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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-19147
COVENTRY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 52-2073000 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
6705
Rockledge Drive, Suite 900, Bethesda, Maryland 20817
(Address of principal
executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 581-0600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock purchase rights
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant’s voting Common Stock held by non-affiliates of the registrant as of February 28, 2001 (computed by reference to the closing sales price of such stock on the Nasdaq® stock market on such date) was $1,200,985,700.25.
As of February 28, 2001, there were 65,359,766 shares of the registrant’s voting Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s Proxy Statement for its 2001 Annual Meeting of Shareholders to be filed with the Commission pursuant to Regulation 14A subsequent to the filing of this Form 10-K Report are incorporated by reference in items 10 through 13 of Part III hereof.
| PART I | |
| Item 1: Business | 3 |
| Item 2: Properties | 11 |
| Item 3: Legal Proceedings | 11 |
| Item 4: Submission of Matters to a Vote of Security Holders | 11 |
| PART II | |
| Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters | 12 |
| Item 6: Selected Consolidated Financial Data | 13 |
| Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 |
| Item 7A: Quantitative and Qualitative Disclosures of Market Risk | 31 |
| Item 8: Financial Statements and Supplementary Data | 32 |
| Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 57 |
| PART III | |
| Item 10: Directors and Executive Officers of the Registrant | 58 |
| Item 11: Executive Compensation | 58 |
| Item 12: Security Ownership of Certain Beneficial Owners and Management | 58 |
| Item 13: Certain Relationships and Related Transactions | 58 |
| PART IV | |
| Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K | 59 |
| SIGNATURES | 66 |
| INDEX TO EXHIBITS | 69 |
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The statements contained in this Form 10-K that are not historical are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which are subject to risks and uncertainties. These forward-looking statements may be affected by a number of factors, including, but not limited to, the “Risk Factors” contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K. Actual operations and results may differ materially from those expressed in this Form 10-K. Among the factors that may materially affect the Company’s business are increases in medical costs, difficulties in increasing premiums due to competitive pressures, price restrictions under Medicaid and Medicare, regulatory restrictions, issues relating to marketing of products or accreditation or certification of the products by private or governmental bodies, difficulties in obtaining or maintaining favorable contracts with health care providers, credit risks on global capitation arrangements, financing costs and contingencies and litigation risk.
Coventry Health Care, Inc. (together with its subsidiaries, “the Company”, “Coventry”, “we”, “our”, or “us”) is a managed health care company operating health plans under the names Coventry Health Care, Coventry Health and Life, HealthAmerica, HealthAssurance, HealthCare USA, Group Health Plan, SouthCare, Southern Health, Carelink Health Plans, and WellPath. The Company provides a full range of managed care products and services including health maintenance organization (“HMO”), point-of-service (“POS”), preferred provider organization (“PPO”) products, and Medicare and Medicaid products. The Company also administers self-insured plans for large employer groups. Coventry was incorporated under the laws of the State of Delaware on December 17, 1997 and is the successor to Coventry Corporation, which was incorporated on November 21, 1986.
As of December 31, 2000, in continuing operations, the Company had 1,436,618 members for whom it assumes underwriting risk (“risk members”) and 276,416 members of self-insured employers for whom it provides management services but does not assume underwriting risk (“non-risk members”). The following tables show the total number of members as of December 31, 2000 and 1999 and the percentage change in membership between these dates. The December 31, 2000 membership figures for continuing operations reflect the Company’s acquisitions of PrimeONE, Maxicare Louisiana, WellPath Community Health Plans, and Prudential’s St. Louis, Missouri Medicaid membership, all of which occurred in 2000.
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| December 31, | Percent | ||
| 2000 | 1999 | Change | |
| Risk membership in continuing operations: | |||
| Carolinas | 132,004 | 48,205 | 173.8% |
| Delaware | 83,441 | 56,700 | 47.2% |
| Georgia | 34,585 | 27,485 | 25.8% |
| Iowa | 72,310 | 76,205 | (5.1%) |
| Kansas City | 85,934 | 66,753 | 28.7% |
| Louisiana | 59,903 | 37,837 | 58.3% |
| Nebraska | 33,048 | 26,927 | 22.7% |
| Pennsylvania | 390,565 | 376,416 | 3.8% |
| Richmond | 58,688 | 53,333 | 10.0% |
| St. Louis | 345,300 | 314,298 | 9.9% |
| West Virginia | 97,381 | 78,968 | 23.3% |
| Wichita | 43,459 | 39,177 | 10.9% |
| Total risk membership | 1,436,618 | 1,202,304 | 19.5% |
| Total non-risk membership | 276,416 | 237,635 | 16.3% |
| Total membership in continuing operations | 1,713,034 | 1,439,939 | 19.0% |
| Total membership in non-continuing operations: | |||
| Indiana | -- | 23,434 | (100.0%) |
| Total membership | 1,713,034 | 1,463,373 | 17.1% |
| December 31, | Percent | ||
| 2000 | 1999 | Change | |
| Risk membership in continuing operations: | |||
| Commercial | 1,170,239 | 987,181 | 18.5% |
| Governmental programs | 266,379 | 215,123 | 23.8% |
| Total risk membership in continuing operations | 1,436,618 | 1,202,304 | 19.5% |
| Total non-risk membership | 276,416 | 237,635 | 16.3% |
| Total membership in continuing operations: | 1,713,034 | 1,439,939 | 19.0% |
| Total membership in non-continuing operations: | |||
| Indiana | -- | 23,434 | (100.0%) |
| Total membership | 1,713,034 | 1,463,373 | 17.1% |
The Company’s HMO products provide comprehensive health care benefits to members, including ambulatory and inpatient physician services, hospitalization, pharmacy, dental, optical, mental health, and ancillary diagnostic and therapeutic services. In general, a fixed monthly enrollment fee covers all HMO services although some benefit plans require copayments or deductibles in addition to the basic enrollment fee. A primary care physician assumes overall responsibility for the care of a member, including preventive and routine medical care and referrals to specialists and consulting physicians. While an HMO member’s choice of providers is limited to those within the health plan’s HMO network, the HMO member is typically entitled to coverage of a broader range of health care services than is covered by typical reimbursement or indemnity policies.
