In September 1998, effective as of August 31, 1998, CHF was sold for $17.75 million, comprised of $2.0 million in cash and the buyer's secured and unsecured notes for $13.25 million and $2.5 million, respectively. Including payments on the secured note, $9.2 million of the sale price plus $0.8 million of interest in cash was received through June 30, 1999. On August 16, 1999, the Company was paid $8.5 million, the remaining principal balance of the secured and unsecured notes and accrued interest thereon, net of a $0.25 million discount granted as an inducement for the buyer to prepay both notes. As required by the Company's bank line of credit facility, the sale was approved by the Company's bank lender and all proceeds were used to reduce the Company's indebtedness to the bank.
On May 6, 1999, the Company's Board of Directors authorized the repurchase and retirement of up to 250,000 of the Company's common shares (approximately 3.6% of the total outstanding common shares) in the open market. At June 30, 1999, 12,900 shares had been repurchased, and the remaining 237,100 shares were repurchased in July 1999.
On May 1, 2000, the Company and OmniCare-MI commenced their previously announced strategic partnership with DMC, a major health care provider system in southeastern Michigan. The alliance is intended to strengthen their respective core businesses and improve the quality of care and services for their patients and members. In addition, it was announced that DMC and OmniCare-MI will develop a joint marketing campaign designed to increase OmniCare-MI's membership and DMC's facility utilization rate.
In the strategic partnership's first phase, on May 1, 2000 approximately 28,000 members of DMC's Medicaid managed care program were transferred to OmniCare-MI, and DMC's seven hospitals and approximately 3,000 affiliated physicians now serve as part of OmniCare-MI's provider network. During fiscal 2000, the additional membership generated management fee revenue of $0.6 million. Management anticipates that management fee revenue from the increased Medicaid membership will grow to approximately $7.0 million in fiscal 2001 with a minimal increase in cost.
continued eligibility as an HMO providing coverage to enrollees of the State's Comprehensive Health Care Program for Medicaid beneficiaries. As a result, OmniCare-MI has been awarded a rate increase, effective October 1, 2000, and an extension of its contract with the State through September 30, 2002, with the potential for three one-year extensions. Management estimates that the awarded rate increase could increase OmniCare-MI's annual Medicaid revenue by approximately 11% on average, resulting in approximately $1.5 million of additional management fee revenue to the Company in fiscal 2001. In addition, because the unsuccessful bidders' Medicaid enrollees must change to a successful bidder in their region, management believes that OmniCare-MI's volume of Medicaid enrollees could significantly increase, generating additional management fee revenue for the Company in and after fiscal 2001. There can be no assurance, however, of any such increase in OmniCare-MI's membership.
Until March 31, 2000, the Company maintained a $6.4 million estimated medical claims liability for UltraMedix, which had been established at December 31, 1997. At March 31, 2000, Company management concluded that the continuing reserve requirement should be $0.8 million, and accordingly, the Company reduced the $6.4 million reserve by $5.6 million and offset that amount against medical services expenses.
Effective April 1, 1998, PhilCare entered into an IDS agreement with Healthmate, an entity that arranges for the provision of health care services for its Medicaid membership through contracts with health care providers. The IDS agreement placed the entity in the position of bearing the risk, but as the contractor with the Pennsylvania Department of Public Welfare (the state's regulatory agency for HMOs), PhilCare was deemed responsible for compliance with all applicable rules and regulations. Based on an evaluation of the net recoverable value of the Company's investment in PhilCare, the Company recorded a full impairment loss against its $2.1 million investment, in the fiscal year ended June 30, 1998.
On September 20, 2000, the Company made an additional cash contribution of $0.9 million to OmniCare-TN in exchange for additional preferred stock of OmniCare-TN to be issued to the Company. The cash contribution was made to enable OmniCare-TN to meet minimum statutory requirements for net worth.
Medical premium revenues were $86.2 million in the year ended June 30, 2000, an increase of $13.0 million (18%) from medical premium revenues of $73.2 million in the year ended June 30, 1999.
