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EXHIBIT 10.23
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is entered into and made effective as of this
15th day of October, 1999, by and between PHYCOR OF ROCKFORD, INC. a Tennessee
corporation (the "Manager"), PHYCOR, INC., a Tennessee corporation ("PhyCor").
ROCKFORD HEALTH SYSTEM, an Illinois nonprofit entity ("RHS"), and ROCKFORD
MEMORIAL HEALTH SERVICES CORPORATION, an Illinois nonprofit entity wholly-owned
by RHS (the "Clinic").
WITNESSETH:
WHEREAS, the Clinic is a physician group owned and operated by RHS;
WHEREAS, Manager is in the business of providing management services to
physician groups owned and operated by hospitals and hospital systems; and
WHEREAS, RHS, for the benefit of the Clinic, and the Clinic desire to
obtain, and Manager and PhyCor are willing to provide, the services of Manager
to perform management services relating to the business operations of the
Clinic.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained. RHS and the Clinic hereby agree to purchase the management and
support services herein described, and Manager and PhyCor agree to provide such
services on the terms and conditions provided in this Agreement.
1. RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship: Relationship with RHS and the
Clinic. It is expressly agreed by the parties hereto that the relationship
between RHS and the Clinic, on the one hand, and Manager and PhyCor, on the
other hand, shall be that of independent contractors, and nothing in this
Agreement is intended to create, nor shall be construed to create, any
partnership, joint venture, agency or employment relationship between such
parties. Notwithstanding the authority granted to Manager herein. Manager,
PhyCor, RHS and the Clinic agree that RHS and the Clinic shall retain the
authority to direct the medical, professional, financial and ethical aspects of
the medical practice of the Clinic. Manager shall neither exercise control over
nor interfere with the physician-patient relationship, which shall be maintained
strictly between the physicians of the Clinic and their patients. Each party
hereto agrees to be responsible for the compensation, benefits, hiring and
firing and disciplining of its respective employees to the extent provided for
in this Agreement.
(b) Manager RHS and the Clinic also acknowledge and agree that,
notwithstanding the authority granted to Manager herein, the Policy Board (as
described in this Agreement), RHS or the Clinic, as applicable, and not Manager,
shall retain the ultimate corporate and legal authority as to such matters as
are described in this Agreement, including the
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following matters, as more fully described herein: capital and operating budgets
of the Clinic; policies and procedures to which personnel of the Clinic are
subject: non-budgeted expenses to be incurred in connection with the operations
of the Clinic in excess of designated expenditure amounts; the purchase and
maintenance of capital assets; fee schedules for medical services performed on
behalf of the Clinic personnel; the recruitment, hiring and terms of employment
of all Clinic physicians, standards of care to be observed by personnel of the
Clinic (including responsibility for all matters relating to the provision of
medical services and matters of professional medical judgment); and the addition
or deletion of charitable services or programs offered from time to time by the
Clinic. The Policy Board shall also be solely responsible for making
recommendations to the Chief Executive Officer of RHS, except where specifically
granted to the Board of Directors of RHS, as to capital budgets and operating
budgets of the Clinic, the final approval of which shall be solely within the
discretion of the RHS Board of Directors. In connection with the foregoing,
Manager, through the Policy Board (described below), shall serve solely as
business manager of the Clinic at the direction and control of RHS and the
Policy Board to the extent provided for in this Agreement. RHS and the Clinic
understand that Manager has been engaged and given the authority by the Policy
Board to perform day-to-day management functions relating to the operations of
the Clinic within the guidelines provided for in this Agreement, and subject to
the directions of the RHS Chief Executive Officer (or his or her designee),
except when otherwise specifically granted to the RHS Board of Directors and the
Policy Board.
1.2. Responsibilities of the Parties. (a) Manager and PhyCor (to
the extent provided for herein) shall provide the Clinic with management and
advisory services as more specifically described herein. Manager is being
engaged pursuant to this Agreement to provide services on behalf of the Clinic
in a manner consistent with the mission of RHS and the Clinic.
(b) The Clinic shall be responsible for the recruitment and hiring
of physicians and all issues related to medical practice patterns, financial
relationships between the Clinic and its physicians, and documentation thereof.
RHS or the Clinic, as applicable, shall be responsible for the provision of all
equipment, supplies and inventory necessary to operate the Clinic's medical
practice. RHS shall provide, for the benefit of the Clinic, all capital in
accordance with the terms of this Agreement and in accordance with delegation of
authority policies adopted from time to time by the RHS Board of Directors (the
"Delegation of Authority Policies"). RHS shall provide, through leases,
contractual arrangements or otherwise, all office facilities needed by the
Clinic, as such facilities may be altered or changed from time to time as
approved by the Policy Board.
1.3. Patient Referrals. The parties hereby agree that nothing
contained in this Agreement, including the benefits to the parties hereunder,
shall be construed as an offer or payment by one party to the other (or its
affiliates) of cash or other remuneration, directly or indirectly, in exchange
for, as a requirement for, or in any way contingent upon, the admission,
referral or any other arrangement or recommendation of orders for the provision
of any item or
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service, including services offered by Manager or PhyCor, or offered by Manager
to any patients in any facility or laboratory managed or operated by Manager or
PhyCor.
2. DUTIES OF MANAGER
2.1. Preparation of Annual Clinic Work Plan. Prior to January 1,
2000. Manager shall have prepared and the Clinic and RHS shall have reviewed,
revised, and approved, a work plan (the "Work Plan"), which shall set forth in
detail the specific operational and financial goals, objectives, activities and
procedures that will be put in place and pursued by the Clinic. RHS, Manager and
PhyCor at the Clinic during the 12 month period commencing January 1, 2000 and
continuing through and including December 31, 2000. All of the parties to this
Agreement acknowledge that all such parties shall be guided by the specific
goals and objectives of the Clinic Work Plan, as such Work Plan shall be
enhanced or modified from time to time by the mutual agreement of the Clinic
(through the Policy Board), the RHS Chief Executive Officer, and Manager.
Manager further agrees that no later than October 1, 2000 (or such later
mutually agreed upon date) (and each successive October 1 (or such later
mutually agreed upon date) during and throughout the term of this Agreement),
Manager shall prepare and submit for review, revision and approval by the Policy
Board and the Chief Executive Officer of RHS, an annual Clinic Work Plan for
each succeeding 12-month period during the term of this Agreement.
2.2. Performance of Management Functions. RHS and the Clinic hereby
delegate to Manager and PhyCor (to the extent set forth herein), and Manager and
PhyCor (to the extent set forth herein) hereby assume the responsibility to
provide or arrange for the services set forth in this Section 2 for the benefit
of the Clinic and its operations. Manager and PhyCor shall use their best
efforts to implement and follow the policies and directives as dictated by the
Policy Board or the RHS Board of Directors, as applicable, in performing their
duties hereunder, and in a manner consistent with the mission of RHS and the
Clinic. RHS and the Clinic agree to cooperate to the fullest extent possible in
Manager's day-to-day management operations of the Clinic to assist the Manager
in accomplishing the goals and objectives of the Work Plan, and the goals and
directives established by the Policy Board and the Chief Executive Officer of
RHS. RHS and the Clinic hereby acknowledge that Manager shall, subject to
patient confidentiality legal requirements, be granted reasonable access to the
data and systems of RHS and the Clinic relating to the operations of the Clinic
in the performance of Manager's duties pursuant to this Agreement.
2.3. Duties and Responsibilities of Manager. RHS and the Clinic
hereby appoint Manager as the Clinic's manager and administrator of all
day-to-day business functions in accordance with the terms of this Agreement.
Manager agrees that the Clinic and only the Clinic will practice medicine or
perform any activities which constitute the practice of medicine. Neither
Manager nor PhyCor will have any authority, directly or indirectly, to perform,
and will not perform, any medical services on behalf of the Clinic patients.
Pursuant to the foregoing, Manager has the following duties and responsibilities
under this Agreement:
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(a) Manager shall prepare the annual Clinic Work Plan as
set forth in Section 2.1(a) above.
