medaphis was up $15/16 (12.9%), closing at $8 3/16, while Healthcare Recoveries was up $1 (7.1%), closing at $15.

FPA MEDICAL MANAGEMENT, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> announced it signed an agreement with PACIFICARE HEALTH SYSTEMS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHSYA PHYSB)") else Response.Write("(Nasdaq: PHSYA PHYSB)") end if %> to enter into ten-year capitated provider agreements with PacifiCare and FHP health plans nationwide (PacifiCare and FHP International Corp recently merged). These agreements will enable PacifiCare/FHP and FPA to work together in all mutual markets. PacifiCare/FHP currently has approximately 4 million commercial and Medicare members in 14 states, three in which FPA has existing physician networks. For the week, FPA was up $3/4 (4.1%), closing at $19 1/4, while PacifiCare 'B' shares were up $2 1/8 (2.9%), closing at $74 1/4.

TALBERT MEDICAL MANAGEMENT HOLDINGS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMMC)") else Response.Write("(Nasdaq: TMMC)") end if %> announced the results of the rights offering which expired May 21, 1997. Preliminary figures show that 100% of the rights were exercised out of a total of 2,772,000 that were distributed to former FHP International Corp. common and preferred stockholders. There were also an additional 5,628,000 shares, worth $121 million, requested under the oversubscription privilege of the rights offering. As a result of the fully subscribed offering, the separation of Talbert from FHP has been completed. Neither FHP nor PacifiCare retain any equity participation in Talbert.

MEDPARTNERS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> and INPHYNET MEDICAL MANAGEMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMMI)") else Response.Write("(Nasdaq: IMMI)") end if %> announced that terms of the previously announced merger will be adjusted. InPhyNet shareholders will now receive 1.18 shares of MedPartners stock for each share of InPhyNet stock, rather than 1.311 shares as previously announced. The adjustment is the result of discussions with the Securities and Exchange Commission (SEC) which led to InPhyNet revising and restating its year end 1996 earnings and first quarter ending March 31, 1997 earnings downward by 22% and 34%, respectively, to reflect a change in the accounting for the costs associated with its five-year globally-capitated agreement with PHYSICIANS CORPORATION OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCAM)") else Response.Write("(Nasdaq: PCAM)") end if %>.

For 1996, net income per share was reduced by $0.23 to $0.81 and net income was reduced by $3.6 million to $13.0 million. For the first quarter of 1997, net income per share was reduced by $0.10 to $0.20 and net income was reduced by $1.7 million to $3.3 million. In addition, InPhyNet has retained the right to terminate the merger agreement if the average last sale price per share of MedPartners' common stock for the ten consecutive trading days ending on the fifth trading day immediately preceding the date set for the InPhyNet stockholders meeting is equal to or less than $17.125. For the week, InPhyNet was down $1 1/16 (4.6%), closing at $21 15/16, while MedPartners was up $1/2 (2.7%) closing at $19, and Physicians Corp was up $5/8 (11.1%), closing at $6 1/4.

Standard & Poor's announced that it will replace CONRAIL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRR)") else Response.Write("(NYSE: CRR)") end if %> in the S&P 500 Index with CARDINAL HEALTH, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %> after the close of trading May 23, 1997. Conrail is being acquired by Norfolk Southern Corp. and CSX Corp. in a joint cash tender offer. For the week, Conrail was up $1/8 (0.1%) closing at $114 3/4, while Cardinal Health was up $4 1/8 (7.7%) closing at $58.

HEALTH MANAGEMENT SYSTEMS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMSY)") else Response.Write("(Nasdaq: HMSY)") end if %> announced Friday that, based on a preliminary review of results for the fiscal second quarter ended April 30, 1997, the company expects to report a loss of 7 to 8 cents a share, excluding a one-time benefit for a favorable tax settlement with the Internal Revenue Service (IRS), compared to last year's second quarter results of $0.17 a share net earnings. First Call consensus estimates had been for net earnings of $0.13 a share for the second quarter this year. For the week Health Management was down $13/16 (12.9%), closing at $5 1/2.

EARNINGS REPORTS

ARBOR DRUGS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARBR)") else Response.Write("(Nasdaq: ARBR)") end if %> reported third quarter net income of $7.5 million, or $0.19 a share (meeting estimates), on revenues of $238.4 million, compared to 1996 third quarter net income of $6.1 million, or $0.16 a share, on revenues of $208.2 million. For the week, Arbor was down $1/4 (1.25%), closing at $19 3/4.

PATTERSON DENTAL COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PDCO)") else Response.Write("(Nasdaq: PDCO)") end if %> reported fourth quarter net income of $9.3 million, or $0.43 a share (two cents below estimates), on revenues of $181.4 million, compared to 1996 fourth quarter net income of $8.4 million, or $0.38 a share, on revenues of $155.2 million. For the year, net income was $32.4 million, or $1.50 a share (one cent below estimates), on revenues of $661.5 million, compared to last year's net income of $28.7 million, or $1.31 a share, on revenues of $581.9 million. For the week, Patterson was down $2 1/2 (7.3%), closing at $31 3/4.

MEDTRONIC, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %> reported fourth quarter net income of $145.5 million, or $0.62 a share (meeting estimates), on revenues of $640.5 million, compared to 1996 fourth quarter net income of $121.6 million, or $0.51 a share, on revenues of $597.1 million. For the year, net income was $530.0 million, or $2.22 a share (one cent below estimates), on revenues of $2,438.2 million, compared to last year's net income of $428.3 million, or $1.80 a share, on revenues of $2,172.1 million. For the week, Medtronic was up $3 3/4 (5.5%) closing at $71 7/8.

That will wrap it up for this week. Please share any comments/suggestions on how to improve this feature via e-mail (TMF [email protected]). Also let me know if you would like the update forwarded to your email address. In the meantime, here is hoping your investments are healthy!

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