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The Company, through its health plans, offers flexible provider products, including PPO and POS products. These products permit members to participate in managed care but allow them to choose, at the time services are required, to use providers not participating in the managed care network. If a non-participating provider is utilized, deductibles and copayments are generally higher and increase the out-of-pocket costs to the member. PPO/POS premiums are typically lower than HMO premiums due to the increased out-of-pocket costs borne by the members.
Under the Company’s Medicare and Medicare+Choice contracts, the Company receives a county-specific fixed premium per member per month from the U.S. Health Care Financing Administration (“HCFA”), which reflects certain county-specific demographics of the Medicare population of each region. However, since no out-of-pocket costs are borne by members, these products also carry the risk of higher utilization and related medical costs than commercial products and the possibility of regulatory or legislative changes that may reduce premiums or increase mandated benefits in the future. The Company is also subject to increased government regulation and reporting requirements related to these products.
Under the Company’s Medicare+Choice contract, of the total monthly premium, ten percent is based on individually determined health risk adjusters based on previous hospitalization. In addition, HCFA may audit the cost reports of the cost contracts and the Health Care Prepayment Plans (“HCPP”) that have been closed and, as a result, the company may be at risk for less than full reimbursement.
In late 1995, the Company introduced a Medicare product, for which the Company assumes risk, under the name “Advantra”, in the St. Louis market. In 1996, the Company began marketing this product in its western and central Pennsylvania markets. The Company introduced a Medicare product in Kansas City and Delaware effective July 1, 1999 and January 1, 2000, respectively. Effective January 1, 2000, the Company exited three counties in central Pennsylvania, representing less than 900 members, because the reimbursement rates were not adequate.
Effective December 31, 2000, the Company closed its Iowa Medicare Cost contract and withdrew from the market in Iowa. The Company reduced the Medicare service area in St. Louis by five counties affecting 1,800 members, in central Pennsylvania by six counties affecting 3,500 members and obtained a capacity waiver for the remaining county. In the remaining markets the Company increased premiums and segmented markets due to inadequate federal reimbursement.
The Company offers health care coverage to Medicaid recipients in St. Louis and central Missouri; Richmond, Virginia; Delaware; North Carolina; West Virginia and Iowa. Medicaid recipients in the St. Louis, central Missouri, North Carolina, Delaware and Richmond, Virginia markets are generally required to choose a managed care provider. In West Virginia and Iowa, enrollment with a Medicaid managed care provider is voluntary. Under a Medicaid contract, the participating state pays a monthly premium per member based on the age, sex, and eligibility category of the recipients enrolled in the Company’s plans.
The Company’s health plans offer management services to large employers who self-insure their employee health benefits. Under related contracts, employers who fund their own health plans receive the benefit of provider pricing arrangements from the Company. The Company also provides a variety of administrative services such as claims processing, utilization review and quality assurance for the employers. The Company receives an administrative fee for these services but does not assume the healthcare cost underwriting risk. Certain of the Company’s management services contracts include performance and utilization management standards that affect the fees received for these services. As a result of the acquisition of certain Principal Health Care, Inc. (“PHC”) health plans from Principal Life, the Company recognized revenue under a Marketing Services Agreement, Management Services Agreement and PPO Access Agreement with Principal Life through December 1999. The Company also offers a PPO product to other third-party payors under which the Company provides rental of and access to the Company’s PPO network, claims repricing and utilization review. The Company does not accept underwriting risk for this product and the non-risk membership in the tables above does not reflect membership attributable to this product.
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The Company’s health plans maintain provider networks that furnish health care services through contractual arrangements with physicians, hospitals and other health care providers, rather than providing reimbursement to the member for the charges of such providers. Because the health plans receive the same amount of revenue from their members regardless of the cost of healthcare services provided, they must manage both the utilization of services and the unit cost of the services.
All of the Company’s health plans currently offer an open panel delivery system. In an open panel structure, individual physicians or physician groups contract with the health plans to provide services to members but also maintain independent practices in which they provide services to individuals who are not members of the Company’s health plans.
Some of the Company’s health plans have entered into global capitation agreements. Under the typical arrangement, the provider receives a fixed percentage of premium to cover all the medical costs provided to the globally capitated members. Global capitation agreements limit the Company’s exposure to the risk of increasing medical costs, but expose the Company to risk as to the adequacy of the financial and medical care resources of the provider organization. To the extent that the respective provider organization faces financial difficulties or otherwise is unable to perform its obligations under the global capitation agreements, the Company, which is responsible for the coverage of its members pursuant to its customer agreements, will be required to perform such obligations, and may have to incur costs in doing so in excess of the amounts it would otherwise have to pay under the global capitation agreements. From 1998 to 2000, the Company had two significant global capitation agreements: Allegheny Health, Education and Research Foundation (“AHERF”) and Barnes Jewish Christian Health System (“BJC”). The Company ceased to operate under the global capitation agreement with AHERF in 1998 and with BJC in 2000. For more information concerning AHERF, refer to Note D of the notes to the consolidated financial statements.
Most contracting primary care and specialist physicians are compensated under a discounted fee-for-service arrangement; a small minority is contracted under capitation arrangements. In the latter arrangement, some physicians may also receive additional compensation from risk-sharing and other incentive arrangements. The majority of the Company’s contracts with hospitals provide for inpatient per diem or per case hospital rates. Outpatient services are contracted on a discounted fee-for-service or a per case basis. The Company pays ancillary providers on a fixed fee schedule or a capitation basis. Prescription drug benefits are provided through a formulary comprised of an extensive list of drugs. Drug prices are negotiated through a national network of pharmacies at discounted rates. The Company no longer has significant membership covered by global capitation arrangements.