Total expenses were $107.5 million in the year ended June 30, 2000, compared to $92.4 million in the year ended June 30, 1999, an increase of $15.1 million (16%).
Medical services expenses for OmniCare-TN increased $10.0 million (17%), to $67.8 million in the year ended June 30, 2000 from $57.8 million in the year ended June 30, 1999. The OmniCare-TN MLR was 88% for the year ended June 30, 2000 and 82% for the year ended June 30, 1999. The fiscal 2000 OmniCare-TN MLR includes an approximate 4.5% increase due to a fourth quarter increase in the medical claims liability of $3.4 million related to the assignment of new members by TennCare. The fiscal 1999 OmniCare-TN MLR includes an approximate 3% reduction due to offsets to medical services expenses related to the net recovery of $0.5 million in refundable advances made to a third party dental administrator and an excess adverse selection payment of $1.0 million received in fiscal 1999 for the period June 1997 and prior.
OmniCare-TN was assigned approximately 6,000 members by TennCare in the second half of fiscal 2000 as a result of three other managed care organizations, which had contracts with TennCare, ceasing to serve their enrollees or being unable to take on new enrollees. Medical services expenses for such new OmniCare-TN members disproportionately exceeded OmniCare-TN's normal PMPM experience and adversely affected its earnings for and since that period. OmniCare-TN is seeking an adverse selection payment from TennCare, retroactive for such fiscal 2000 expenses, but there can be no assurance what the outcome of its request will be.
Medical services expenses for County Care were $8.1 million in the year ended June 30, 2000, an increase of $6.0 million (286%) from medical services expenses of $2.1 million in the year ended June 30, 1999. The increase is a result of the Company having only participated in the County Care program three months in fiscal 1999 versus a full year of participation in fiscal 2000. The County Care MLR for the year ended June 30, 2000 was 88%. County Care operations began with inception of the contract in April 1999.
Bad debt expense in the year ended June 30, 2000 totaled $3.1 million as a result of recording an impairment loss on the valuation of the unsecured loan made to OmniCare-MI.
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998
Total revenues decreased $12.1 million (11%), from $105.6 million in the year ended June 30, 1998 to $93.5 million in the year ended June 30, 1999.
OmniCare-TN medical premium revenues increased $7.4 million (12%), from $63.5 million in the year ended June 30, 1998 to $70.9 million in the year ended June 30, 1999. OmniCare-TN received $5.9 million in adverse selection payments in the year ended June 30, 1999, of which $1.8 million, $3.1 million and $1.0 million represented the service periods for July 1998 to March 1999, July 1997 to June 1998 and June 1997 and prior, respectively. In addition, OmniCare-TN recognized a one-time adverse selection payment of $1.2 million in fiscal 1999. For the year ended June 30, 1999, OmniCare-TN medical premium revenues related to excess adverse selection payments, which had been based on the State of Tennessee's estimate, increased by $4.0 million (364%), from $1.1 million for fiscal 1998 to $5.1 million for fiscal 1999.
The OmniCare-TN PMPM premium rate -- based on an average membership of 45,000 for the year ended June 30, 1999 compared to 44,000 for the year ended June 30, 1998 -- was $122 for the year ended June 30, 1999, compared to $119 for the year ended June 30, 1998 (excluding excess adverse selection payments), an increase of 2% or $3.4 million. The 4% increase in member months accounted for $1.8 million of the OmniCare-TN fiscal 1999 medical premium revenue increase.
UltraMedix, which ceased operations and was placed in liquidation in March 1998, did not contribute any medical premium revenues in the year ended June 30, 1999. Medical premium revenues from UltraMedix were $15.1 million in the year ended June 30, 1998.
Management fees earned from OmniCare-MI were $18.1 million in the year ended June 30, 1999, a decrease of $6.9 million (28%) from fees of $25.0 million in the year ended June 30, 1998. The decrease is due to the following: (i) reduction in the management fee percentage in June 1998 from 17% to 14%, which resulted in a decrease of $4.2 million; (ii) a decrease in operating revenues of OmniCare-MI in fiscal 1999 due primarily to an enrollment decrease of 6%, which resulted in a net decrease in management fees of $1.6 million; and (iii) forgiveness of management fee revenues from OmniCare-MI of $1.3 million.