(b) Manager shall prepare annual capital and operating
budgets, commencing with the annual budgets for the year 2000, reflecting the
anticipated revenues and expenses, and sources and uses of capital for growth in
the Clinic's practice and medical services, which budgets shall be prepared in
accordance with generally accepted accounting principles ("GAAP"), applied on a
consistent basis, and in accordance with guidelines established therefore from
time to time by RHS (which guidance shall include the format thereof and the
timing of the preparation and presentation thereof). The capital and operating
budget approved by the Policy Board shall be presented to the RHS Chief
Executive Officer for his or her revision and final approval. The capital budget
and operating budget approved by RHS shall be the capital budget and operating
budget of the Clinic for the applicable fiscal year. RHS recognizes and agrees
that the Clinic will require capital expenditures from time to time, and RHS
hereby agrees to provide such capital to fund the capital needs of the Clinic to
the extent consistent with the provisions of the approved operating and capital
budgets and subject to the Delegation of Authority Policies.
(c) Manager shall develop and submit to the Policy Board
for its review and approval a strategic plan which describes Manager's
recommended proposals as to the short-term and long-term goals and objectives of
the Clinic which Manager recommends pursuing, which plan shall set forth the
efforts, methods and resources Manager believes are needed to implement the
proposed strategic plan. In addition to the foregoing strategic plan, Manager
shall also develop from time to time quantitative staffing assessments of the
Clinic's physician staff and support staff, and shall recommend for review and
approval by the Policy Board efficient practice work flows and a recommended
combination of physicians and support staff needed for the Clinic based on
applicable patient population and the Clinic Work Plan.
(d) Manager shall evaluate, review and submit for review
to the Income Distribution Plan Committee (the "IDP Committee") (described in
Section 3.10 below) recommended alterations, if any, to the physician income
distribution plan utilized by the Clinic. The IDP Committee shall then submit
such recommendations, if any, to the Policy Board. The Policy Board shall review
the recommendations and then shall submit recommendations, if any, to the RHS
Physician Compensation Committee for review, alteration and final approval.
Manager shall periodically reevaluate the income distribution plan and shall
submit for review to the IDP Committee any additional alterations Manager deems
appropriate, which recommendations shall be submitted for review, revision and
approval as provided for above. Manager shall also evaluate and recommend to the
Policy Board alterations to the form of employment agreements entered into
between the Clinic and its physician employees, it being understood that RHS and
the Clinic solely shall determine the content of such employment agreements.
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(e) Manager shall, from time to time, in accordance with
the Work Plan, to the extent applicable, advise the Clinic (and to the extent
applicable, RHS) as to the relationship between the performance of medical
functions and the overall administrative and business functioning of the Clinic.
Personnel of the Clinic who provide medical care services shall in no event be
subject to any direction or control by, or liability to, Manager with respect to
the medical services such personnel perform.
(f) Manager shall provide evaluation and general
supervision, through Manager's employees, of the billing and collections
department of the Clinic. Manager shall also assess the billing methods and
arrangements with third party billing services utilized by the Clinic and shall
recommend to the Policy Board alterations to such arrangements, if any. The
foregoing may include the engagement by Manager of third parties who shall
assist Manager in making recommendations to the Policy Board with respect to the
foregoing; provided, however, information concerning the third party shall be
provided to the Policy Board prior to the engagement of the third party and all
third parties engaged by Manager shall agree in writing to be bound by the
confidentiality provisions set forth in this Agreement. Notwithstanding the
provisions of this Section 2.3(f), the Clinic or RHS, as applicable, solely
shall be responsible for the billing and collecting of accounts for the
provision of medical services. The costs and expenses incurred by Manager in
engaging a third party to assist the Manager in developing any recommendations
to be made to the Policy Board shall be at the sole expense of Manager. Any
implementation and operational costs and expenses associated with the
implementation of any recommendations approved by the Policy Board shall be at
the sole cost of RHS or the Clinic, as applicable.
(g) Manager shall, on behalf of and for the account of
the Clinic, arrange for the payment in a timely manner of obligations of the
Clinic incurred in the ordinary course of business with funds of the Clinic.
Manager shall perform its obligations hereunder through the supervision by
Manager of employees of the Clinic or RHS, as applicable, in the accounts
payable department of RHS. The payment of obligations of the Clinic shall in all
events be subject to the availability of the Clinic funds to make such payments,
and in no event shall Manager be required or obligated to use Manager's funds to
satisfy any obligations of the Clinic or of RHS.
(h) Manager shall conduct, or shall arrange for, a review
and assessment of the information systems utilized by the Clinic for billing,
accounting and medical records and shall make recommendations to the Policy
Board as to alterations to the existing information system or the necessity of
obtaining new or additional systems to meet the needs of the Clinic. In
connection with this review, Manager, at Manager's sole expense, may engage
third parties who shall assist Manager in making recommendations to the Policy
Board with respect to the matters described herein; provided, however,
information concerning the third party shall be provided to the Policy Board
prior to the engagement of the third party and all third parties engaged by
Manager shall agree in writing to be bound by the confidentiality provisions set
forth in this Agreement. If the Policy Board determines to proceed with
alterations
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to the information systems as recommended by Manager, Manager shall recommend to
the Policy Board the vendor and systems to be acquired by the Clinic or RHS, as
applicable, or to be used in any upgrade, replacement or alteration to such
systems. The costs and expenses incurred by Manager in engaging a third party to
assist the Manager in developing any recommendations to be made to the Policy
Board shall be at the sole expense of Manager. Any implementation and
operational costs and expenses associated with the implementation of any
recommendations approved by the Policy Board, including the costs of purchasing
any equipment, fixtures, inventory, supplies, software or services in connection
therewith, shall be at the sole cost of RHS or the Clinic, as applicable.
(i) Manager shall also assess the central business office
operations of the Clinic and shall recommend to the Policy Board alterations to
such operations. Such review shall include a review of central business office
policies, procedures, resources and staffing levels. In connection with this
review, Manager, at Manager's sole expense, may engage third parties who shall
assist Manager in making recommendations to the Policy Board with respect to the
matters described herein; provided, however, information concerning the third
party shall be provided to the Policy Board prior to the engagement of the third
party and all third parties engaged by Manager shall agree in writing to be
bound by the confidentiality provisions set forth in this Agreement. The costs
and expenses incurred by Manager in engaging a third party to assist the Manager
in developing any recommendations to be made to the Policy Board shall be at the
sole expense of Manager. Any implementation and operational costs and expenses
associated with the implementation of any recommendations approved by the Policy
Board shall be at the sole cost of RHS or the Clinic, as applicable.
(j) Manager shall, on behalf of and for the account of
the Clinic, recommend the purchase of (or if approved in advance in writing by
the Chief Executive Officer of RHS, directly purchase) inventory and supplies
Manager deems appropriate for the day-to-day operations of the Clinic, which
inventory and supplies shall be provided for in, and consistent with, the
operating budget of the Clinic approved as provided for in this Agreement and
purchased using the Clinic's or RHS' funds, as applicable, and shall be at the
sole expense of RHS or the Clinic, as applicable. In addition, Manager shall, on
behalf of and for the account of the Clinic, arrange for the purchase or lease
of equipment, including medical equipment, furniture, goods and services to the
extent provided for and consistent with the operating budgets and with the
capital budgets of the Clinic recommended by the Policy Board and approved by
the RHS Board of Directors. Any Manager recommended expenditures which exceed
thresholds established pursuant to the Delegation of Authority Policies shall be
subject to the review and approval of the Policy Board and the RHS Chief
Executive Officer. Any purchases provided for herein will be funded through
funds provided by the Clinic or RHS. as applicable, and any such leases and
service agreements will be entered into by representatives of the Clinic in the
name of the Clinic or by representatives of RHS in the name of RHS, as
determined by RHS and the Clinic. All costs associated With such assets,
including, depreciation expenses, lease payments, costs of maintenance or
replacement shall be the sole expense of RHS or the Clinic, as applicable.
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(k) Manager shall assist the Clinic in recruiting
additional physicians by reviewing and making recommendations as to the
administrative functions related to the recruitment of physicians; provided,
however, the Clinic shall interview and make the ultimate decision as to the
suitability of any physician to become associated with the Clinic. All recruited
physicians employed by the Clinic shall be the sole employees of the Clinic, to
the extent such physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment agency
fees, relocation and interviewing expenses, shall be the sole expense of RHS or
the Clinic, as applicable.
(1) Manager shall assist RHS and the Clinic in the
negotiation and administration of all managed care contracts and shall consult
with the Clinic and RHS, as applicable, on all professional or clinical matters
relating thereto. In addition, Manager shall assess existing payor contracts to
determine if the Clinic is appropriately "at-risk" for services which the Clinic
can manage. Manager shall also review and make recommendations to the Policy
Board as to vendor contracts and as to real estate leases and shall make
recommendations as to facility consolidation and office locations. Following its
initial review of the foregoing, Manager shall during the term hereof provide
general oversight and review of third party contracts.