The Company has established systems to monitor the availability, appropriateness and effectiveness of the patient care it provides. Monitoring the quantity of physicians and support personnel needed for the number of enrollees served assists in determining and maintaining the availability of care at appropriate levels. Utilization data, collected and disseminated in the context of controlling costs, serves as a valuable indicator of over or under utilization of services, and helps the Company’s health plans provide appropriate care for their members.
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The Company’s health plans also have internal quality assurance review committees made up of practicing physicians and staff members whose responsibilities include periodic review of medical records, development and implementation of standards of care based on current medical literature and the collection of data relating to results of treatment. Studies are regularly conducted to discover possible adverse medical outcomes for both quality and risk management purposes. Appointment availability, member waiting times and environments are monitored. A member services department is responsible for monitoring and maintaining member satisfaction, and the Company’s health plans continually conduct membership surveys of both existing and former members concerning services furnished and suggestions for improvement.
Each of the Company’s health plans either employs physicians or contracts with physicians as Medical Directors who oversee the delivery of medical services. The Medical Directors supervise Medical Managers who review and approve requests by physicians to perform certain diagnostic and therapeutic procedures, using nationally recognized clinical guidelines. Medical Managers also continually review the status of hospitalized patients and compare their medical progress with established clinical criteria, make hospital rounds to review patients’ medical progress, and perform quality assurance and utilization functions.
Medical Directors also monitor the utilization of diagnostic services and encourage use of outpatient surgery and testing where appropriate. Data showing each physician’s utilization profile for diagnostic tests, specialty referrals and hospitalization are collected by each health plan and presented to the health plan’s physicians. These results are monitored by the Medical Directors in an attempt to ensure the use of cost-effective, medically appropriate services.
The Company’s commercial health plans are marketed primarily to employer groups as alternatives to conventional fee-for-service health care and indemnity health insurance programs. Employers generally pay all or part of their employees’ health care premiums, and many continue to offer their employees a conventional insurance plan even if one or more of the Company’s products are offered.
Commercial marketing is generally a two-step process in which presentations are made first to employers and then directly to employees. Once selected by an employer, the Company solicits members from the employee base directly. During periodic “open enrollments,” in which employees are permitted to change health care programs, the Company may use direct mail, worksheet presentations, and radio and television advertisements to contact prospective members. The Company also markets through independent insurance brokers, agents, and employee benefits consultants. Virtually all of the Company’s employer group contracts are renewable annually, and enrollment is continuously affected by employee turnover within employer groups.
The Company’s Medicaid products are marketed directly to individuals while its Medicare products are marketed to both individuals and employer group retirees. Individual marketing to Medicare beneficiaries is conducted through use of a direct sales force and advertising efforts that include television, radio, newspaper, billboards, and direct mail. The Company also markets Medicare products through independent insurance brokers and agents. The Company’s Medicaid and Medicare contracts are renewable annually. Medicare enrollees may disenroll monthly. Medicaid enrollees may disenroll, depending on the jurisdiction, either monthly or annually.
Each of the Company’s health plans employs a full-time sales and marketing staff. Some individuals are responsible for selling to new employers while others are responsible for servicing existing customers. The marketing staff uses advertising and promotional material prepared internally and/or by advertising firms.
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The Company received 27.3% of its consolidated revenues in 2000 from its Medicaid and Medicare programs throughout its various markets. For the year ended December 31, 2000, HealthCare USA of Missouri, L.L.C. (“HCUSA”), a subsidiary, received approximately $161.8 million or 100% of its revenues from the State of Missouri for Medicaid members. Also, the Company’s health plan in Wichita received approximately $43.1 million, or 59.9% of its revenues from one employer group.
The Company’s health plans operate in highly competitive environments and compete with other HMOs, PPOs, indemnity insurance carriers and physician-hospital organizations. While competitive pressures in 1998 had an adverse affect on premiums from the Company’s commercial products, the environment has generally improved in 1999 and 2000, allowing the Company to implement average rate increases of 8% to 15% in 1999 and 2000 on commercial business. In some cases, employer groups have moved from the traditional commercial HMO plans toward the lower premium flexible provider products. To meet this demand, the Company has introduced “Direct Access” versions of many of its benefit plans. While not available in all the health plans, “Direct Access” allows members to seek care directly from many providers without an authorization. There are specific services, however, which still require authorization. “Direct Access” has become increasingly popular with employers, brokers, and providers and may also be offered by the company’s competitors.
The Company believes that the principal factors influencing an employer group’s decision to choose among health care options are the price of the benefit plans offered, locations of the health care providers, reputation for quality care, financial stability, comprehensiveness of coverage, diversity of product offerings, and improved access to care.
The Company also competes with other managed care organizations and indemnity insurance carriers in obtaining and retaining favorable contracts with hospitals and other providers of services to the Company’s health plans.
The Company’s HMOs are required to file periodic reports with, and are subject to periodic review by, state and federal authorities that regulate them. The HMOs are required by state law to meet certain minimum capital and deposit and/or reserve requirements and may be restricted from paying dividends under certain circumstances. They are also required to provide their members with certain mandated benefits. The HMOs are required to have quality assurance and education programs for their professionals and enrollees. Certain states’ laws further require that representatives of the HMOs’ members have a voice in policy making.
Pursuant to a Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) mandate, the Department of Health and Human Services (“HHS”) released a final rule regarding standards for privacy of individually identifiable health information on December 20, 2000, effective April 14, 2003. The primary purposes of the final rule are (1) to protect and enhance the rights of consumers by providing them access to their health information and controlling the inappropriate use of that information, and (2) to improve the efficiency and effectiveness of health care delivery by creating a national framework for health privacy protection that builds on efforts by states, health systems, individual organizations and individuals. Health plans, providers and health care clearinghouses have until February 26, 2003 to come into compliance with the final rule. The Company has instituted a process to assure that it will be in compliance with the final rule by that date.
HHS also released its final rule for electronic data standards on August 17, 2000, effective October 17, 2000. This rule establishes the standard data content and format for submitting electronic claims and other administrative health transactions. Health plans, providers and health care clearinghouses have two years from the effective date to comply with the standards. The Company has instituted a process to assure that it will be in compliance with the final rule by that date.
