Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (July 7, 1997) -- I will be on vacation this week, so the next edition of This Week in Health Care (TWIHC) will be out the week of July 23. If you find yourself having TWIHC withdrawal, visit the Healthcare message board and "talk amongst yourselves." I will catch up with all the posts when I return. In the meantime, stay healthy.

OUR POLITICAL HEALTH

The California Supreme Court ruled that members of HMOs could take medical malpractice claims to court instead of arbitration when the HMO fraudulently portrays arbitration as speedy. The case involved a California man who attempted to arbitrate a medical claim against a unit of Kaiser Permanente when he was diagnosed with lung cancer seven years after first reporting symptoms. In a concurring opinion, one of the Justices said that it takes an average of almost two years for a Kaiser member to get an arbitration date, compared with the two months that Kaiser claims in promotional literature. In this case, scheduling an arbitration date had been delayed until a day after the man died.

HEALTHCARE STOCKS IN THE NEWS

Columbia Arlington Healthcare System LLC, a joint venture of COLUMBIA/HCA HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> and the Arlington Healthcare System, announced the acquisition of all of the National Hospital Medical Center's net assets. National Hospital Medical Center, formerly the National Hospital for Orthopedics and Rehabilitation, is a 154-bed hospital in Arlington, Virginia. As part of the transaction, National Hospital Medical Center was renamed Columbia Pentagon City Hospital. For the week, Columbia/HCA was up $9/16 (1.4%), closing on Monday at $39 7/8.

FPA MEDICAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> and Health Partners, Inc., announced that they have entered into a definitive merger agreement with FPA acquiring Health Partners in a stock-for-stock merger. The closing of the merger is expected to occur late in the third quarter of 1997 and is subject to regulatory approvals and satisfaction of certain customary conditions. Health Partners currently has a network of 418 primary care physicians that provides healthcare services to over 138,000 HMO enrollees and is the largest physician practice management organization in New York with over 103,000 HMO members.

In addition, OXFORD HEALTH PLANS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %>, a shareholder of Health Partners and its largest payer, has agreed to enter into a 10-year strategic agreement with FPA under which FPA will provide physician services to Oxford's members in existing markets and provides a framework for expansion to new markets. WELLPOINT HEALTH NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLP)") else Response.Write("(NYSE: WLP)") end if %>is also a shareholder of Health Partners and has entered into a Memorandum of Understanding with FPA calling for mutual cooperation in Wellpoint's markets, focusing initially on California, Arizona, and Nevada.

The Health Partners transaction, which is expected to add approximately $160 million to FPA's 1997 pro-forma revenue and is valued at approximately $115 million, is subject to adjustment in the event that FPA's average stock price is less than $18 or greater than $22. The merger will be accounted for as a pooling of interests. For the week, FPA was up $2 5/8 (11.1%), closing at $26 5/16; Oxford was up $4 3/8, (6.1%) closing at $76 1/8; and Wellpoint was up $3 5/8 (7.9%), closing at $49 1/2.

COVENTRY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CVTY)") else Response.Write("(Nasdaq: CVTY)") end if %> announced the closing of its Florida Medicaid HMO plan effective July 1, 1997. The company was unsuccessful in finding a buyer for the plan. The company expects the closing of the plan to have no material financial impact on 1997 results. For the week, Coventry was down $5/8 (4.1%), closing at $14 1/2.

MEDPARTNERS, INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %> and CORAM HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRH)") else Response.Write("(NYSE: CRH)") end if %> announced that MedPartners' subsidiaries, Caremark International and Caremark Inc., reached a settlement of Coram's lawsuit against Caremark. The lawsuit and other related issues arose out of the acquisition by Coram of Caremark's home infusion business in 1995. The litigation was in existence at the time of the Caremark/MedPartners merger in September 1996. Under the settlement, Caremark will forgive all of the Coram notes received in connection with the home infusion division's sale and will pay $45 million in cash to Coram. The parties will exchange mutual releases of all claims and issues between them. Coram originally claimed damages of $5.2 billion. MedPartners will incur a charge from discontinued operations during the second quarter of approximately $75 million after-tax in conjunction with the settlement. In total, Coram will record a one-time pretax gain of approximately $165 million. For the week, MedPartners was up $1 11/16 (7.8%), closing at $23 5/16, while Coram was up $1 1/16 (4.4%), closing at $3 1/2.