(m) Manager shall make available for the benefit of the
Clinic such corporate services offered from time to time by PhyCor for the
benefit of other affiliated physician groups to the extent requested by the
Policy Board. Following a demonstration by Manager of the value of each service
to the Clinic, the Policy Board and the Chief Executive Officer of RHS shall
determine and approve in advance those services of PhyCor that shall be provided
to the Clinic. The approved services shall be among those listed on Exhibit 2.3
attached hereto and made a part hereof and those additional services which may
be developed and offered by Manager and/or PhyCor to other affiliates or
physician groups at any time during the term of this Agreement (all such
services, as modified, deleted or added from time to time being hereinafter
called the "Approved Services"). The foregoing Approved Services shall expressly
be included in and shall be provided, to the extent requested, for the benefit
of the Clinic's operations for the management fees paid to Manager under this
Agreement to the extent provided for below. RHS and the Clinic acknowledge and
agree that corporate services will change during the term of this Agreement,
with some programs being deleted and new programs added, and that the commitment
provided herein as to access to corporate services shall be only to the extent
of the corporate services provided from time to time by PhyCor. If a service is
provided without charge to affiliated physician groups by PhyCor, such services
shall be provided without charge to either the Clinic or RHS pursuant to this
Agreement and shall be included in the fees payable to Manager. If a service is
provided with a charge to affiliated physician groups, then the use of such
service shall be provided for the benefit of the Clinic at the lowest price
Manager or PhyCor charges any of its other affiliated physician groups for such
service.
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2.4. Manager Personnel. (a) Manager shall provide to the Clinic the
services of an Executive Director, a Controller and an Analyst, each of whom
will be employed by Manager during the term of this Agreement. Manager may
employ such additional administrative personnel as Manager deems necessary in
providing its services under this Agreement. The Manager must obtain the prior
approval of the Policy Board and the Chief Executive Officer of RHS before
hiring the Executive Director or the Executive Director's replacement. All
compensation and benefit expenses, including, but not limited to, workers
compensation, social security, withholding, and payroll taxes, and the payment
of all salary, vacation travel and out-of-pocket expenses and other employee
benefits of all such employees of Manager will be the sole responsibility of
Manager and/or PhyCor. Manager shall determine solely the amount and nature of
all compensation payable to such employees of Manager and shall have the sole
discretion in selecting such personnel (other than the Executive Director as
provided for above) and terminating the employment of any of its personnel;
provided, however, if Manager elects, in its sole discretion, to terminate an
Executive Director in response to the request of RHS or the Clinic, RHS shall
reimburse to Manager 50% of any severance expenses incurred by Manager as a
result of such termination. At the direction, supervision and control of
Manager, the Executive Director, subject to the terms of this Agreement, shall
implement the policies established from time to time by the Policy Board. The
Executive Director shall be responsible for organizing the agenda for the
meetings of the Policy Board and for carrying out, on a day-to-day basis,
activities based on the Work Plan and the directives of the Policy Board and the
Chief Executive Officer of RHS, as applicable. The Controller and Analyst shall
report directly to the Executive Director. RHS or the Clinic, as applicable,
shall provide such reasonable and appropriate secretarial and support staff
personnel, at the sole expense of RHS or the Clinic, as applicable, necessary to
enable the Executive Director, Controller and Analyst and such additional
personnel of Manager, if applicable, to perform their duties and
responsibilities under this Agreement.
(b) RHS and the Clinic agree that neither of them will,
either directly or indirectly, employ or offer employment to any of the
individuals employed by Manager for so long as such individuals are employed by
Manager (in the case of former RHS or Clinic employees) or, in the case of
employees of Manager who were not former employees of RHS or the Clinic, for so
long as such individuals are employed by Manager and for a period of eighteen
(18) months following the termination of employment for any reason of such
individuals. The parties recognize and agree that monetary damages are not an
adequate remedy for a breach by either RHS or the Clinic of this covenant not to
hire Manager employees. The parties agree that irreparable harm will result to
Manager and its business from a breach of this covenant by either RHS or the
Clinic and that in the event of the breach of this covenant, in addition to
monetary damages, Manager shall be entitled to an injunction enjoining RHS and
the Clinic or either of them from violating the provisions of this covenant. The
parties hereto agree that the provisions of this Section 2.4(b) shall survive
the termination for any reason of this Agreement.
(c) Manager and PhyCor agree that neither of them will,
either directly or indirectly, employ or offer employment to any of the
individuals employed by RHS or the
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Clinic for so long as such individuals are employed by RHS or the Clinic and for
a period of eighteen (18) months following the termination of employment for any
reason of such individuals. The parties recognize and agree that monetary
damages are not an adequate remedy for a breach by Manager of this covenant not
to hire RHS or Clinic employees. The parties agree that irreparable harm will
result to RHS or the Clinic, as applicable, and their business from a breach of
this covenant by Manager and that in the event of the breach of this covenant,
in addition to monetary damages, RHS or the Clinic, as applicable, shall be
entitled to an injunction enjoining Manager from violating the provisions of
this covenant. The parties hereto agree that the provisions of this Section
2.4(c) shall survive the termination for any reason of this Agreement.
2.5. RHS Compliance Program. Manager understands that RHS maintains
an internal regulatory compliance plan for its operations, including the
operations of the Clinic. Manager covenants and agrees that Manager, subject to
the direction of the Policy Board, the Work Plan and the Chief Executive Officer
of RHS, shall act in accordance with the internal compliance plan adopted from
time to time by RHS in performing its duties under this Agreement to the extent
possible based on the directions of the foregoing.
2.6. Events Excusing Performance. Neither Manager nor PhyCor shall
be liable to the Clinic or RHS for failure to perform any of the services
required herein in the event of strikes, lock-outs, calamities, acts of God,
unavailability of supplies, the failure of hardware or software to function in
the manner intended as a result of the inability to process information relating
to a date beyond December 31, 1999 (as more commonly referred to, the "Y2K
Problem" or the "Millennium Bug") whether such problem arises in hardware or
software owned by the Clinic, RHS, any vendor or customer of RHS or the Clinic
or any other third party (including but not limited to government agencies), or
other events over which neither Manager nor PhyCor has control for so long as
such events continue, and for a reasonable period of time thereafter.
3. OBLIGATIONS OF THE CLINIC AND RHS
3.1. Professional Services. The Clinic shall provide professional
services to patients in compliance at all times with applicable ethical
standards, laws and regulations applying to the medical profession. The Clinic
shall ensure that each physician associated with the Clinic to provide medical
care to patients of the Clinic is licensed by the State of Illinois. In the
event that any disciplinary actions or medical malpractice actions are initiated
against any such physician, the Clinic shall immediately inform the Executive
Director of such action and the underlying facts and circumstances, and Manager
shall provide advisory assistance to the Clinic, to the extent requested, in
investigating and resolving such matters (including, without limitation,
providing advisory assistance in resolving any litigation which arises in
connection with the same). Notwithstanding the foregoing, the discipline of any
physician or the resolution of any medical or medical malpractice claims shall
be the sole responsibility of the Clinic and RHS.
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The Clinic shall carry out a program to monitor the quality of medical care
practiced at the Clinic.
3.2. Medical Practice. The Clinic shall comply with all applicable
local rules, ordinances and all applicable standards of medical care required to
be complied with by law.
3.3. Employment of Physicians. The Clinic or RHS, as applicable,
shall be responsible for the payment of such physician employees' salaries and
wages, benefits, payroll taxes and all other taxes and charges now or hereafter
applicable to them. The Clinic shall also be responsible solely for the cost of
physicians' membership in professional associations, and their continuing
professional education. With respect to physicians, the Clinic shall only employ
and contract with licensed physicians meeting applicable credentialing
guidelines established by the Clinic.