Medical services expenses were $59.9 million in the year ended June 30, 1999, a decrease of $10.4 million (15%) from medical services expenses of $70.3 million in the year ended June 30, 1998.
UltraMedix, which ceased operations in March 1998, did not incur any medical services expenses in the year ended June 30, 1999. Medical services expenses for UltraMedix were $17.3 million in the year ended June 30, 1998.
As a result, the Company recognized earnings from continuing operations before income taxes of $1.1 million for the year ended June 30, 1999, compared to a loss from continuing operations before income taxes of $27.4 million for the year ended June 30, 1998, a $28.5 million change. Net earnings from continuing operations were $0.6 million for the year ended June 30, 1999, compared to a net loss from continuing operations of $22.9 million for the year ended June 30, 1998, a change of $23.5 million.
In previous fiscal years, to satisfy applicable statutory requirements, the Company provided $1.0 million in letters of credit on behalf of, and a $1.0 million capital contribution to, OmniCare-LA, and made a $2.1 million capital contribution to PhilCare. The funds were
The Company's restructuring decisions significantly contributed to the $22.9 million loss from continuing operations in fiscal 1998. However, after adjusting for non-cash activities and changes in assets and liabilities, the Company generated positive cash flows from operations in fiscal 1998. The Company also generated positive cash flows from operations in fiscal 1999.
Management's plans to address the current negative working capital and improve operating results and cash flow include the following:
Management expects that the OmniCare-MI corrective action plan, as revised in 2000, will continue to stabilize that Plan. OmniCare-MI has successfully renegotiated certain major hospital provider contracts, including its most significant hospital contract. On July 14, 2000, the State of Michigan notified OmniCare-MI that it was one of the successful bidders in the State's extensive bid process for increased Medicaid rates and continued eligibility as an HMO providing coverage to enrollees of the State's Comprehensive Health Care Program for Medicaid beneficiaries. As a result, OmniCare-MI has been awarded a rate increase, effective October 1, 2000, and an extension of its contract with the State through September 30, 2002, with the potential for three one-year extensions. Management estimates that the awarded rate increase could increase OmniCare-MI's annual Medicaid revenue by approximately 11% on average, resulting in approximately $1.5 million of additional management fee revenue to the Company in fiscal 2001. In addition, because the unsuccessful bidders' Medicaid enrollees must change to a successful bidder in their region, management believes that OmniCare-MI's volume of Medicaid enrollees could significantly increase, generating additional management fee revenue for the Company in and after fiscal 2001. There can be no assurance, however, of any such increase in OmniCare-MI's membership.
In the strategic partnership's first phase, on May 1, 2000 approximately 28,000 members of DMC's Medicaid managed care program were transferred to OmniCare-MI, and DMC's seven hospitals and approximately 3,000 affiliated physicians now serve as part of OmniCare-MI's provider network. During fiscal 2000, the additional membership generated management fee revenue of $0.6 million. It is anticipated that management fee revenue earned on the increased
Medicaid membership will grow to approximately $7.0 million in fiscal 2001, with a minimal increase in cost.
Effective July 1, 2000, OmniCare-TN entered into a new 42-month contract with the State of Tennessee's TennCare Program. The provisions of the contract provide for an approximate 4.5% increase in average premiums through January 1, 2001, with future increases to be determined by the State of Tennessee. Such increases are in lieu of the quarterly adverse selection payments previously made by TennCare to compensate managed care organizations for substantial adverse costs incurred due to the nature of the services they offer and their treatment of a high risk population. Management expects that the net effect of the increase in the monthly premiums and the elimination of the adverse selection payments will improve monthly cash flow in fiscal 2001.
On September 20, 2000, the Company made an additional cash contribution of $0.9 million to OmniCare-TN in exchange for additional preferred stock of OmniCare-TN to be issued to the Company. The cash contribution was made to enable OmniCare-TN to meet minimum statutory requirements for net worth, while allowing OmniCare-TN to utilize the funds for working capital.