TWINLAB CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TWLB)") else Response.Write("(Nasdaq: TWLB)") end if %> and REXALL SUNDOWN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RXSD)") else Response.Write("(Nasdaq: RXSD)") end if %> confirmed that they are engaged in substantive discussions relating to a potential merger. Under the contemplated agreement, Rexall Sundown would issue 0.74 shares of its common stock for each outstanding share of Twinlab common stock. If the transaction is consummated, it is expected to be accretive to earnings. The proposed combination of the two companies would be structured as a pooling of interests.

The two companies stated that any agreement would be subject to a number of conditions, including satisfactory completion of due diligence by each party, appropriate confirmation of the applicability of pooling of interests accounting, negotiation of a definitive merger agreement, Board and shareholder approval of each party, receipt of a satisfactory fairness opinion by each party's Board of Directors, and regulatory approval. The companies also said there could be no assurance that a definitive agreement will be reached. For the week, Twinlab was down $5/8 (2.6%) to $23 3/8, while Rexall Sundown was down $5 (12.8%) to $34.

INTEGRATED HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHS)") else Response.Write("(NYSE: IHS)") end if %> and ROTECH MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROTC)") else Response.Write("(Nasdaq: ROTC)") end if %> announced that they have entered into a definitive merger agreement. Under the terms of the agreement, Integrated Health will issue 0.5806 shares of IHS common stock for each share of RoTech common stock currently outstanding. When the acquisition is consummated, IHS will issue approximately 15.8 million shares of common stock. The equity value of the acquisition is approximately $615 million, based on the exchange terms. The total value of the transaction, including the assumption of RoTech's debt by IHS and other financial obligations, will approximate $915 million.

The merger is expected to be immediately accretive to Integrated Health's earnings per share. The consolidated company will have total pro-forma revenues of approximately $2.3 billion and home health revenues of over $1 billion. The combined company will operate over 975 home health locations and over 1,500 total post-acute locations in 43 states. The merger is expected to close during the fourth quarter of 1997. For the week, Integrated Health was down $2 13/16 (7.3%), closing at $35 11/16, while RoTech was down $1/16 (0.3%), closing at $20.

JONES MEDICAL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JMED)") else Response.Write("(Nasdaq: JMED)") end if %> announced after market close on Thursday that net earnings for the second quarter will be near $0.20 per share, less than the expected $0.28 per share due to weak sales. That sent the price down $15 1/2 (35.7%) on Monday. For the week, Jones Medical was down $19 5/8 (41.3%), closing at $27 7/8.

The Motley Fool's Industry Snapshot featured managed care organizations in the most recent issue. Non-subscribers can get an abbreviated version at: http://www.fool.com/Decathlon/1997/
Decathlon970711.htm.

EARNINGS REPORTS

UROHEALTH SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UROH)") else Response.Write("(Nasdaq: UROH)") end if %> announced financial results for the twelve months ended March 31, 1997 after a couple of delays. For the year the company reported a net loss of $89.2 million, or $4.59 per share (including charges totaling $73.7 million), on revenues of $90.7 million, compared to last year's net loss of $30.2 million, or $2.03 per share, on revenues of $56.6 million. As previously reported, results for fiscal 1997 were lower-than-expected due to a change in the timing of the recognition of revenues. You can read the company's news release on the Urohealth Systems (UROH) message board . The day after announcing these results, a class action lawsuit was filed against UroHealth and certain of its officers and directors. For the week, UroHealth was down $5/16 (5.2%) to $5 11/16.

That wraps it up for this week. Please share any comments/suggestions on how to improve this feature by posting on the Healthcare message board or via e-mail (TMF [email protected]). Also let me know if you would like a reminder forwarded to your email address when a new update has been posted. In the meantime, here is hoping your investments are healthy!

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