3.4. Employment of Other Personnel. The Clinic or RHS, as
applicable, shall employ all such personnel contemplated by the Work Plan and
approved by the Policy Board to conduct the day-to-day operations of the Clinic,
which personnel shall be subject to the day-to-day supervision of employees of
Manager in connection with the performance of Manager's duties pursuant to this
Agreement. The Clinic or RHS, as applicable, shall be responsible solely for the
payment of such employees' salaries and wages, benefits, payroll taxes and all
other taxes and charges now or hereafter applicable to them. The Clinic and RHS
agree that the wage levels paid to such personnel shall be comparable with wage
levels paid to similarly situated personnel employed by other health care
providers in the Area (as defined herein). The Clinic and RHS covenant and agree
to provide such personnel to the operations of the Clinic to meet the operating
needs of the Clinic as contemplated in and as modified by the operating budgets
adopted from time to time by the Policy Board and approved by the RHS Chief
Executive Officer. For purposes of this Agreement, "Area" shall mean the
Illinois counties of Xxxxxxxxxx, Winnebago, McHenry and Xxxxx. The term "Area"
specifically shall not include any portion of the City of Chicago nor any
portion of the suburban areas surrounding the City of Chicago.
3.5. Provision of Capital; Access to Information and Data; Access
to RHS Services. (a) RHS understands and agrees that its agreement herein to
satisfy the capital and working capital needs of the Clinic in accordance with
capital and operating budgets recommended by the Policy Board and approved by
RHS and in accordance with the Work Plan and the Delegation of Authority
Policies is an essential part of this Agreement and an agreement relied upon by
Manager in entering into this Agreement. RHS agrees that access to working
capital and capital expenditures on behalf of the Clinic will be provided by
RHS, subject to limitations of RHS' available capital resources from time to
time during the term hereof. As part of this capital commitment, RHS understands
and acknowledges that the Clinic will require capital to fund the acquisition
from time to time of furniture, equipment, inventory and supplies as provided
for by approved budgets and shall need working capital to fund the operating
needs of the Clinic.
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(b) RHS and the Clinic understand and agree that Manager will need
access to financial and other data and systems maintained by RHS and the Clinic
relating to the operations of the Clinic in order to provide the management
services anticipated to be provided by the Clinic and RHS under this Agreement.
Manager shall be afforded reasonable access to all information and data of RHS
and the Clinic needed to perform such duties, including, but not limited to,
financial data, physician data, accounts receivable data, accounts payable data,
employee payroll information, all systems and programs on which such data and
information are stored, all paper records and files where such information is
held, and all electronic records relating to the foregoing. Manager shall also
be permitted access to employees of RHS and the Clinic who are responsible for
maintaining and processing all such information and data. RHS and the Clinic
also agree to produce such reports based on the foregoing data and information
as Manager shall request from time to time in connection with Manager's
performance of its duties under this Agreement.
(c) RHS has historically provided to the Clinic a number of
services relating to the operations of the Clinic, including, but not limited
to, information systems, accounting systems, purchasing systems, marketing
assistance, and personnel of RHS relating to the foregoing. RHS hereby covenants
and agrees to continue to provide at least these services on the same basis,
including on the same cost basis and on the same terms and conditions, as such
services have been provided to the Clinic historically, it being agreed that
Manager's ability to provide services for the benefit of the Clinic under this
Agreement is dependent upon RHS continuing to make these and other services
available to and for the benefit of the Clinic.
3.6. Insurance. (a) RHS and the Clinic shall provide to Manager,
upon Manager's request, evidence of comprehensive professional liability
insurance as well as general liability and umbrella insurance. In no event shall
Manager be liable in any respect for any amounts not covered by the foregoing
policies, whether such noncoverage relates to satisfaction of deductibles,
claims in excess of policy limits, or otherwise. RHS and the Clinic shall also
provide, at the request of Manager, evidence of property insurance covering the
Clinic's premises and operations, the contents of such premises.
(b) Manager and PhyCor shall be named as additional insureds under
the comprehensive professional liability policies maintained by RHS and the
Clinic. Manager shall be provided by RHS the endorsement evidencing Manager and
Manager's parent being named as an additional insured no later than the date of
the execution of this Agreement and upon the annual renewal of such policies
each policy year. RHS shall also arrange that Manager receive written notice
from the carrier of any changes to the policies and any cancellation or
expiration of such policies no less than thirty (30) days prior to the effective
date of any such change, cancellation or expiration.
(c) Manager and PhyCor shall provide to the Clinic and RHS, at the
Clinic's and RHS' request, evidence of general liability and umbrella insurance.
In no event shall the Clinic
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or RHS be liable in any respect for any amounts not covered by the foregoing
policies, whether such noncoverage relates to satisfaction of deductibles,
claims in excess of policy limits or otherwise. Manager and/or PhyCor shall
arrange that the Clinic and RHS receive written notice from the carrier of any
changes to the policies and any cancellation or expiration of such policies no
less than thirty (30) days prior to the effective date of any such change,
cancellation or expiration.
3.7. Facilities. During the term of this Agreement, RHS hereby
agrees to provide or make available the offices and facilities provided or made
available by RHS for the benefit of the Clinic as of the date hereof, to
implement such changes and alterations to such offices and facilities as are
approved by the Policy Board and to obtain additional offices and facilities as
approved from time to time by the Policy Board. If approved arrangements for
additional offices or facilities are entered into with third party landlords,
RHS shall take whatever actions are necessary to permit the Clinic to occupy
such premises, including, but not limited to, entering into any corporate
guarantees of any leases or subleases as may be required by third party
landlords.
3.8. Fees for Professional Services. The Clinic and RHS, as
applicable, shall be solely responsible for legal, accounting and other
professional services fees incurred by the Clinic and by RHS in connection with
the operations of the Clinic.
3.9. Participation in Manager Performance Initiatives. The Clinic
acknowledges that in order to achieve the operational and financial improvements
in its operations, the Clinic intends to participate in and adopt such of
Manager's performance initiatives as shall be proposed for it by Manager from
time to time as the Clinic deems appropriate based on the Clinic Work Plan, the
determinations of the Policy Board and the directives of the RHS Chief Executive
Officer. Based on the foregoing determinations and directives, the Clinic would
adopt the current performance initiatives of Care Management, Outcome
Management, Patient Satisfaction, Physician Satisfaction, Staff Management,
Provider Effectiveness and Best Practices Programs based on such determinations
and directives.
3.10. Income Distribution Plan Committee. The Clinic shall establish
and maintain an IDP Committee with physician representation to implement and
oversee the Clinic's income distribution plan. The IDP Committee shall be
comprised of members and shall operate in accordance with guidelines and
principles established from time to time by the Policy Board.
3.11 Committee Structure. The Clinic shall establish from among its
physician employees one or more committees that shall provide for functions of
medical management, utilization management, quality improvement and physician
issues. Such committees shall consider recommendations made by Manager from time
to time with respect to such functions.
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3.12. Events Excusing Performance. Neither the Clinic and RHS shall
be liable to Manager or PhyCor for failure to perform any of the services
required herein in the event of strikes, lock-outs, calamities, acts of God,
unavailability of supplies or other events over which neither the Clinic nor RHS
has control for so long as such events continue, and for a reasonable period of
time thereafter.
3.13. Renegotiate Provisions of Section 6.2(g) and Exhibit 6.1. RHS
and the Clinic hereby covenant and agree that in the event that (i) either RHS
or the Clinic materially changes accounting methodologies from the methodologies
employed as of the date hereof, (ii) RHS materially changes the classification
of revenue or expenses between RHS-related entities from the classifications
used as of the date hereof, (iii) either RHS or the Clinic incurs any
extraordinary items which have or are likely to have a material adverse impact
on the results of operations of the Clinic, (iv) either the Clinic or RHS enters
into any collective bargaining agreement with any group of the employees of
either RHS or the Clinic organized as a labor union during the term of this
Agreement which agreement has or is likely to have a material adverse impact on
the results of operations of the Clinic, (v) there are material changes in the
number of physicians practicing as employees of the Clinic (i.e., 30 or more
non-hospital based physicians during a 12-month period), (vi) either the Clinic
or RHS recognizes adjustments to the balance sheet of the Clinic related to
periods before the date of this Agreement and which have a material adverse
impact on the results of operations of the Clinic, or (vii) either RHS or the
Clinic incurs material severance expenses as a result of the termination of
Clinic employees during a 12-month period, the parties hereto agree that they
shall review and revise the amounts by which Operating Income would be increased
as described in Section 6.2(g) and Exhibit 6.1, or the formula for determining
Operating Income so that such revised, agreed upon amounts or formula for
Section 6.2(g) and Exhibit 6.1 take into account the impact of the foregoing. In
addition to the foregoing, if Manager presents to the Policy Board
recommendations which Manager believes in good faith will improve the financial
results of the Clinic materially but which recommendations are not accepted by
the Policy Board (or, after acceptance by the Policy Board, are not accepted by
the RHS Board of Directors or RHS Chief Executive Officer, as applicable), then
the parties shall enter into good faith negotiations to estimate the potential
impact of the recommendations which were not accepted and shall discuss
revisions to the amounts or formula set forth or described in Section 6.2(g) or
Exhibit 6.1.
