Health Net 2000 Annual Report Download - page 58

56 HEALTH NET 2000 Annual Report
NOTE 18 – FOHP, Inc.
In 1997, the Company purchased convertible and non-
convertible debentures of FOHP, Inc., a New Jersey cor-
poration (“FOHP”), in the aggregate principal amounts
of approximately $80.7 million and $24.0 million,
respectively. In 1997 and 1998, the Company converted
certain of the convertible debentures into shares of
Common Stock of FOHP, resulting in the Company
owning 99.6% of the outstanding common stock of
FOHP.The nonconvertible debentures mature on
December 31, 2002.
Effective January 1, 1999, Physicians Health Services
of New Jersey, Inc., a New Jersey HMO wholly-owned
by the Company, merged with and into First Option
Health Plan of New Jersey (“FOHP-NJ”), a New Jersey
HMO subsidiary of FOHP, and FOHP-NJ changed its
name to Physicians Health Services of New Jersey, Inc.
(“PHS-NJ”). Effective July 30, 1999, upon approval by
the stockholders of FOHP at a special meeting, a
wholly-owned subsidiary of the Company merged into
FOHP and FOHP became a wholly-owned subsidiary
of the Company. In connection with the merger, the
former minority shareholders of FOHP are entitled to
receive either $0.25 per share (the value per FOHP
share as of December 31, 1998 as determined by an out-
side appraiser) or payment rights which entitle the hold-
ers to receive as much as $15.00 per payment right on
or about July 1, 2001, provided certain hospital and
other provider participation conditions are met. Also in
connection with the merger, additional consideration of
$2.25 per payment right will be paid to certain holders
of the payment rights if PHS-NJ achieves certain annual
returns on common equity and the participation condi-
tions are met.As of December 31, 2000, the Company
determined that it is probable that these payment rights
would be paid on or about July 1, 2001. Accordingly, the
Company recorded a purchase price adjustment of $33.7
million to goodwill as of December 31, 2000.
NOTE 19 – Subsequent Events
In January 2001, the Company entered into a definitive
agreement to sell its Florida health plan, known as
Foundation Health, a Florida Health Plan, Inc., to
Florida Health Plan Holdings II, LLC for $48 million
which consists of $23 million in cash and a $25 million
secured five-year note bearing 8 percent interest.The
transaction is expected to close in the second quarter of
2001 subject to regulatory approvals and other custom-
ary conditions of closing.
On February 14, 2001, the Connecticut State
Medical Society filed a complaint in Connecticut State
Court against Physicians Health Services of Connecticut,
Inc. alleging violations of the Connecticut Unfair Trade
Practices Act.The complaint alleges that PHS-CT
engaged in conduct that was designed to delay, deny,
impede and reduce lawful reimbursement to physicians
who rendered medically necessary health care services to
PHS-CT health plan members.The complaint, which is
similar to others filed against the Company and other
managed care companies, seeks declaratory and injunc-
tive relief.The Company intends to vigorously defend
the action.
On February 14, 2001, a purported class action law-
suit was filed in Connecticut State Court against
Physicians Health Services of Connecticut, Inc. by Kevin
Lynch, M.D. and Karen Laugel, M.D. on behalf of physi-
cian members of the Connecticut State Medical Society
who provide health care services to PHS-CT health plan
members pursuant to provider service contracts.The
complaint alleges that PHS-CT engaged in improper,
unfair and deceptive practices by denying, impeding
and/or delaying lawful reimbursement to physicians.The
complaint, similar to the complaint referred to above
filed against PHS-CT on the same day by the
Connecticut State Medical Society, seeks declaratory and
injunctive relief, and damages.The Company intends to
vigorously defend the action.