M.D. IPA contracts with the Office of Personnel Management ("OPM") to provide or arrange health services under the Federal Employee Health Benefit Program ("FEHBP"). The contract with OPM and applicable government regulations establish premium rating requirements for the FEHBP. The premiums established under the OPM contract are subject to periodic review and audit to determine if they were established in compliance with the community rating and other requirements under the program.
Income tax expense as a percent of pretax income decreased from 32.4 percent in 1997 to 26.1 percent in 1998, in large part due to the relative increase of tax exempt interest income as a percent of pretax income.
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996............................... 32
The Company has access to total line-of-credit and letter-of-credit facilities of $29 million, which are subject to annual renewal. Borrowings bear interest at a rate based on the Federal Funds rate plus .75% - 1.65% and are secured by certain cash balances and short-term investments. At December 31, 1998, approximately $1.85 million was outstanding on one of the lines-of-credit at an interest rate of 6.45% and approximately $12.3 million was outstanding in letters-of-credit.
For the years ended December 31, 1998, 1997 and 1996, certain members of the Boards of Directors of MAMSI and subsidiary corporations who are also participating physicians provided medical services to enrollees totaling $4,430,000, $6,103,000 and $8,406,000, respectively, which represents approximately 1% in 1998 and 1997, and 2% in 1996 of payments to all physicians. Board members are remunerated at the same contractual level as all other participating physicians and are selected by enrollees to render medical services under the same guidelines as all other participating physicians.
During the quarter ended March 31, 1998, the Company became involved in a dispute with the Maryland Insurance Administration ("MIA") concerning the construction and application of Section 15-1008 of the Maryland Insurance Article. The law limits the time within which a carrier may retroactively collect money owed by providers to the carrier by using the device of offsetting future payments to providers with the amount owed by the provider to the carrier. The law does not affect the right of carriers to otherwise recover monies owed. The Company construed the law to be applicable to claims paid on or after October 1, 1997. The MIA construed the law to apply to retroactive adjustments made on or after October 1, 1997 and the MIA has ordered the Company to abide by its construction of the law. The Company has not yet decided whether to appeal. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial statements as the MIA's current position affects the method of collection of the claims reversals, rather than the Company's legal right to the refunds.
On February 18, 1999, certain providers filed a class action lawsuit in the Circuit Court for Anne Arundel County, Maryland concerning the construction and application of Section 15-1008 of the Maryland Insurance Article. The complaint requests an accounting of claims' payments, injunctive relief and punitive damages. Management believes that the ultimate outcome of this matter will not have a material adverse effect on the Company's financial statements as the MIA's current position affects the method of collection of the claims reversals, rather than the Company's legal right to the refunds.