3.14. Attendance at RHS Board Meetings. RHS agrees to permit the
attendance at each meeting of the Board of Directors of RHS of either the PhyCor
Operations Vice President or the Executive Director, who shall present
information and answer questions concerning the operations of the Clinic and the
provision of services pursuant to this Agreement. The PhyCor Operations Vice
President and the Executive Director shall be provided with notice of each such
meeting of the Board of Directors in the same manner and at the same time as
other members of the RHS Board of Directors.
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4. POLICY BOARD
4.1. Formation and Operation of the Policy Board. The parties shall
establish a Policy Board which shall be responsible for developing management
and administrative policies for the Clinic to the extent provided for herein.
The Policy Board shall consist of ten (10) members to be comprised of the
persons described in Exhibit 4.1 attached hereto. The act of a majority of the
members of the Policy Board shall be the act of the Policy Board. Manager
expressly recognizes that Manager is being engaged by RHS and the Clinic
pursuant to this Agreement to provide services on behalf of the Clinic in a
manner consistent with the mission of RHS and the Clinic and in a manner
consistent with the determinations of the Policy Board and the budgets
recommended by the Policy Board and approved by RHS.
4.2. Duties and Responsibilities of the Policy Board. Subject to
the provisions of Section 4.4 below, the Policy Board shall have the following
duties and obligations:
(a) Any renovation and expansion plans with respect to
facilities occupied by the Clinic and capital equipment expenditures
sought to be acquired by the Clinic shall be approved in advance by the
Policy Board. Such approval shall generally be contained in the capital
budgets reviewed and approved annually in advance of commitment by the
Policy Board and by RHS. If capital expenditures are sought by the
Clinic or Manager in excess of those approved in the annual capital
budget for the Clinic, they must first be approved by the Policy Board
and by RHS, all in accordance with the Delegation of Authority
Policies.
(b) All capital and operating budgets proposed by Manager
shall be subject to the review, revision and approval of the Policy
Board.
(c) All advertising and other marketing of the services
performed by the Clinic shall be subject to the prior review and
approval of the Policy Board.
(d) As a part of the annual operating budget, the Policy Board
shall review and adopt the fee schedule for all physician and ancillary
services rendered by the Clinic, which fee schedule shall be subject to
the final review and approval of the RHS Board of Directors.
(e) Recommendations regarding the establishment or maintenance
of relationships with institutional health care providers and payors
shall be made by the Policy Board.
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(f) The Policy Board shall review long-term strategic planning
recommendations developed by Manager and, following consultation with
the Clinic, shall adopt such strategies from among the recommendations
as the Policy Board deems appropriate. Prior to implementation, these
recommendations shall be subject to the prior review, revision and
approval of the RHS Board of Directors.
(g) Within the Clinic capital budgets approved by the RHS
Board of Directors, the Policy Board shall determine the priority of
such capital expenditures, subject to the Delegation of Authority
Policies.
(h) The Policy Board shall determine the number and type of
physicians required for the efficient operation of the Clinic.
4.3. Policy Board Matters On Which Manager has no Vote. The Policy
Board shall have the authority to approve matters relating to standards of care
to be observed by personnel of the Clinic, including matters relating to the
provision of medical services and matters of professional medical judgment, and
matters concerning the hiring, evaluation and termination of specific physician
employees of the Clinic (which hiring, evaluation and termination shall be
subject to the approval of the Chief Executive Officer of RHS), except that with
respect to these matters, Manager shall have no vote, although Manager may, if
so determined from time to time by the other members of the Policy Board,
participate in Policy Board discussions concerning the foregoing matters.
4.4. RHS Chief Executive Officer. The parties hereto understand
that the RHS Chief Executive Officer must have direct input into matters that
may effect the operations of RHS, including matters which pertain to the Clinic.
In that regard, decisions of the Policy Board which impact the operations of the
Clinic and may impact the overall operations of RHS shall be subject to the
prior review, revision and approval of the Chief Executive Officer. Therefore,
any matters contained in this Agreement and decisions made pursuant thereto
which impact the operations of the Clinic and which are subject to the approval
of the Policy Board shall also be subject, to the extent desired by the Chief
Executive Officer, to the approval of the RHS Chief Executive Officer.
5. FINANCIAL ARRANGEMENTS
5.1 Management Fees. RHS, the Clinic, Manager and PhyCor agree
that the compensation set forth in this Article 5 is being paid to Manager in
consideration of the services performed by Manager hereunder and that such fees
are fair and reasonable and that such fees have been bargained for at arms'
length. Manager shall be paid a fee as follows:
(a) Manager shall receive a fee of One Hundred Twenty Thousand
Eight Hundred Thirty Three Dollars ($120,883) for the period from October 15,
1999 through October
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31, 1999, and a monthly fee of Two Hundred Forty One Thousand Six Hundred Sixty
Seven Dollars ($241,667) for each of the months of November, 1999 and December,
1999. Such fees shall be payable to Manager as of the first business day of each
month, except that the fee for the October 1999 period shall be paid on the
date of the execution of this Agreement.
(b) Manager shall receive an annual fee of Two Million Nine
Hundred Thousand Dollars ($2,900,000) for the period from January 1, 2000
through December 31, 2000. The foregoing annual fee shall be payable in equal
monthly payments on the first business day of each month. Commencing January 1,
2001 and on each January 1 thereafter during the term of this Agreement, the fee
payable to Manager for such new 12-month period shall be equal to the amount of
the fee for the immediately preceding 12-month period, plus an increase of 4%.
Such adjusted annual fee shall be payable in 12 equal monthly amounts on the
first business day of each month.
(c) In the event there is a material increase or decrease during
the term hereof in the number of physicians providing medical services on behalf
of the Clinic (i.e., 30 or more non-hospital based physicians during a 12-month
period), the parties hereto agree to enter into good faith negotiations
concerning the amount of the annual fee provided for in Section 5.1(b) above.
Upon the mutual agreement of the parties in such event, the annual fee shall be
adjusted on a prospective basis as agreed to by the parties.
(d) The Clinic shall reimburse expenses incurred by Manager in
performing its obligations under this Agreement to the extent provided for in
this Agreement so long as such expenses were incurred in accordance with the
terms of the Clinic Work Plan, Policy Board approved directives, the approved
capital and operating budgets or directives of the Chief Financial Officer of
RHS, as applicable, or as otherwise agreed to by the parties hereto from time to
time as to specific expenses incurred by Manager. Notwithstanding the foregoing,
Manager acknowledges and agrees that expenses referred to in this Section 5.1(d)
for any single expense item that is either (i) a non-budgeted item that is
expected to exceed the sum of $5,000, or (h) a budgeted item that is expected to
exceed $10,000, shall require the prior approval of the Chief Executive Officer
of RHS.
6. TERM AND TERMINATION
6.1. Term of Agreement. (a) The initial term of this Agreement
shall be thirty-eight and one-half (38 1/2) months commencing on the effective
date hereof, and terminating on December 31, 2002 (the "Initial Term"), unless
sooner terminated in accordance with the terms of this Agreement.
(b) Unless sooner terminated as provided in this Agreement, the
term of this Agreement shall be extended automatically for an additional term of
twenty-four (24) months immediately following the completion of the Initial Term
hereof if the sum of the 2000 Annual Net Operating Income Improvement, 2001
Annual Net Operating Income Improvement and the
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2002 Annual Net Operating Income Improvement is $19,792,000 or more. If the
result of the foregoing is less than $19,792,000, then this Agreement shall not
be extended automatically but may be extended for the additional twenty-four
(24) months referred to above by the mutual agreement of the parties hereto.
Exhibit 6.1 attached hereto and made a part hereof sets forth the meaning of
the foregoing defined terms and the defined terms used in Section 6.2(g) below.
6.2. Termination by the Clinic and RHS. The Clinic and RHS may
terminate this Agreement as follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by Manager, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by Manager, except for the filing of a
petition in involuntary bankruptcy against Manager which is dismissed within
thirty (30) days thereafter, the Clinic and RHS may give notice of the immediate
termination of this Agreement.