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The U.S. Department of Labor’s (“DOL”) Pension and Welfare Benefits Administration, the Internal Revenue Service and HHS issued two regulations on January 5, 2001 providing guidance on HIPAA nondiscrimination provisions as they relate to health factors and wellness programs. HIPAA’s nondiscrimination provisions prohibit a group health plan or group health insurance issuer from denying an individual eligibility for benefits or charging an individual a higher premium based on a health factor.
On November 21, 2000, DOL issued in final form a rule relating to benefit claims and appeal procedures for the Employee Retirement Income Security Act of 1974 (“ERISA”) plans, disability plans and other employee benefit plans. It shortens the time allowed for health and disability plans to respond to claims and appeals, establishes new requirements for plan responses to appeals and expands required disclosures to participants and beneficiaries. The rule applies to claims filed on or after January 1, 2002.
DOL also published a final regulation on November 21, 2000 regarding summary plan descriptions (“SPDs”). The regulation applies to ERISA benefit plans and health plans that provide coverage to ERISA benefit plans. The regulation expands the amount of information required to be included in SPDs and requires that certain information be available to participants and beneficiaries upon request, free of charge. The final regulation will be effective on the first day of the second plan year beginning on or after January 22, 2001.
All of the Company’s HMOs that contract with HCFA to provide services to Medicare beneficiaries pursuant to a Medicare+Choice contract are subject to federal laws and regulations. These HMOs may also be subject to state laws governing Medicare contracting. HCFA has the right to audit any health plan operating under a Medicare+Choice contract to determine the plan’s compliance with the requirements established by peer review organizations (“PROs”), which are organizations under contract with HCFA to monitor the quality of health care received by Medicare beneficiaries and under contract with certain states to monitor the quality of health care received by Medicaid patients. In addition, cost reimbursement reports are required with respect to Medicare cost contracts and are subject to audit and revision.
As a result of the Medicare+Choice and Medicaid products offered by the Company, the Company is subject to regulatory and legislative changes in those two government programs. The Balanced Budget Refinement Act of 1999 (“BBRA”) was enacted into law on November 29, 1999. This law modified the Balanced Budget Act of 1997, which had made substantial revisions to the Medicare and Medicaid programs. Specifically, the BBRA revised the Medicare+Choice Program’s enrollment rules and risk adjustment methodology. Additionally, the BBRA offers limited incentives to health plans to participate in Medicare+Choice plans in areas which currently do not have Medicare+Choice plans. The BBRA also allows Medicare+Choice plans greater flexibility in structuring benefit packages for enrollees in the same service area. At this time, the management of the Company does not believe that the BBRA will have a material effect on the Company and its operations.
The United States Congress enacted the Benefits Improvement and Protection Act of 2000 (“BIPA”) in December 2000. BIPA increases Medicare and Medicaid provider payments and enhances the benefit package for Medicare beneficiaries. The increased payment amounts are effective March 1, 2001. These amounts may only be used by Medicare+Choice plans to increase funds to reduce beneficiary premiums or copayments, enhance benefits, stabilize or widen the network of health care providers available to beneficiaries, or reserve funds to help offset the premium increases or reduced benefits in the future. At this time, the management of the Company does not believe that BIPA will have a material effect on the Company and its operations.
All of the Company’s HMOs that contract with states to provide services to Medicaid recipients are subject to state and federal laws and regulations. HCFA and the appropriate state regulatory agency have the right to audit any health plan operating under a Medicaid managed care contract to determine the plan’s compliance with state and federal law. In some instances, states engage PROs to perform quality assurance and utilization review oversight of Medicaid managed care plans. The Company’s HMOs are required to abide by the PRO standards.
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HCFA issued a final Medicaid managed care rule on January 19, 2001. The final rule includes strengthened beneficiary protections and new provisions designed to protect the rights of participants in the Medicaid program. Specifically, the final rule requires states to assure continuous access to care for beneficiaries with ongoing health care needs who transfer from one health plan to another. The new rule also requires states and plans to identify enrollees with special health care needs and to assess the quality and appropriateness of their care.
The Social Security Act imposes criminal and civil penalties for paying or receiving remuneration (which is deemed to include a kickback, bribe or rebate) in connection with any federal health care program including, but not limited to, Medicare, Medicaid and Civilian Health and Medical Program of the Uniformed Services (“CHAMPUS”) programs. The law and the related regulations have been interpreted to prohibit the payment, solicitation, offering or receipt of any form of remuneration in return for the referral of federal health care program patients or any item or service that is reimbursed, in whole or part, by any federal health care program. Similar anti-kickback provisions have been adopted by many states, which apply regardless of the source of reimbursement. In 1996, as part of HIPAA, Congress adopted a statutory exception for certain risk-sharing arrangements which was interpreted by the Office of the Inspector General (“OIG”) as an interim final rule. The OIG has published two safe harbors addressing shared-risk arrangements. The Company believes that its risk agreements satisfy the requirements of these safe harbors.
In addition, the OIG has adopted safe harbor regulations specifying certain relationships and activities that are deemed not to violate the federal anti-kickback statute. The Company believes that the incentives offered by its HMOs to Medicare and Medicaid beneficiaries and the discounts its plans receive from contracting health care providers should satisfy the requirements of the safe harbor regulations. However, failure to satisfy each criterion of the applicable safe harbor does not mean that the arrangement constitutes a violation of the law; rather the safe harbor regulations provide that the arrangement must be analyzed on the basis of its specific facts and circumstances. The Company believes that its arrangements do not violate the federal or similar state anti-kickback laws.
The Company contracts with the United States Office of Personnel Management (“OPM”) to provide managed health care services under the Federal Employees Health Benefits Program (“FEHBP”). These contracts with OPM and applicable government regulations establish premium rating requirements for the FEHBP. OPM conducts periodic audits of its contractors to, among other things, verify that the premiums established under OPM contracts are established in compliance with the community rating and other requirements under FEHBP. Such audits could result in material adjustments.
