At December 31, 1999, WellCare's executive offices are located in at, Park West I building at Hurley Avenue in Kingston, New York. Park West I comprise approximately 27,000 square feet of office space with annual rental expense of $162,000.
The Company leases the following properties for WCNY: approximately 14,100 square feet in Newburgh, New York, approximately 1,200 square feet in Albany, New York, and approximately 1,250 square feet in Binghamton, New York, at an annual expenses of approximately $262,000, $17,550 and $17,700, respectively. In turn, the Company subleases approximately 4,100 square feet in Newburgh, to an unrelated health care providers with an annual rental of approximately $109,900.
The Company leases approximately 5,000 square feet of office space in North Haven, Connecticut, for WCCT, at an annual rental expense of approximately $75,000.
As a result of various business transactions completed in June 1999 (see Business-Business Developments), the Company believes its current and future needs will be significantly reduced. The Company is in the process of consolidating its administrative functions and will be vacating substantially all of the space previously occupied in the owned facilities. The Company continues to evaluate its needs, and believes sufficient space is available for its current and future requirements.
The selected financial data in the table as of December 31, 1999 is derived from the consolidated financial statements of the Company which have been audited by BDO Seidman , LLP, independent auditors. BDO Seidman, LLP was approved, by the Company's Board of Directors on January 5, 2000, as the Company's independent auditors (see Exhibits-Form 8K). The year-end consolidated financial statements and footnotes thereto, audited by BDO Seidman, LLP, are included elsewhere herein this Form 10K (See "Consolidated Financial Statements").
The selected financial data in the table as of December 31, 1998 and 1997, and for the periods ended December 31, 1998, 1997,1996 and 1995, are derived from the consolidated financial statements of the Company which have been audited by Deloitte & Touche, LLP, independent auditors. Deloitte & Touche, LLP were dismissed as the Company's independent auditors for the year ending December 31, 1999.. This action was approved by the Company's Board of Directors on January 5, 2000 (see Exhibits- Form 8K).
Interest and other expenses 3.6 1.7 1.7 2.4 1.6 ------ ------ ------ ------ ------ Total expenses 129.2 169.9 166.0 180.9 149.8 ------ ------ ------ ------ ------ (Loss)income before extraordinary gain and income taxes (16.7) (25.4) (22.1) (19.8) 2.8
Extraordinary gain, net of tax of $2.2 16.1 -- -- -- ------ ------ ------ ------ ------ Net income(loss) 1.6 (30.9) (22.1) (11.8) 1.7
Year Ended December 31, ----------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Basic: ($) ($) ($) ($) ($)
Income/(loss) per share Before extraordinary item (1.13) (4.36) (3.52) (1.87) 0.27 ====== ====== ====== ====== ====== Extraordinary gain 1.04 -- -- -- -- ====== ====== ====== ====== ====== Net income (loss) available To common shareholders (0.09) (4.36) (3.52) (1.87) 0.27 ====== ====== ====== ====== ======
Weighted average shares of common stock outstanding 15,489 7,081 6,299 6,296 6,250 ====== ====== ====== ====== ======
Balance Sheet Data: (in thousands) Year Ended December 31, ----------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- ($) ($) ($) ($) ($)
For the next few months, Management is focusing on improving customer service and bringing the company to operational profitability. To achieve these goals, we are working to strengthen its provider network for both WCNY and WCCT. We will put more emphasis on marketing in WCNY's Health Choice (Medicaid) and Child Health plus Products. The Medicare line of business will be reevaluated for profitability by each county. Also, for WCCT, we will start marketing only in the counties where our provider networks support the competitive pricing and servicing to our members. For a short period, we may see a significant drop in the membership in WCCT.
The Company's ability to achieve profitability is dependent on the facts discussed above and on reducing its medical expenses as a percentage of its premium revenue (the "medical loss ratio" or "MLR"). Although WellCare has initiated programs to reduce the MLR, the actions have not yet generated improvements sufficient to return the Company to profitability. Effective January 1999, WCNY did not renew its Medicare Risk contract in four counties (approximately 4,000 members) after reviewing its medical loss ratio in each of these counties. Effective June 1, 1999, WCNY sold its commercial business, including approximately 25,000 members, to GHI (see Business-GHI transaction).