(b) In the event Manager shall materially default in the
performance of duties or obligations imposed upon it by this Agreement and such
default shall continue for a period of forty-five (45) days after written notice
thereof has been given to Manager by the Clinic; provided, however, that the
failure to improve Operating Income for any applicable period by the amounts
described in Section 6.2(g) or Exhibit 6.1, as applicable, shall in no event be
deemed a material default by Manager of any of its duties or obligations under
this Agreement.
(c) In the event RHS makes a final determination to suspend or
cease the operations of the Clinic so that, as a result of such determination,
the Clinic will cease operating as a multispecialty physician medical practice
for an extensive period of time or forever, then RHS may terminate this
Agreement upon 120 days' prior written notice thereof, it being understood that
during such 120 day period, this Agreement shall remain in full force and effect
and the Clinic and RHS shall be obligated to pay to Manager the full amount of
the fees payable to Manager and reimburse Manager's expenses in accordance with
Article 5 hereof during such 120 day period. Any fees or reimbursement of
expenses owed to Manager following the termination hereof in accordance with the
provisions of Article 5 above shall be paid within thirty (30) days of receipt
by the Clinic or RHS of Manager's or PhyCor's statement therefor. The foregoing
provisions shall survive the termination of this Agreement.
(d) In the event that at any time during the term of this
Agreement, Manager or PhyCor either (i) enters into a binding agreement to sell
to a third party a "controlling interest" in the capital stock of Manager or
PhyCor (a "controlling interest" for all purposes hereunder shall mean the sale
or other transfer of any kind of fifty percent (50%) or more of the voting stock
of Manager or of PhyCor); or (ii) enters into a binding agreement to sell all or
substantially all of the assets of Manager and/or PhyCor; or (iii) enters into a
binding agreement to enter into a merger, stock swap or stock exchange so that
upon the consummation of such transaction,
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Manager would no longer be wholly-owned by PhyCor; or (iv) determines to
discontinue the operations of Manager and/or PhyCor; or (v) accepts a bona fide
offer from a third party where the effect of such offer would result in Manager
no longer being a wholly-owned subsidiary of PhyCor, then the Clinic and RHS
shall have the right, upon thirty (30) days prior written notice to Manager
and PhyCor, to terminate this Agreement. Notwithstanding the foregoing,
investments in PhyCor by X. Xxxxxxx Xxxxxx and its affiliates and funds
("Warburg") shall in no event trigger the rights of the Clinic and RHS provided
for herein. The events described above shall be referred to herein as an
"Event". In no event shall an "Event" include a transaction which is part of an
internal reorganization of PhyCor entities the result of which is Manager
remaining a subsidiary of PhyCor or a subsidiary of an entity owned by PhyCor.
(e) In the event that any person or persons (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of the
ownership interests of Manager or PhyCor, or all or substantially all of the
assets of Manger or PhyCor, or PhyCor contributes all or substantially all of
its assets into a joint venture or other similar arrangement where PhyCor will
maintain less than a fifty percent (50%) ownership interest in such joint
arrangement, this Agreement may be terminated by the Clinic and RHS at any time
following such transaction upon thirty (30) days prior written notice to Manager
and PhyCor. Notwithstanding the foregoing, investments in PhyCor by Warburg
shall in no event trigger the rights of the Clinic and RHS provided for herein.
(f) In the event of the execution of definitive agreements by the
Clinic and/or RHS to sell all or substantially all of the assets of the Clinic
and/or RHS to a third party, or of the execution of a definitive agreement to
transfer ownership to a third party of all or substantially all of the assets
of the Clinic and/or RHS as part of a merger or affiliation agreement or
arrangement, this Agreement may be terminated by the Clinic and RHS at any time
thereafter upon thirty (30) days prior written notice to Manager and PhyCor.
(g) In the event that the Clinic shall: (i) fail to achieve 2000
Annual Net Operating Income Improvement (as defined on Exhibit 6.1 attached
hereto) in the amount of $4,350,000 or more, or (ii) fail to achieve 2001 Annual
Net Operating Income Improvement (as defined on Exhibit 6.1 attached hereto) of
$10,382,000 or more; then the Clinic and RHS (or either of them) may terminate
this Agreement upon thirty (30) days prior written notice following the date RHS
receives written confirmation of the final Annual Net Operating Income figures
for the Clinic for fiscal year 2000 or fiscal year 2001, respectively. In the
event RHS or the Clinic exercises its right to terminate this Agreement based on
this Section 6.2(g), the parties acknowledge that the provisions of Section 6.4
shall apply.
6.3. Termination by Manager. Manager may terminate this Agreement
as follows:
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(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by either the Clinic or
RHS, or upon other action taken or suffered, voluntarily or involuntarily, under
any federal or state law for the benefit of debtors by either the Clinic or RHS,
except for the filing of a petition in involuntary bankruptcy against the Clinic
which is dismissed within thirty (30) days thereafter, Manager may give notice
of the immediate termination of this Agreement.
(b) In the event either the Clinic or RHS shall materially default
in the performance of duties or obligations imposed upon it by this Agreement,
and such default shall continue for a period of forty-five (45) days after
written notice thereof has been given to the Clinic or RHS, as applicable, by
Manager, Manager may terminate this Agreement; provided, however, if the
material default is the failure of RHS and the Clinic to pay in a timely manner
the fees owed to Manager pursuant to Article 5 of this Agreement, the foregoing
period shall be five (5) days rather than 45 days in such circumstance.
(c) In the event any material license, certification or permit
required by RHS or the Clinic to operate cannot be obtained, is suspended, is
terminated or is revoked, Manager may terminate this Agreement upon 30 days'
prior written notice to the Clinic and RHS.
(d) In the event an Event (as defined in Section 6.2(d) above) is
consummated the result of which is that the Clinic is no longer a wholly-owned
subsidiary of RHS, this Agreement may be terminated by Manager at any time after
such consummation upon thirty (30) days' prior written notice to the Clinic and
RHS.
(e) In the event that any person or persons (as such term is used
in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) acquires or
acquires the right to vote, through acquisition, tender offer, proxy
solicitation, merger or consolidation, fifty percent (50%) or more of the
ownership interests of RHS or the Clinic, or all or substantially all of the
assets of RHS or the Clinic, or RHS or the Clinic contributes all or
substantially all of its assets into a joint venture or other similar
arrangement where RHS will maintain a 50% or less ownership interest in such
joint arrangement, this Agreement may be terminated by Manager at any time
following such transaction upon thirty (30) days' prior written notice to RHS
and the Clinic.
6.4. Actions after Termination or Expiration. Upon the effective
date of the termination of this Agreement or upon the expiration of this
Agreement, the Clinic and RHS shall (i) reimburse to Manager any amounts owed to
Manager in reimbursement of any approved expenses incurred by Manager which are
to reimbursed by RHS and the Clinic as provided for herein, and (ii) shall pay
to Manager any and all management fees, without right of offset, due and owing
to Manager up to the effective date of termination or expiration which have not
been paid by the Clinic or RHS to Manager prior to the effective date of
termination or expiration. The foregoing provisions shall survive the
termination of this Agreement.
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7. EXCLUSIVITY
7.1. Exclusivity as to Manager. RHS and the Clinic hereby
acknowledge and agree that, during the term of this Agreement, Manager shall
serve, on an exclusive basis, as the manager as contemplated in this Agreement
on behalf of and for the benefit of the Clinic relating to its operations.
7.2. Exclusive Provision of Management Services. The parties hereto
acknowledge and agree that Manager has been engaged by RHS and the Clinic on an
exclusive basis to serve as the manager as contemplated in this Agreement.
Manager and PhyCor agree that, during the term hereof, other than pursuant to
this Agreement, neither Manager nor PhyCor shall provide management services as
contemplated in this Agreement to any other hospital, hospital system, or
multi-specialty medical clinic located anywhere within Stephenson, Kane,
McHenry, Boone and Winnebago Counties, Illinois; provided, however, the
foregoing restrictions shall not preclude or otherwise restrict NAMM-Illinois
from providing management services to RHP in accordance with the terms of that
certain Management Agreement of even date herewith between NAMM-Illinois and RHP
or from NAMM-Illinois or its parent or affiliates providing services to HAMP (as
defined in such Management Agreement). The foregoing area shall not include for
any purpose the City of Chicago and the suburban areas surrounding the City of
Chicago.