Numerous proposals have been introduced in the United States Congress and various state legislatures relating to managed health care reform. Some proposals, if enacted, could, among other things, limit Coventry’s ability to control medical costs, increase Coventry’s exposure to liability to members for coverage denials or delays, require certain coverage and impose other requirements on managed care companies. Although the provisions of legislation that may be adopted at the state level cannot be accurately and completely predicted at this time, Coventry’s management believes that the ultimate outcome of currently proposed legislation and state legislation enacted to date should not have a material effect on its operations. On the federal level, Coventry expects that some form of managed health care reform may be enacted. At this time, it is unclear when such legislation might be enacted as well as the content of any new provisions. Coventry’s management believes that the ultimate outcome of such federal legislation should not have a material adverse effect on its operations.
The Company maintains general liability and professional liability (Managed Care Errors and Omissions) as well as medical excess “stop loss” insurance coverage in amounts the Company believes to be adequate. Contracting physicians are also required to maintain professional liability coverage. No assurance can be given as to the future availability or costs of such insurance or that the liability will not exceed the limit of the insurance coverage.
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At March 9, 2001, the Company employed approximately 3,150 persons, none of whom are covered by a collective bargaining agreement.
The Company has the right in perpetuity to use the federally registered name “HealthAmerica” in Illinois, Missouri, Pennsylvania and West Virginia. The Company has federal and/or state registered service marks for “HealthAssurance,” “GHP Access,” “Healthcare USA,” “Doc Bear,” “Carelink,” “Carelink health plans,” “CarePlus,” “Coventry,” “Advantra,” “SouthCare,” “SouthCare Medical Alliance,” “CareNet,” “WellPath Select,” “WellPath 65,” “Partners in Pregnancy” and “WellPath Community Health Plans.” The Company has pending applications for federal registration of the service marks “HealthAssurance FLEX,” “Coventry Healthy Choices Program” and for a torch logo design. Effective December 31, 1999, the Company ceased using the names “Principal Health Care,” “The Principal,” “The Principal Financial Group,” “Principal Health Care 65,” and “PrinChoice,” pursuant to an agreement entered into with Principal Life on May 19, 1999.
As of December 31, 2000, the Company leased approximately 83,000 square feet of space for its corporate office in Bethesda, Maryland, of which approximately 38% is subleased. The Company also leased approximately 558,000 aggregate square feet for office space, subsidiary operations, and customer service centers in the various markets where the Company’s health plans operate. The Company’s leases expire at various dates from 2001 through 2009. The Company also owns a building in Richmond, Virginia with approximately 45,000 square feet, which is used for administrative services related to its health plan in that market, of which approximately 46% is leased to others. The Company believes that its facilities are adequate for its operations.
In the normal course of business, the Company has been named as a defendant in various legal actions such as actions seeking payments for claims denied by the Company, medical malpractice actions, and other various claims seeking monetary damages. The claims are in various stages of proceedings and some may ultimately be brought to trial. Incidents occurring through December 31, 2000 may result in the assertion of additional claims. With respect to medical malpractice, the Company carries professional malpractice and general liability insurance for each of its operations on a claims-made basis with varying deductibles for which the Company maintains reserves. In the opinion of management, the outcome of these actions should not have a material adverse effect on the financial position or results of operations of the Company.
Other managed care companies have been sued recently in class action lawsuits claiming violations of the federal racketeering act, Racketeer Influenced and Corrupt Organizations (“RICO”), and the Employee Retirement Income Security Act of 1974 (“ERISA”), and generally claiming that managed care companies overcharge consumers and misrepresent that they deliver quality health care. Although it is possible that the Company may be the target of a similar suit, the Company believes there is no valid basis for such a suit.
The Company’s industry is heavily regulated and the laws and rules governing the industry and interpretations of those laws and rules are subject to frequent change. Existing or future laws could have significant impact on the Company’s operations.
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year 2000.
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The Company’s common stock is traded on the National Market of the Nasdaq® stock market under the symbol “CVTY.” The following table sets forth the quarterly range of high and low closing sales prices of the common stock on Nasdaq® during the calendar period indicated. Such quotations represent inter-dealer prices without retail markup, markdown or commission and may not necessarily present actual transactions:
| 2000 | 1999 | |||
| HIGH | LOW | HIGH | LOW | |
| First Quarter | $ 9.06 | $ 6.94 | $ 11.38 | $ 7.50 |
| Second Quarter | 14.63 | 8.56 | 14.88 | 7.13 |
| Third Quarter | 17.63 | 12.75 | 11.50 | 9.50 |
| Fourth Quarter | 29.19 | 15.00 | 7.94 | 5.13 |
On March 12, 2001, the Company had approximately 645 shareholders of record, not including beneficial owners of shares held in nominee name. On March 12, 2001, the Company’s closing price was $16.88.
