FIRST AMENDMENT AND RESTATEMENT
OF SERVICES AGREEMENT
FIRST AMENDMENT AND RESTATEMENT OF SERVICES AGREEMENT, dated as of June 13,
1997 (this "Agreement"), by and among CONTEMPORARY HEALTHCARE MANAGEMENT, INC.,
a New Jersey corporation ("CHCM"), BLUE CROSS AND BLUE SHIELD OF NEW JERSEY,
INC., a New Jersey health service corporation ("BCBSNJ"), CAREADVANTAGE HEALTH
SYSTEMS, INC., a Delaware corporation ("CAHS"), and CAREADVANTAGE, INC., a
Delaware corporation ("CAI").
W I T N E S S E T H :
WHEREAS, CHCM provides certain managed care services to managed care
organizations and others, including, without limitation, utilization review
services, utilization management services and certain technical, communication
and administrative support services in connection with the foregoing services
and the provision of health care services; and
WHEREAS, BCBSNJ provides indemnity health benefits and certain
administrative services to the Serviced Population (as hereinafter defined); and
WHEREAS, as of February 22, 1996 (the "Effective Date"), the parties
entered into an agreement (the "Original Agreement") wherein CHCM was retained
by BCBSNJ as BCBSNJ's exclusive provider of the Services (as hereinafter
defined) with respect to the Serviced Population; and
WHEREAS, the parties desire to amend and restate the Original Agreement,
effective as of the date first set forth above (the "Restatement Date");
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and undertakings of the parties hereto, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
1.1. "Acceptable Policies" is defined in Section 14.3 hereof.
1.2. "Actual Current Year's Days" shall mean, for each Fully-Insured Market
Segment in any BCBSNJ Fiscal Year, the actual number of days incurred per
thousand members of the Serviced Population in such Fully-Insured Market Segment
during such BCBSNJ Fiscal Year.
1.3. "Actual Prior Year's Days" shall mean (i) for each Fully-Insured
Market Segment in any BCBSNJ Fiscal Year other than the 2000 BCBSNJ Fiscal Year,
the actual number of days incurred per thousand members of the Serviced
Population in such Fully-Insured Market Segment during the immediately preceding
BCBSNJ Fiscal Year and (ii) for each Fully-Insured Market Segment in the 2000
BCBSNJ Fiscal Year, the actual number of days incurred per thousand members of
the Serviced Population in such Fully-Insured Market Segment during the first
six (6) months of the 1999 BCBSNJ Fiscal Year.
1.4. "Actuarial Cost Per Day" shall mean Nine Hundred Eighty-Seven Dollars
($987), unless otherwise agreed by the parties.
1.5. "Affiliate" shall mean, with respect to any party hereto, any Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by or is under common control with such party. As used in this
Section 1.5, "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
1.6. "Agreement" is defined in the introductory paragraph hereof.
1.7. "Annualized Bonus Amount" shall mean, for any BCBSNJ Fiscal Year as of
any date of calculation, twenty-five percent (25%) of the sum of the following
products, calculated separately for each Fully-Insured Market Segment in the
applicable BCBSNJ Fiscal Year:
(a) the difference, whether positive or negative, calculated by
subtracting, for such Fully-Insured Market Segment, the Actual Current
Year's Days from the Target Days; multiplied by
(b) the Actuarial Cost Per Day; multiplied by
2
(c) the average number of members of the Serviced Population in such
Fully-Insured Market Segment for such BCBSNJ Fiscal Year divided by One
Thousand (1,000).
1.8. "BCBSNJ" is defined in the introductory paragraph hereof.
1.9. "BCBSNJ Fiscal Quarter" shall mean each full or partial fiscal quarter
of BCBSNJ occurring during or after the Term.
1.10. "BCBSNJ Fiscal Year" shall mean each full or partial fiscal year of
BCBSNJ occurring during the Term.
1.11. "BCBSNJ Policies" is defined in Section 5.1(a)(i) hereof.
1.12. "▇▇▇▇▇▇▇" is defined in Section 10.2(a)(vii) hereof.
1.13. "CAHS" is defined in the introductory paragraph hereof.
1.14. "CAI" is defined in the introductory paragraph hereof.
1.15. "CHCM" is defined in the introductory paragraph hereof.
1.16. "CHCM's Costs" shall mean, with respect to any item, the direct cost
of such item to CHCM (or CAI or CAHS, as the case may be), net of any related
savings (the "Net Costs") plus ten percent (10%) of such Net Costs as an
allowance for general and administrative costs, plus ten percent (10%) of such
Net Costs as an allowance for profit.