8. RECORDS; OWNERSHIP OF INFORMATION; CONFIDENTIALITY
8.1. Patient Records. During and throughout the term of this
Agreement and upon and after the termination of this Agreement, the Clinic shall
retain all patient medical records maintained by the Clinic or Manager in the
name of the Clinic. The Clinic and RHS shall, at their option, be entitled to
retain copies of financial and accounting records relating to all services
performed by Manager. Notwithstanding the foregoing and subject to applicable
federal and State of Illinois patient and patient confidentiality requirements
applicable from time to time, Manager may collect patient data and other
information from the Clinic which will be aggregated and assimilated with
similar information from physician groups managed by other entities affiliated
with PhyCor. Such aggregated data and all reports containing such information
shall be the exclusive property of PhyCor and any commercialization of such data
or information by such other entities affiliated with PhyCor shall be for the
sole and exclusive benefit of PhyCor. Nothing contained herein shall authorize
Manager or PhyCor to own or use any patient information in violation of law or
the patient's legal rights or to use Clinic or RHS data if such data is
segregated and separately identified as RHS or Clinic data.
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8.2. Records Owned by Manager. Manager retains all ownership and
other rights in all systems, manuals, computer software, materials, and other
information, in whatever form, provided by or developed by Manager or entities
affiliated with Manager in the performance of its obligations under this
Agreement (the "Manager Materials"). Nothing contained herein shall be construed
as a license or transfer of any such Manager Materials or any portion thereof to
RHS or the Clinic. Upon the expiration or termination for any reason of this
Agreement, Manager shall have the right to retain all such Manager Materials,
and RHS and the Clinic, as applicable, shall, upon request of Manager, deliver
to Manager all such Manager Materials. RHS and the Clinic acknowledge and agree
that neither party shall use any of the Manager Materials after the termination
of this Agreement for any purpose, either on their own behalf or for the benefit
of any third party. It is not the intent of the parties that removal of
Manager's Materials would impair materially the operations of the Clinic. If
such material impairment or material disruption would occur or arise as a result
of the removal of Manager's Materials, the parties shall mutually agree in good
faith to a timetable for the expeditious removal of Manager's Materials to which
this provision would apply, it being understood that the ownership of Manager's
Materials remains as provided for above even in this circumstance. The
provisions of this Section 8.2 shall survive the termination or expiration of
this Agreement.
8.3. Access to Records. (a) During the term of this Agreement, RHS
and the Clinic shall provide to Manager reasonable access to the records and
facilities of RHS and the Clinic in connection with the provision of management
services hereunder by Manager.
(b) Upon the written request of the Secretary of Health and Human
Services, the Comptroller General, or any of their authorized representatives,
Manager shall make available those contracts, books, documents and records
necessary to certify the nature and extent of the costs of providing services
under this Agreement. Such inspection shall be available for up to four (4)
years after the rendering of such services. If Manager carries out any of the
duties under this Agreement through a subcontract with a value of $10,000 or
more over a 12-month period with a related individual or organization, Manager
agrees to include this requirement in any subcontract. This Section 9.3(b) is
included pursuant to and is governed by the requirements of Public Law 96-499,
Sec. 952 and the regulations promulgated thereunder.
8.4. Confidentiality. Except as set forth herein and except for
disclosure to its bankers, underwriters, consultants, including Warburg, or
lenders, no party hereto shall disseminate or release to any third party any
information regarding any provision of this Agreement, or any financial or other
information regarding the other (past, present or future) that was obtained by
the other in the course of the negotiation of this Agreement or in the course of
the performance of this Agreement, without the other party's prior written
approval; provided, however, the foregoing shall not apply to information which
(i) is generally available to the public other than as a result of a breach of
confidentiality provisions; (ii) becomes available on a non-confidential basis
from a source other than the other party or its affiliates or agents, which
source was not itself bound by a confidentiality agreement, or (iii) which is
required to be disclosed by law, including securities laws or pursuant to court
order. In addition, the foregoing
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restrictions shall not prohibit Manager from using data and information obtained
by Manager in performing its services under this Agreement in the context of
presenting to other potential purchasers of management services the results of
Manager's performance under this Agreement so long as such data does not
identify RHS or the Clinic specifically or so long as the data being presented
is approved in advance by RHS and the Clinic. This information may include the
data evidencing economic improvements made for the benefit of the Clinic as a
result of Manager's services provided in this Agreement. RHS and the Clinic each
acknowledge that Manager may use the information obtained pursuant to this
Agreement to implement similar arrangements with other hospitals and hospital
systems and that the use of the information and data obtained during the terms
of this Agreement shall not constitute a breach of the terms hereof so long as
the use complies with the terms of this Section 8.4. The disclosure of the
existence of this Agreement and the fact that Manager is performing services on
behalf of RHS and the Clinic shall in no event be a breach of the provisions of
this Agreement. The provisions of this Section 8.4 shall survive the termination
or expiration of this Agreement.
9. INDEMNIFICATION; ARBITRATION
9.1. Indemnification by the Clinic. The Clinic shall indemnify,
hold harmless and defend Manager and PhyCor, and each of them and their
respective officers, directors, shareholders and employees, from and against any
and all liability, loss, damage, claim, causes of action, and expenses
(including reasonable attorneys' fees), whether or not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of medical services or the performance of any
intentional acts, negligent acts or omissions by the Clinic and/or its agents,
employees and/or subcontractors (other than Manager) during the term hereof.
9.2. Indemnification by RHS. RHS shall indemnify, hold harmless and
defend Manager and PhyCor, and each of them and their respective officers,
shareholders, directors and employees, from and against any and all liability,
loss, damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of the performance
of medical services or as a result of the performance of any intentional acts,
negligent acts or omissions by RHS and/or its agents, employees and/or
subcontractors (other than the Clinic) during the term of this Agreement.
9.3. Indemnification by Manager. Manager and PhyCor shall each
indemnify, hold harmless and defend the Clinic and RHS, and each of them and
their respective officers, shareholders, directors and employees, from and
against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of any intentional acts, negligent acts or
omissions by Manager and PhyCor and/or their shareholders, agents, employees
and/or subcontractors during the term of this Agreement.
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9.4. Rules Regarding Indemnification; Cumulative Remedies. The
obligations and liabilities of each indemnifying party hereunder with respect to
claims resulting from the assertion of liability by the other party or third
parties shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any claim which might give rise to a claim by the
indemnified party against the indemnifying party based on the indemnity
agreement contained in Sections 9.1, 9.2 and 9.3 hereof, stating the nature and
basis of said claims and the amounts thereof, to the extent known.
(b) The indemnified party shall not make any settlement of any
claims without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld or delayed.
(c) Except as herein expressly provided, the remedies provided in
this Article 9 shall be cumulative and shall not preclude assertion by any party
of any other rights or the seeking of any other rights or remedies against any
other party hereto. The provisions of this Article 9 shall survive the
termination or expiration of this Agreement.
9.5. Binding Arbitration. (a) Subject to the terms of Section
9.5(e) below, a Qualifying Dispute (as defined below), which the parties are
unable to resolve shall be subject to arbitration in accordance with the
provisions of Title 9 of the United States Code, as amended. Prior to submitting
any Qualifying Dispute to arbitration pursuant hereto, the parties agree to make
themselves available to meet and to use their best efforts to resolve the
Qualifying Dispute informally through good faith negotiations.
(b) In the event any party determines to submit an Qualifying
Dispute to arbitration following compliance with the last sentence of Section
9.5(a) above, such party shall give written notice thereof to the other party.
If the parties are otherwise unable to agree upon a mutually acceptable
arbitrator within ten (10) days following the date of such written notice, the
arbitrator shall be an arbitrator then affiliated with the American Arbitration
Association ("AAA") in Chicago, Illinois, who shall be an individual with no
less than five (5) years experience in the physician practice management field
(a "Qualified Arbitrator"). The rules of arbitration then in effect for the AAA
shall be applied in such arbitration. No Qualified Arbitrator shall have any
financial interest in either of the parties to the arbitration or the outcome of
the arbitration. Judgment on the award rendered may be entered in any court
having jurisdiction. All post-arbitration procedures shall be in strict
conformity with Title 9 of the United States Code, as amended.
(c) The parties hereto agree that on any Qualifying Dispute
subject to arbitration pursuant hereto, neither party is entitled to any other
remedy, at law or in equity, other than injunctive relief to enforce the
determination of the Qualified Arbitrator. The
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determination of the Qualified Arbitrator as to the Application Action shall be
final and binding. No appeals from the Qualified Arbitrator's decision is
possible except in strict conformity with Title 9 of the United States Code, as
amended. Each of the parties to the arbitration proceeding agrees to use their
best efforts to schedule hearing dates, and provide witnesses and materials so
that the Qualified Arbitrator can be in a position to make a final decision
within ninety (90) days following the initiation of the arbitration.