The Company has not paid any cash dividends on its common stock and expects for the foreseeable future to retain all of its earnings to finance the development of its business. The Company’s ability to pay dividends is also restricted by insurance regulations applicable to its subsidiaries. Subject to the terms of such insurance regulations, any future decision as to the payment of dividends will be at the discretion of the Company’s Board of Directors and will depend on the Company’s earnings, financial position, capital requirements and other relevant factors. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”
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| Operations Statement Data (1) | December 31, | ||||
| 2000 | 1999 | 1998 | 1997 | 1996 | |
| Operating revenues | $ 2,604,910 | $ 2,162,372 | $ 2,110,383 | $ 1,228,351 | $ 1,057,129 |
| Operating earnings (loss) | 62,515 | 47,855 | (36,195) | 5,739 | (91,346) |
| Net earnings (loss) | 61,340 | 43,435 | (11,741) | 11,903 | (61,287) |
| Net earnings (loss) per share - basic (2) | 1.03 | 0.74 | (0.22) | 0.36 | (1.87) |
| Net earnings (loss) per share - diluted (2) | 0.93 | 0.69 | (0.22) | 0.35 | (1.87) |
| Weighted average common shares outstanding - basic (2) | 59,521 | 59,025 | 52,477 | 33,210 | 32,818 |
| Weighted average common shares outstanding - diluted (2) | 65,757 | 64,159 | 52,477 | 33,912 | 32,818 |
| Balance Sheet Data (1) | December 31, | ||||
| 2000 | 1999 | 1998 | 1997 | 1996 | |
| Cash and investments | $ 752,450 | $ 614,603 | $ 614,583 | $ 240,091 | $ 168,423 |
| Total assets | 1,239,036 | 1,081,583 | 1,091,228 | 487,182 | 448,945 |
| Long-term obligations and notes payable | |||||
| (including current maturities) | 6,443 | 10,445 | 88,737 | 109,268 | 102,985 |
| Redeemable convertible preferred stock | -- | 47,095 | -- | -- | -- |
| Stockholder's equity and partners' capital (3) | 600,430 | 480,385 | 436,539 | 117,818 | 100,427 |
| (1) | Balance Sheet Data for 1998 reflect the acquisition of the Principal Life Insurance Company health plans as of December 31, 1998 and Operations Statement Data for 1998 include the results of operations of the acquired PHC health plans beginning April 1, 1998, the date of acquisition. |
| (2) | Restated to comply with SFAS 128, “Earnings Per Share.” |
| (3) | Predecessor company of a wholly owned subsidiary of the Company was an S Corporation. |
13
The following is a summary of unaudited quarterly results of operations (in thousands, except per share data) for the years ended December 31, 2000 and 1999:
| Quarter Ended | ||||
| March 31, | June 30, | September 30, | December 31, | |
| 2000 | 2000 | 2000 | 2000 (1) | |
| Operating revenues | $ 617,410 | $ 621,194 | $ 647,617 | $ 718,689 |
| Operating earnings | 11,150 | 12,772 | 14,927 | 23,666 |
| Net earnings | 11,742 | 13,254 | 15,406 | 20,938 |
| Net earnings per share - basic | 0.20 | 0.23 | 0.26 | 0.34 |
| Net earnings per share - diluted | 0.18 | 0.21 | 0.23 | 0.31 |
| Quarter Ended | ||||
| March 31, | June 30, | September 30, | December 31, | |
| 1999 | 1999 | 1999 | 1999 (1)(2) | |
| Operating revenues | $ 527,848 | $ 531,831 | $ 529,889 | $ 572,804 |
| Operating earnings | 8,683 | 9,626 | 11,391 | 18,155 |
| Net earnings | 8,293 | 9,157 | 10,970 | 15,015 |
| Net earnings per share - basic | 0.14 | 0.16 | 0.19 | 0.25 |
| Net earnings per share - diluted | 0.14 | 0.15 | 0.17 | 0.24 |
| (1) | In October 1999, the Company reached a settlement with AHERF. As a result of the settlement, the Company released $6.3 million of its AHERF reserve that was reflected as a gain in the fourth quarter of 1999. The Company also recorded a gain in the fourth quarter of 2000, which included a $4.1 million settlement from AHERF’s bankruptcy proceedings and a $4.3 million release of the Company’s AHERF reserve. |
| (2) | The Company closed its subsidiary, Coventry Health Care of Indiana, Inc., at the end of the fourth quarter of 2000. As a result of the cost associated with exiting the Indiana market, the Company recorded a reserve for $2.0 million in the fourth quarter of 1999. |
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The following discussion should be read in conjunction with the accompanying audited consolidated financial statements and notes thereto.
The following table (in thousands, except percentages and membership data) is provided to facilitate a more meaningful discussion regarding the results of the Company’s operations for each of the three years in the period ended December 31, 2000.
| 2000 | 1999 | 1998 | |||||||
| Percent of | Percent | Percent of | Percent | Percent of | |||||
| Operating | Increase | Operating | Increase | Operating | |||||
| Amount | Revenue | (Decrease) | Amount | Revenue | (Decrease) | Amount | Revenue | ||
| Operating revenues: | |||||||||
| Managed care premiums | $2,556,953 | 98.2% | 22.8% | $2,082,075 | 96.3% | 2.4% | $2,033,372 | 96.4% | |
| Management services | 47,957 | 1.8% | (40.3%) | 80,297 | 3.7% | 4.3% | 77,011 | 3.6% | |
| Total operating revenues | 2,604,910 | 100.0% | 20.5% | 2,162,372 | 100.0% | 2.5% | 2,110,383 | 100.0% | |
| Operating expenses: | |||||||||
| Medical expense (1) | 2,192,899 | 84.2% | 22.3% | 1,792,652 | 82.9% | 1.4% | 1,767,374 | 83.7% | |
| Selling, general and administrative | 330,899 | 12.7% | 11.1% | 297,922 | 13.8% | 2.1% | 291,919 | 13.8% | |
| Depreciation and amortization | 27,026 | 1.0% | (4.2%) | 28,205 | 1.3% | 9.4% | 25,793 | 1.2% | |
| Plan shutdown expense | -- | -- | -- | 2,020 | 0.1% | -- | -- | -- | |
| AHERF charge | (8,429) | (0.3%) | 34.2% | (6,282) | (0.3%) | (111.4%) | 55,000 | 2.6% | |
| Merger costs | -- | -- | -- | -- | -- | -- | 6,492 | 0.3% | |
| Total operating expenses | 2,542,395 | 97.6% | 20.2% | 2,114,517 | 97.8% | (1.5%) | 2,146,578 | 101.7% | |
| Operating earnings (loss) | 62,515 | 2.4% | 30.6% | 47,855 | 2.2% | 232.2% | (36,195) | (1.7%) | |
| Other income, net | 39,553 | 1.5% | 32.3% | 29,906 | 1.4% | 9.7% | 27,251 | 1.3% | |
| Interest expense | -- | -- | -- | (1,761) | (0.1%) | (79.4%) | (8,566) | (0.4%) | |
| Earnings (loss) before income taxes | 102,068 | 3.9% | 34.3% | 76,000 | 3.5% | (534.0%) | (17,510) | (0.8%) | |
| Provision for (benefit from) income taxes | 40,728 | 32,565 | (5,769) | ||||||
| Net earnings (loss) | 61,340 | 43,435 | (11,741) | ||||||
| Membership at December 31: | |||||||||
| Commercial | 1,170,239 | 1,010,282 | 1,000,699 | ||||||
| Governmental Programs | 266,379 | 215,123 | 166,342 | ||||||
| Non-Risk | 276,416 | 237,968 | 218,273 | ||||||
| Total | 1,713,034 | 1,463,373 | 1,385,314 | ||||||
| (1) | The medical loss ratio (medical expense as a percentage of managed care premiums) was 85.8%, 86.1%, and 86.9% in 2000, 1999 and 1998, respectively. |
15
Coventry Health Care, Inc. (together with its subsidiaries, “the Company”, “Coventry”, “we”, “our”, or “us”) is a managed health care company operating health plans under the names Coventry Health Care, Coventry Health and Life, Carelink Health Plans, Group Health Plan, HealthAmerica, HealthAssurance, HealthCare USA, Southern Health, and WellPath. The Company provides a full range of managed care products and services including health maintenance organization (“HMO”), point-of-service (“POS”), preferred provider organization (“PPO”), and Medicare Risk and Medicaid products. The Company also administers self-insured plans for large employer groups. Coventry was incorporated under the laws of the State of Delaware on December 17, 1997 and is the successor to Coventry Corporation, which was incorporated on November 21, 1986.