The results of operations depend in large part on the Company's ability to predict, quantify and manage medical costs. Medical expenses consist of hospital charges, physician fees and related health care costs for its members. Medical expenses also include estimates for medical services incurred but not yet reported ("IBNR") to the Company, based on a number of factors, including hospital admission data and prior claims experience; adjustments, if necessary, are made to medical expenses in the period the actual claims costs are ultimately determined. A daily inventory of hospital days and patient stays by product line is maintained by medical management. Claims are entered and scanned into the claims system and then are available for examiners to either process, review and approve for payment, pend for additional information from the provider, or deny. All claims are entered into the system at charge rates and evaluated.
The Company believes that the process of trending the ultimate resolution of paid, payable, and pended claims allows the Company to analyze trends and changes in payments and utilization patterns and, therefore, react to medical costs on a proactive versus a reactive basis. The Company's recording of IBNR during 1999 and the first quarter of 2000 has, in retrospect, been for amounts less than subsequently incurred based on the actual settlement of claims. Although the Company continues its efforts to make this estimating process more accurate, and believes the IBNR estimates in the December 31, 1999 consolidated financial statements are adequate, there can be no assurance that IBNR reserve currently recorded will be sufficient to cover medical expenses ultimately incurred.
Expenses: Hospital services 33.6 29.2 25.1 Physician services 52.5 57.9 58.5 Other medical services 4.4 2.6 4.2 ----- ----- -----
Total medical expenses 90.5 89.7 87.8 General and administrative 20.1 22.6 24.0 Depreciation and amortization 1.0 4.1 2.5 Interest and other expenses 3.2 1.2 1.1 ----- ----- ----- Total expenses 114.8 117.6 115.4
Extraordinary gain, net of tax 14.2 -- -- ----- ----- ----- Net income(loss) 1.4 (21.4) (15.4)
Preferred deemed dividend (2.6) -- -- ----- ----- ----- Net loss available to common shareholders (1.2)% (21.4)% (15.4)% ===== ===== =====
HMO member months enrollment 655,985 854,909 901,295 Medical loss ratio(1) 92.1% 90.7% 88.8% General and administrative ratio(2) 20.1% 22.6% 24.0% - ------------------------- (1) Total medical expenses as a percentage of premiums earned; reflects the combined rates of commercial, Medicaid, Full Risk Medicare and Medicare supplemental members. Medical expenses in 1998 include $730,216 of interest expense relating to "Prompt Pay" payments.
Premiums earned in 1999 decreased by 22.6%, or $32.2 million, to $110.5 from $142.7 million in 1998. Commercial premium revenue decreased 29.6%, or $20.6 million primarily resulting from the sale of WCNY's commercial line of business. The decrease in commercial premium revenue in WCNY exceeded the annual average membership and corresponding premium revenue in WCCT's commercial line of business. Medicare premium revenue decreased 7.9%, or $2.5 million, because of 11.0% decrease in member months. Medicaid premium revenue decreased 21.4% or $9.1 million, because of an approximate 50% decrease in member months. Interest income remained relatively consistent, and is primarily on float balance at company's operating accounts.
Medical expense decreased 21.4%, or $27.7 million, to $101.8 million in 1999 and increased as a percentage of premiums earned (the "medical loss ratio") from 90.7% in 1998 to 92.1% in 1999
Depreciation and amortization decreased approximately $4.9 million, or 80.9%, primarily because the Company has disposed the majority of its fixed assets and sold its WCNY's Commercial books of business to GHI. Interest expense increased 106.1% to $3.6 million due to the subordinated convertible debt inducement (See Business-Business Development).
General and administrative ("G&A") expenses decreased 5.3% or $1.9 million, to $32.6 million in 1998 from $34.5 million IN 1997, and decreased as a percentage of total revenue (the G&A ratio") to 22.6% in 1998 from 24.0% in 1997. Included in G&A in 1998 is an expense of $2.8 million to reduce Property & Equipment to its net realizable value. The decrease resulted primarily from reductions in the provision for doubtful receivables ($3.1 million), marketing related costs ($1.9 million), and payroll and payroll related costs resulting from staff reductions in January 1998 ($0.6 million), partially offset by increases relating to Y2K compliance ($0.5 million) and broker commissions for WCCT ($0.5 million).
o The elimination and consolidation of duplicate administrative and customer service functions.