May 24, 2000
FOR IMMEDIATE RELEASE
CONTACT: CHRISTOPHER GOETCHEUS
(617) 521-7333


STATE'S HIGHEST COURT APPROVES HARVARD PILGRIM HEALTH CARE REHABILITATION PLAN

(BOSTON, MA) The Massachusetts Supreme Judicial Court today approved the amended plan of rehabilitation that clears the way for removal of Harvard Pilgrim Health Care from Temporary Receivership.

Approval of the plan by Justice Francis J. Spina means that Harvard Pilgrim will be shortly released from receivership by Insurance Commissioner Linda Ruthardt upon finalization of an administrative supervision order and the appointment of a new board of directors. It is expected that those steps will be completed within a month.

Commissioner Ruthardt was pleased that the Court approved this innovative approach being taken in managing Harvard Pilgrim's recovery. "The goal has always been to allow Harvard Pilgrim's providers to continue delivering quality health care to its members and I'm delighted the Court has given its stamp of approval to this plan," Ruthardt said.

Harvard Pilgrim's financial performance during the first three months of 2000 was slightly better than budget. It reports a net loss of $13.4 million on total income of $634 million for the first quarter, compared to a projected net loss of $14.9 million.

Harvard Pilgrim's medical, pharmacy and administrative expenses were at or better than budget through March, and the HMO's premium yield on a per member per month basis also was better than expected. Membership at the end of the first quarter totaled 1,080,000. During the first two months of the quarter, Harvard Pilgrim was unable, due to the temporary receivership, to sign up new employer accounts in Massachusetts. It is presently writing new business in Massachusetts but has not yet resumed writing new business in Maine and New Hampshire.

In January, February and March, more than $500 million in provider claims payments were made, and Harvard Pilgrim reduced its claims inventory by 20 percent from its December 31, 1999 level. The average turnaround time for paying Harvard Pilgrim claims is now less than 30 days.

The on-target financial results for the first quarter are consistent with Harvard Pilgrim's financial turnaround plan, upon which its Rehabilitation Plan is based. The 2000 budget projects a loss of about $5 million, compared to a net loss of $54 million in 1998, and a loss of $228 million in 1999.

Harvard Pilgrim's financial turnaround plan included:

  • Restructuring of operations and a reduction in the workforce, which saved $70 million
  • Withdrawal from Rhode Island, which accounted for $56 million in FY 1999 losses (25% of all 1999 losses) including overhead costs absorbed by HPHC
  • Re-contracting with all Massachusetts physician groups
  • A technology partnership with Perot Systems to improve claims processing and information systems
  • Introduction of a three-tier pharmacy benefit to help control prescription drug costs
  • Increased premiums

Harvard Pilgrim's FY 2000 budget projects losses through the first half of the year, a net gain in the third and fourth quarters, resulting in a small year-end net loss, and a return to profitability in 2001.

Harvard Pilgrim Health Care, Inc.
January - March 2000
($ millions)

ActualBudgetVariance
Operating Revenues634.7 M639.8 M(5.1 M)
Delivery System Costs573.7 M575.1 M1.4 M
Administrative Expenses77.5 M80.1 M2.6 M
Total Operating Expenses651.2 M655.2 M4.0 M
Operating Surplus/(Loss)(16.5 M)(15.4 M)(1.1 M)
Other Income and Expenses3.1 M.5 M2.6 M
Net Surplus/(Loss)(13.4 M)(14.9 M)1.5 M

Harvard Pilgrim Health Care, Inc.
1999 Combined Financial Results

Operating Revenues$ 2,563.2 M
Other Income25.1 M
Total Revenues2,588.3 M
Operating Expenses2,816.0 M
Net loss(227.7 M)

Changes in net worth (Statutory Accounting Basis)

Net worth beginning of year139.1 M
Surplus notes5.4 M
Increase (decrease) in retained earnings/fund balance(227.7 M)
Net income
Change in non-admitted assets29.6 M
Write-up of real estate to market value72.6 M
Transfer to/from affiliates(20.9 M)
Long-term debt subject to Insurance Commissioner pre-approval145.3 M
Statutory net worth at end of year$143.3 M