[DESCRIPTION] MATERIAL CONTRACT
EX-10.27b Copy of Letter of Understanding between
WellCare of New York, Inc. and the contracted
Alliances (Valley Medical Services, P.C. and
Xxxxxx Valley Family Medical Health, P.C.)
dated September 23, 1996
September 23, 1996
Xxxxxxx Xxxxxxxxx, MD
President
Primergy
Barbarosa Lane
Kingston, NY 12401
RE: Alliance contract revisions
Dear Xx. Xxxxxxxxx:
This document will serve as a letter of understanding between
WellCare of New York, Inc. (WCNY) and the contracted Alliances
(Valley Medical Services, PC and Xxxxxx Valley Family Medical
Health, PC, which together encompass the Orange/Xxxxxxxx Alliance,
Dutchess Alliance, Ulster Alliance and Columbia/Green Alliance).
The letter outlines the agreed upon changes to be made to the
Alliance contracts which were originally executed as of October 1,
1995.
Orange/Xxxxxxxx Alliance:
* Effective September 1, 1996, WCNY will impose a reduction of
$7.75 per Commercial member per month on the monthly capitation
payment to Primergy for the Orange/Xxxxxxxx Alliance.
* Based on historical cost data, beginning September 1, 1996, the
Commercial Capitation Payment for the Orange/ Xxxxxxxx Alliance
will be $44.56 (this includes a reduction of $7.75 per member
per month) and will include reimbursement for both fee-for-service and
capitated primary care, medical referral costs
including Mental Health, PCP adjustment allowance, Alliance
Management, and the calculated "surplus/deficit."
Based on historical cost data, beginning September 1, 1996, the
Healthy Choice Capitation Payment for the Orange/ Xxxxxxxx
Alliance will be $29.64 and will include reimbursement for both
fee-for-service and capitated primary care, medical referral
costs, Mental Health, PCP adjustment allowance, Alliance
Management, and the calculated "surplus/deficit."
* The hospital in-patient component will be taken back by WCNY as
of July 1, 1996, in accordance with the mandate of the New York
State Department of Insurance. The remainder of the take back
will start September 1, 1996 and will leave primary care,
medical referral services, mental health, administration fee,
and "surplus/deficit" within the Alliance contract as noted
above. Refer to the division of specialty codes in Appendix A
for a breakdown.
WCNY Alliance Letter of Understanding
Page 2
September 23, 1996
* In the Orange/Xxxxxxxx regions: 100 percent of utilization
savings will be returned to the Alliance until the $7.75
reduction in capitation is recaptured and 50 percent of
utilization savings will be returned to the Alliance beyond the
recapture amount. Utilization savings will use average bed days
/1,000 members one year for the twelve months prior to July 1,
1996. Bed days exclusive of admissions for Obstetric, Extended
Newborn, and Mental Health care has been calculated to be 288
bed days / 1,000 members.
* The Orange/Xxxxxxxx Alliance will receive savings from decreased
Commercial hospital utilization exclusive of admissions of
Obstetric, Extended Newborn, and Mental Health care. All other
alliances shall not participate in hospital utilization savings.
For the purpose of these examples, assume 30,000/Alliance
members.
Example 1 :
1. Average Orange/Xxxxxxxx Alliance bed-days/1000
member/year prior to 7/1/96 = 288;
2. If average weighted cost per bed-day after 7/1/96 in O/S
= $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
200;
4. Then the Alliance will get the following from WCNY:
$660,000
5. Rationale:
A. Hospital cost will be reduced by $660,000 per quarter
[(288-200) x ($1000/4) x 30]
B. The withhold costs the Alliance $697,500 per quarter [$7.75
per member per month x 30,000 x 3 months = $697,000]
C. The Alliance thus receives $660,000
(100 percent savings up to the withhold)
Example 2 :
1. Average Orange/Xxxxxxxx Alliance bed-days/1000
member/year prior to 7/1/96 = 288;
2. If average weighted cost per bed-day after 7/1/96 in O/S
= $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
193;
4. Then the Alliance will get the following from WCNY:
$705,000
5. Rationale:
A. Hospital cost will be reduced by $712,500 per quarter
[(288-193) x ($1000/4) x 30]
B. The withhold costs the Alliance $697,500 per quarter [$7.75
per member per month x 30,000 x 3 months = $697,000]
C. The difference is $15,000; 50 percent of which is $7,500
D. The Alliance thus receives $697,500 plus $ 7,500 or
$705,000 (100 percent of the savings up to the withhold, 50
percent savings thereafter)
WCNY Alliance Letter of Understanding
Page 3
September 23, 1996
The potential savings, if any, will be formally calculated on an
annual basis within 90 days of the end of the contract year.
During the contract year, payments will be made within 30 days
of the end of each quarter based on the estimated savings if
any. Each quarter's calculation will be cumulative and will be
adjusted at the annual calculation/ reconciliation.