The Company’s commercial managed care premium revenues during the three years ended December 31, 2000 were comprised of premiums from its commercial HMO products and flexible provider products, including PPO and POS products for which the Company assumes full underwriting risk. Premiums for such commercial PPO and POS products are typically lower than HMO premiums due to medical underwriting and higher deductibles and copayments that are required from the PPO and POS members. Premium rates for commercial HMO products are reviewed by various state agencies based on rate filings. While the Company has not had such filings modified, no assurance can be given that approvals for rate submissions will continue.
The public sector managed care premium revenues consist of premiums from the Company’s Medicare and Medicaid products. The Company provides comprehensive health benefits to members participating in government programs and receives premium payments from federal and state governments. Premium rates for the Medicaid and Medicare products are established by governmental regulatory agencies and may be reduced by regulatory action.
During the three years ended December 31, 2000, the Company experienced substantial growth in operating revenues due primarily to membership increases. Much of the growth was in 1998 and was attributable to the acquisition of the Principal Health Care, Inc. (“PHC”) health plans effective April 1, 1998. Additional membership growth was achieved through marketing efforts, acquisitions, geographic expansion and increased product offerings. One such product offering is the expansion of the Company’s PPO risk product to all of its health plans in 2000.
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.
As of December 31, 2000, Coventry had 1,436,618 members for whom it assumes underwriting risk (“risk members”) and 276,416 members of self-insured employers for whom it provides management services but does not assume underwriting risk (“non-risk members”) in continuing operations. The following tables show the total number of members in continuing operations as of December 31, 2000, 1999 and 1998.
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| Commercial Risk | Governmental Risk | |||||
| 2000 | HMO | PPO/POS | Medicare | Medicaid | Non-Risk | Total |
| Carolinas | 91,871 | 32,761 | 2,890 | 4,482 | 38,702 | 170,706 |
| Delaware | 30,180 | 11,086 | 21 | 42,154 | 60,689 | 144,130 |
| Georgia | 16,122 | 18,463 | -- | -- | 12,189 | 46,774 |
| Iowa | 66,876 | 3,288 | -- | 2,146 | 12,524 | 84,834 |
| Kansas City | 58,192 | 22,473 | 5,269 | -- | -- | 85,934 |
| Louisiana | 27,319 | 31,788 | 796 | -- | -- | 59,903 |
| Nebraska | 19,864 | 13,184 | -- | -- | 3,665 | 36,713 |
| Pennsylvania | 159,215 | 207,457 | 23,893 | -- | 112,056 | 502,621 |
| Richmond | 37,090 | 10,341 | -- | 11,257 | -- | 58,688 |
| St. Louis | 122,045 | 67,130 | 36,726 | 119,399 | 23,384 | 368,684 |
| West Virginia | 63,239 | 16,796 | 2,372 | 14,974 | 12,908 | 110,289 |
| Wichita | 14,034 | 29,425 | -- | -- | 299 | 43,758 |
| Total | 706,047 | 464,192 | 71,967 | 194,412 | 276,416 | 1,713,034 |
| Commercial Risk | Governmental Risk | |||||
| 1999 | HMO | PPO/POS | Medicare | Medicaid | Non-Risk | Total |
| Carolinas | 43,989 | -- | -- | 4,216 | -- | 48,205 |
| Delaware | 35,529 | 139 | -- | 21,032 | 59,978 | 116,678 |
| Georgia | 27,485 | -- | -- | -- | -- | 27,485 |
| Iowa | 73,901 | -- | 686 | 1,618 | 12,145 | 88,350 |
| Kansas City | 64,893 | 45 | 1,815 | -- | 1,844 | 68,597 |
| Louisiana | 37,837 | -- | -- | -- | 57 | 37,894 |
| Nebraska | 26,927 | -- | -- | -- | 3,651 | 30,578 |
| Pennsylvania | 172,221 | 181,371 | 22,824 | -- | 102,808 | 479,224 |
| Richmond | 37,650 | 7,268 | -- | 8,415 | 14,345 | 67,678 |
| St. Louis | 104,773 | 69,748 | 42,317 | 97,460 | 28,872 | 343,170 |
| West Virginia | 44,937 | 19,291 | 990 | 13,750 | 13,636 | 92,604 |
| Wichita | 39,177 | -- | -- | -- | 299 | 39,476 |
| Total | 709,319 | 277,862 | 68,632 | 146,491 | 237,635 | 1,439,939 |
| Commercial Risk | Governmental Risk | |||||
| 1998 | HMO | PPO/POS | Medicare | Medicaid | Non-Risk | Total |
| Carolinas | 21,575 | -- | -- | -- | -- | 21,575 |
| Delaware | 37,500 | -- | -- | 16,829 | 58,062 | 112,391 |
| Georgia | 20,273 | -- | -- | -- | 748 | 21,021 |
| Iowa | 77,912 | -- | -- | 1,394 | 10,778 | 90,084 |
| Kansas City | 51,993 | -- | -- | -- | 5,526 | 57,519 |
| Louisiana | 39,730 | -- | -- | -- | 161 | 39,891 |
| Nebraska | 34,598 | -- | -- | -- | 720 | 35,318 |
| Pennsylvania | 200,688 | 175,919 | 25,571 | -- | 88,785 | 490,963 |
| Richmond | 51,980 | 264 | -- | 3,015 | 14,812 | 70,071 |
| St. Louis | 138,031 | 62,615 | 38,028 | 81,505 | 23,029 | 343,208 |
| West Virginia | 6,379 | 18,620 | -- | -- | 14,503 | 39,502 |
| Wichita | 35,342 | -- | -- | -- | 399 | 35,741 |
| Total | 716,001 | 257,418 | 63,599 | 102,743 | 217,523 | 1,357,284 |
17
For January 2001, the Company added about 12,100 members to December 2000 results. Commercial risk membership grew by about 17,300 members primarily due to the acquisition of Health Partners of the Midwest’s (“Health Partners”) commercial membership, in our St. Louis market, offset by the loss of one large group. Medicare membership decreased by about 19,100, due to the loss of membership resulting from a change in benefits. Medicaid membership increased by about 3,600 members mainly due to normal growth in the HealthCare USA plan. The remaining 10,250 member increase was a result of modest growth in non-risk membership due to the Health Partners acquisition offset by several large group terminations.