(d) The venue for any arbitration pursuant hereto shall be
Chicago, Illinois. The Qualified Arbitrator shall award to the substantially
prevailing party reasonable attorneys' fees and expenses and the costs of the
arbitration.
(e) Notwithstanding the provisions of this Article 9 to the
contrary, in no event shall a Qualifying Dispute include a matter presented to
the Policy Board for which a tied vote of the members of the Policy Board
results, it being understood that the Policy Board, and not a Qualified
Arbitrator, shall be the body to resolve such matters.
(f) For purposes hereof, "Qualifying Dispute" shall mean any
matter relating directly to the determination of the amounts set forth in
Section 6.2(g) or on Exhibit 6. 1, or on the formula described on Exhibit 6.1,
and any dispute related thereto, including the provisions of Section 3.13
hereof.
10. DUTY TO COOPERATE
The parties acknowledge and agree that each of the party's continued
mutual cooperation is critical to the ability of Manager to perform its duties
hereunder successfully and efficiently. Accordingly, each party hereto agrees to
cooperate with the other parties fully in formulating and implementing the goals
and objectives which are in the best interests of the parties hereto and, where
applicable, approved by the Policy Board and/or RHS.
11. GUARANTY BY RHS
RHS hereby agrees to guaranty unconditionally the performance of any
and all obligations of the Clinic provided for in this Agreement, including, but
not limited to, the payment of all fees owed to Manager, and the reimbursement
to Manager of any all reasonable amounts required or agreed to be reimbursed as
provided for in this Agreement. RHS shall enter into a specific guaranty
agreement to evidence the foregoing, which guaranty shall be in the form of
Exhibit 11 attached hereto and hereby made a part hereof. Such guaranty shall
survive the termination or expiration of this Agreement to the extent that any
obligation of the Clinic remains outstanding or unfulfilled as of such
termination or expiration.
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12. GUARANTY BY PHYCOR
PhyCor hereby agrees to guaranty unconditionally the performance of any
and all obligations of Manager provided for in this Agreement. PhyCor shall
enter into a specific guaranty agreement to evidence the foregoing, which
guaranty shall be in the form of Exhibit 12 attached hereto and hereby made a
part hereof. Such guaranty shall survive the termination or expiration of this
Agreement to the extent that any obligation of Manager remains outstanding or
unfulfilled as of such termination or expiration.
13. CONDITIONS PRECEDENT TO THE ENTERING INTO OF THIS AGREEMENT
13.1. All obligations of Manager to enter into this Agreement are
subject to the performance, at or prior to the entering into of this Agreement,
of all covenants and agreements contained herein which are to be performed by
RHS and the Clinic, as applicable at or prior to the entering into of this
Agreement and to the fulfillment at or prior to the date hereof of each of the
following conditions (unless expressly waived in writing):
(a) No action or proceedings shall have been instituted against,
and no order, decree or judgment of any court, agency, commission or
governmental authority shall be subsisting against any of the parties hereto
which seeks to, or would, render it unlawful to enter into this Agreement. Also,
no substantive legal objection to the transactions contemplated by this
Agreement shall have been received from or threatened by any governmental
department or agency.
(b) Each of RHS and the Clinic shall have delivered to Manager on
the date hereof an opinion of Xxxxx & Xxxxxxx (Chicago, Illinois), counsel to
RHS and the Clinic, dated the date hereof, in form and substance satisfactory to
Manager.
(c) Any consents required from any public or regulatory agency
having jurisdiction shall have been received and consents required from third
parties shall have been received.
13.2. All obligations of each of RHS and the Clinic to enter into
this Agreement are subject to the performance, at or prior to the entering into
of this Agreement, of all covenants and agreements contained herein which are to
be performed by Manager at or prior to the entering into of this Agreement and
to the fulfillment at or prior to the date hereof of each of the following
conditions (unless expressly waived in writing):
(a) No action or proceedings shall have been instituted against,
and no order, decree or judgment of any court, agency, commission or
governmental authority shall be subsisting against any of the parties hereto
which seeks to, or would, render it unlawful to enter into this Agreement. Also,
no substantive legal objection to the transactions contemplated by this
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Agreement shall have been received from or threatened by any governmental
department or agency.
(b) Manager shall have delivered to RHS and the Clinic on the date
hereof an opinion of General Counsel to Manager, dated the date hereof, in form
and substance satisfactory to RHS and the Clinic.
(c) Any consents required from any public or regulatory agency
having jurisdiction shall have been received and any consents required from
third parties shall have been received.
14. MISCELLANEOUS
14.1. Assignment. This Agreement may not be assigned to any other
parry without the express written consent of the other parties to this
Agreement; provided, however, Manager may assign this Agreement to another
entity which is also affiliated with or owned by PhyCor without the prior
written consent of either RHS or the Clinic.
14.2. Whole Agreement; Modification. This Agreement constitutes the
entire agreement between the parties. There are no other agreements or
understandings, written or oral, between the parties regarding this Agreement
and the Exhibits, other than as set forth herein. This Agreement shall not be
modified or amended except by a written document executed by both parties to
this Agreement, and such written modification(s) shall be attached hereto.
14.3. Notices. All notices required or permitted by this Agreement
shall be in writing and shall be addressed as follows:
To the Clinic: Rockford Memorial Health Services Corporation
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: President
To RHS: Rockford Health System
0000 Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Chief Executive Officer
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To Manager: PhyCor of Rockford, Inc.
00 Xxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: President
To PhyCor: PhyCor, Inc.
00 Xxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: President
or to such other address as either party shall notify the other.
14.4. Binding on Successors. This Agreement shall be binding upon
the parties hereto, and their successors, assigns, heirs and beneficiaries.
14.5. Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
14.6. Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws of
the State of Illinois. The parties acknowledge that Manager is not authorized or
qualified to engage in any activity which may be construed or deemed to
constitute the practice of medicine. To the extent any act or service required
of Manager in this Agreement should be construed or deemed, by any governmental
authority, agency or court to constitute the practice of medicine, the
performance of said act or service by Manager shall be deemed waived and forever
unenforceable and the provisions of Section 1411 shall be applicable.
14.7. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
14.8. Additional Documents. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by the
other party to implement or complete such party's obligations pursuant to this
Agreement.
14.9. Attorneys' Fees. If legal action is commenced by either party
to enforce or defend its rights under this Agreement, the prevailing party in
such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
14.10. Time is of the Essence. Time is hereby expressly declared to
be of the essence in this Agreement.
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14.11. Contract Modifications for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel to any of the parties
hereto in such a manner as to indicate that the structure of this Agreement may
be in violation of such laws or regulations, the parties hereto shall amend this
Agreement in the manner determined to be necessary by the mutual agreement of
their respective legal counsel. To the maximum extent possible, any such
amendment shall preserve the underlying economic and financial arrangements
between Manager and Manager.
14.12. Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
14.13. Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
14.14. No Obligation to Third Parties. None of the obligations and
duties of Manager or PhyCor under this Agreement shall in any way or in any
manner be deemed to create any obligation of Manager or of PhyCor to, or any
rights in, any person or entity not a party to this Agreement.
14.15. Press Releases. The parties hereto agree that any press
release concerning this Agreement must be approved in writing by the other
parties to this Agreement prior to the issuance of such press release.
Notwithstanding the foregoing, (i) the parent of Manager may make disclosures as
it, in its sole discretion, determines to be reasonably necessary to meet its
securities laws obligations, and (ii) the confidentiality provisions contained
in this Agreement shall accordingly restrict the content of any press release,
unless otherwise approved by the other parties to this Agreement.
[Signatures of the parties appear on the next page.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
RHS:
ROCKFORD HEALTH SYSTEM
By: /s/
-------------------------------------
Title: President
CLINIC:
ROCKFORD MEMORIAL HEALTH SYSTEM CORPORATION
By: /s/
---------------------------------------
Title: President
MANAGER:
PHYCOR OF ROCKFORD, INC.
By: /s/
---------------------------------------
Title: Executive Vice President
The undersigned joins in the execution of this Agreement for the
following purposes: to guaranty the performance under this Agreement of Manager,
and to make available to RHS and the Clinic the services, personnel, systems,
and other proprietary information and materials of the undersigned in accordance
with the terms of this Agreement.
PHYCOR. INC.
By: /s/
--------------------------------------
Title: Vice Chairman
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