The Company’s management services revenues result from operations in which the Company’s health plans provide administrative and other services to self-insured employers and to employer group beneficiaries that have elected HMO coverage. The Company receives an administrative fee for these services, but does not assume underwriting risk. In addition, the Company offers a PPO product to other third party payors, under which it provides rental of and access to the Company’s PPO network, claims repricing and utilization review, and does not assume underwriting risk. A significant portion of the Company’s management services revenue in 1999 and 1998 was a result of the acquisition of certain PHC health plans from Principal Life Insurance Company (“Principal Life”). The Company recognized revenue under a Marketing Services Agreement, Management Services Agreement and PPO Access Agreement with Principal Life. These agreements have either expired or have been terminated as of December 31, 1999.
On December 31, 1998, Coventry sold its subsidiary, Principal Health Care of Florida, Inc., for $95.0 million in cash. The Florida health plan accounted for approximately 156,000 risk members and 5,500 non-risk members as of December 31, 1998.
SG&A expense, as a percent of revenue, remained unchanged at 13.8% in 1999, compared to 1998. The increase in SG&A expense was primarily attributable to additional expense associated with the acquired Carelink health plan and Coventry’s consolidation of eighteen service centers into three regional service centers. In an effort to control costs and improve customer service, Coventry transferred certain of its operating activities (e.g., customer service, claims processing, billing and enrollment) to regional service centers.
Share Repurchase Program On December 20, 1999, the Company announced a program to purchase up to 5% of its outstanding common stock. Stock repurchases may be made from time to time at prevailing prices in the open market, by block purchase or in private transactions. The Company purchased 826,200 and 55,396 shares of its common stock in 2000 and 1999, respectively, for the treasury at an aggregate cost of $6.4 million and $0.4 million in 2000 and 1999, respectively. Coventry had approximately 65.8 million diluted shares of common stock outstanding as of December 31, 2000.
Quarterly Results of Operations The unaudited quarterly consolidated results of operations of the Company are summarized in Item 6: “Selected Consolidated Financial Data, Supplementary Financial Information” of this Form 10-K.
Health care costs may rise faster than our ability to increase our premium rates, causing our gross profit margin and net income to shrink.
new mandated benefits or other regulatory changes that increase our costs
Reinsurance - Premiums paid to reinsurers are reported as medical expense and the related reinsurance recoveries are reported as deductions from medical expense.
In connection with the acquisition of certain PHC health plans and the sales of the Florida and Illinois plans, the Company established reserves of approximately $33.0 million for the estimated transition costs of the PHC health plans. These reserves are primarily comprised of severance costs related to involuntary terminations of former PHC employees, relocation costs of former PHC personnel, lease termination costs and contract termination costs. Through December 31, 2000, the Company has expended the entire $33.0 million related to these reserves.