All Other Alliances:
* The capitation to each Alliance will mirror the elements noted
above for Orange/Xxxxxxxx, and will include reimbursement for
both fee-for-service and capitated primary care, medical
referral costs, Mental Health, PCP adjustment allowance,
Alliance Management, and the calculated "surplus/deficit."
Effective September 1, 1996, the capitation rates will be as
follows:
Alliance Commercial Healthy Choice*
Orange/Xxxxxxxx
(as stated above) 44.56 29.64
Dutchess 49.09 47.02
Columbia/Xxxxxx 46.27 42.32
Ulster 41.25 50.41
* Note: These rates are predicated on New York State accepting
our proposed rate filing. Should the State elect to lower these
rates by more than 5%, we reserve the right to renegotiate these
capitation levels.
Refer to Appendix B for detailed cost analysis.
The above rates shall be further adjusted at the time the Merit
(MBC) contract for Mental Health Services is implemented.
* In addition to the revised capitation rates stated above,
effective September 1, 1996, WCNY will pay an additional $3.50
PMPM for a twelve month period of time. This additional
capitation will be available to be paid on a flex-payment
schedule as mutually agreed on by both parties. If the Alliance
membership decreases by greater than 5 percent, this additional
PMPM capitation will be reviewed and potentially renegotiated by
both parties.
* Contract terms change to rolling three year contract defined as
a three year go forward contract at each annual renewal
(Unresolved issue: annual increases in capitation remains to be
negotiated). WCNY will agree to extend this contract term by an
additional two year period conditional but not limited to the
following: the Alliances being in total compliance with their
contract; the Alliances demonstrating financial viability; the
management of the Alliances meeting certain mutually agreed upon
performance criteria.
WCNY Alliance Letter of Understanding
Page 4
September 23, 1996
* WCNY will contract exclusively with the Alliances in Alliance
counties (Columbia, Greene, Dutchess, Ulster, Orange, and
Xxxxxxxx). The Alliances will have responsibility for provider
contracting [refer to Appendix A for appropriate specialties]
and all related administrative follow-up.
* WCNY retains the right to revert to direct contracting with PCPs
after 90 days' notice each time the Alliance executes a contract
with a new payor. Primergy must notify WCNY, in writing within
ten business days of each contract execution.
* WCNY retains the right to make appropriate claims payment, on
behalf of Alliance, to key providers if Alliance is unable to
make payments; said payments will be deducted from future
capitation payments made to Alliance.
* The Alliances agree that as soon as possible after the execution
of this commitment letter, but in no event later than 60 days,
Primergy will generate on behalf of the Alliances a letter to
all Alliance physicians. This letter will be approved by both
the New York State Department of Insurance and WellCare and will
include the following:
- encourage all Alliance doctors to execute valid Alliance
contracts.
- disclose the historical deficit of the Alliances and clearly
communicate the Alliance and physician's responsibilities with
respect to such deficits.
- clearly communicate that the physician can only look to the
Alliances for payments of past, current and future claims for
service rendered to WellCare members.
- implement amended arrangement between the Alliances and
physicians and explain the amended arrangements to assure
financial viability of the Alliances (including but not
limited to fee schedule reductions of at least 15%).
- include any other information required by either WellCare or
the Department of Insurance and/or mutually agreed upon by
WellCare and Primergy.
* Merit (MBC) contract for mental health services to proceed.
Alliances will receive capitation payments from WCNY for mental
health services and benefit from a 90-day float to Merit. The
target effective date of the Merit contract is on or before
January 1, 1997. Capitation rates to be mutually agreed upon at
a future date.
* Next capitation adjustment will occur September 1,1997 for
Orange/Xxxxxxxx Alliance. A capitation adjustment schedule at
January 1, 1997, will remain unchanged for the other alliances
and annually thereafter.
WCNY Alliance Letter of Understanding
Page 5
September 23, 1996
* The WellCare Management Group Inc. (WCMG) will at the request of
Primergy convert the $5.1 million note to Primergy equity by
mutual agreement with Primergy conditional upon the ownership
percentage value being determined on the same basis as any other
investor. This percentage shall under no terms exceed 19.9%
equity ownership of Primergy. The parties will reaffirm the
payment schedule for both the $5.1 million note if not converted
to equity, as well as the other outstanding Primergy obligation
to WCMG (approximately $3.1 million) on or before October 1,
1996. It should be noted that pursuant to Section 3 of the Note
Agreement dated June 30, 1995 WellCare retains the right to
approve any "willing suitor" who might invest in Primergy.
* Merit investment in Primergy to be negotiated directly and
exclusively between Xxxxxxx Xxxxxxxxx and Xx Xxxxxx.
By signing below each party agrees that the above represents our
intentions going forward. Both parties understand that WellCare's
counsel will draft the appropriate documents to conclude these
changes.
/s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
CEO
The WellCare Management Group, Inc.
/s/ Xxxxxxx X. Xxxxxxxxx, M.D.
Xxxxxxx X. Xxxxxxxxx, MD
President
Valley Medical Services, PC
President
Xxxxxx Valley Family Medical Health, PC