Coventry’s operating expenses are primarily medical costs, including medical claims under contractual relationships with a wide variety of providers, and capitation payments. Medical claims expense also includes an estimate of claims incurred but not reported (“IBNR”). Coventry currently believes that the estimates for IBNR liabilities are adequate to satisfy its ultimate medical claims liability after all medical claims have been reported. In determining the Company’s IBNR liabilities, Coventry employs plan by plan standard actuarial reserve methods (specific to the plan’s membership, product characteristics, geographic territories and provider network) that consider utilization frequency and unit costs of inpatient, outpatient, pharmacy and other medical costs, as well as claim payment backlogs and the timing of provider reimbursements. Reserve estimates are reviewed by underwriting, finance and accounting, and other appropriate plan and corporate personnel and judgments are then made as to the necessity for reserves in addition to the estimated amounts. Changes in assumptions for medical costs caused by changes in actual experience, changes in the delivery system, changes in pricing due to ancillary capitation and fluctuations in the claims backlog could cause these estimates to change in the near term. Coventry continually monitors and reviews its IBNR reserves, and as actual settlements are made or accruals adjusted, reflects these differences in current operations.
Effective April 1, 1998, Coventry completed its acquisition of certain health plans of PHC from Principal Mutual Life Insurance Company, now known as Principal Life, for a total purchase price of approximately $330.2 million including transaction costs of approximately $5.7 million. The acquisition was accounted for using the purchase method of accounting and, accordingly, the operating results of PHC have been included in Coventry’s consolidated financial statements since the date of acquisition. The purchase price consisted of 25,043,704 shares of Coventry’s common stock at an assigned value of $11.96 per share. In addition, a warrant valued at $25.0 million (“the Warrant”) was issued that grants Principal Life the right to acquire additional shares of Coventry’s common stock in the event that its ownership percentage of such common stock is diluted below 40%. The Warrant is included as a component of additional paid-in capital in the accompanying consolidated financial statements. Through April 2003, Principal Life is restricted from buying additional shares of Coventry’s common stock to increase its ownership percentage above 40%. As of December 31, 2000, Principal Life had exercised a portion of the Warrant to purchase 59,783 shares of the Company’s common stock.
Coincident with the closing of the transaction, Coventry entered into a Renewal Rights Agreement and a Coinsurance Agreement with Principal Life, to manage certain of Principal Life’s indemnity health insurance policies in the markets where Coventry does business and, on December 31, 1999, to offer to renew such policies in force at that time. Effective June 1, 1999, Coventry amended these agreements with Principal Life and waived its rights to reinsure and renew Principal Life’s health insurance indemnity business located in Coventry’s service area. Coventry received $19.8 million in cash in exchange for waiving these rights. At the date of the amendment, the Renewal Rights and Coinsurance Agreements had a net book value of $19.7 million resulting in a gain of $0.1 million.
At the closing, Coventry also entered into a License Agreement, which was amended effective June 1, 1999, a Marketing Services Agreement and a Management Services Agreement with Principal Life. All three agreements expired on December 31, 1999. Pursuant to the latter two agreements, Coventry recognized revenue of approximately $25.5 million and $23.0 million for the years ended December 31, 1999 and 1998, respectively. Coventry no longer receives revenue under these agreements. In anticipation of the loss of these fees, Coventry commenced reducing selling, general and administrative (“SG&A”) costs through cost savings from service center consolidation, headcount reductions and across-the-board reductions in administrative expenses. In addition to SG&A reductions, Coventry plans to increase its gross margin through acquisitions and by implementing rate increases.
18
As a result of the acquisition, Coventry assumed an agreement with Principal Life, whereby Principal Life pays a fee for access to Coventry’s PPO network based on a fixed rate per employee entitled to access the PPO network and a percentage of savings realized by Principal Life. Effective June 1, 1999, Coventry sold the Illinois portion of the PPO network back to Principal Life. Under this agreement, Coventry recognized revenue of approximately $8.0 million and $12.0 million for the years ended December 31, 1999 and 1998, respectively.
Effective November 30, 1998, Coventry sold its subsidiary, Principal Health Care of Illinois, Inc., for $4.3 million in cash. The Illinois health plan accounted for approximately 56,000 risk members and 2,400 non-risk members as of November 30, 1998.
On December 31, 1998, Coventry sold its subsidiary, Principal Health Care of Florida, Inc., for $95.0 million i