1.17. "Confidential Information" shall mean:
(a) the UR/UM Materials;
(b) any forms, policies, procedures, manuals and materials of any kind
created, owned or provided by a party hereto in connection with, or with
respect to, the Services;
(c) any information or data relating to the Services or this Agreement
that is made available by a party hereto to another party hereto and (i) is
marked confidential, or at the time of its being made available, is
otherwise indicated to be confidential, or (ii) within thirty (30) days
after such information or data is first made available, is indicated in
writing to be confidential;
3
(d) any derivative works based on the materials, information or data
described in subclauses (b) and (c) above; and
(e) with respect to the confidentiality obligations hereunder of CHCM,
CAHS and CAI only, (i) Patient Information, (ii) any and all information or
data (whether patient specific, account specific, aggregates thereof or
otherwise) relating to the cost or utilization of health care services
provided to, or received by, the Serviced Population or any other
individual covered by any BCBSNJ health care benefit plan, (iii) any and
all information or data relating to the health of the Serviced Population
or any other individual covered by any BCBSNJ health care benefit plan
(including, without limitation, an individual's health care history,
diagnosis, condition, treatment or evaluation), (iv) any and all lists (or
any portions thereof) of individuals covered by any BCBSNJ health care
benefit plan and the groups to which such individuals belong, (v) any and
all software data that is the property of BCBSNJ, (vi) any and all
information or data obtained or accessed by CHCM, CAI or CAHS as a result
of, or by means of, the on-line access to the information systems of BCBSNJ
provided pursuant to Section 6.2 hereof, (vii) any and all information or
data created or generated in connection with the provision of Services
hereunder and (viii) any derivative works based on the foregoing
information, data or materials described in subclauses (i) through (vii)
above;
provided, however, that Confidential Information shall not mean information or
data that: (w) was previously known to the receiving party at the time of
disclosure and is not subject to an existing agreement of confidence between the
applicable parties, (x) is subject to an existing agreement of confidence
between the applicable parties, (y) is publicly known through no act or omission
by the receiving party or (z) otherwise is disclosed to the receiving party by a
third party having the legal right to make such disclosure.
1.18. "Contract" shall mean any contract, agreement, lease, license or
other legally binding commitment, obligation or arrangement, whether oral or
written, express or implied.
1.19. "Customer Dissatisfaction" shall mean (a) a materially adverse
aggregate response regarding the quality of Services performed by, or the
personnel or staff of, CHCM, CAI and/or CAHS, as measured by customer
satisfaction surveys ("Customer Surveys"), the form and substance of which have
been approved by CHCM, which approval shall not be unreasonably withheld,
conducted (i) in accordance with all applicable BCBSNJ Policies and/or
Performance Standards and (ii) by an independent Person specializing in the
conduct of surveys, reasonably acceptable to and mutually agreed by BCBSNJ and
CHCM (a "Survey Person"), or (b) a materially adverse series of responses or
complaints received by BCBSNJ with respect to the Serviced Population regarding
the quality of Services performed by, or the personnel or staff of, CHCM, CAI
and/or CAHS.
4
1.20. "Customer Surveys" is defined in Section 1.19 hereof.
1.21. "Damages" is defined in Section 14.1(a) hereof.
1.22. "Designated Employees" is defined in Section 5.5 hereof.
1.23. "Equity Securities" shall have the meaning ascribed to such term in
Section 3 of the Exchange Act.
1.24. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder, all as the same shall be in effect from time to time.
1.25. "Exposed Lives" shall mean, as to any Market Segment, the agreed
number of Persons included within such Market Segment for purposes of
calculating payments required to be made pursuant to Section 4.1(b)(ii) hereof,
based on BCBSNJ's conversion factors for calculating Exposed Lives from Exposed
Subscribers. The aggregate number of Exposed Lives in all Market Segments shall
be deemed to be Seven Hundred Eighty Thousand (780,000) for the nine-month
period commencing January 1, 1997, distributed as follows among the Market
Segments, based on the following number of Exposed Subscribers:
Market Segment Exposed Lives Exposed Subscribers
-------------- ------------- -------------------
Individual Under 65 CMM 64,762 38,784
Individual Under 65 non-CMM 13,493 9,107
Small Employer 72,964 35,391
Corporate 50-99 23,139 10,095
Corporate 100+ 282,495 110,413
National Accounts 46,683 19,681
State Account 216,135 91,426
Other Government Accounts 60,329 23,013
------- -------
Total 780,000 337,910
5
The number of Exposed Lives in each Market Segment shall be updated by BCBSNJ,
and BCBSNJ shall provide written notice of such update to CHCM, (i) on each
September 1 and March 1 during the Term, beginning on September 1, 1997, and
(ii) on the first day of such other months as may be appropriate if, due to
changes in the size of the Serviced Population or otherwise, the aggregate
number of Exposed Lives is proposed to change by more than five percent (5%)
from its then current level. Any such update shall be effective beginning in the
first Service Month following the month in which BCBSNJ provides notice of the
update to CHCM; provided, however, that in any case where BCBSNJ gives notice
later than the first day of the required month, such update shall be effective
in the second Service Month following the month in which BCBSNJ provides notice
of the update to CHCM.
1.26. "Exposed Subscribers" shall mean the Exposed Lives excluding those
covered individuals that are dependents of enrollees as determined by BCBSNJ.
1.27. "For Cause Event of Termination" is defined in Section 10.2(a)
hereof.
1.28. "Fully-Insured Market Segment" shall mean the following Market
Segments and each other fully-insured Market Segment as to which BCBSNJ gives
notice to CHCM from time to time during the Term in accordance with the terms
hereof in its sole and absolute discretion:
(a) Individual Under 65 CMM;
(b) Individual Under 65 non-CMM;
(c) Small Employer; and
(d) Corporate 50-99.
1.29. "GAAP" shall mean generally accepted accounting principles (as such
principles may change from time to time) applied on a consistent basis, which
shall include, but not be limited to, the official interpretations thereof by
the Financial Accounting Standards Board, its predecessors or successors.
1.30. "Governmental Authorities" shall mean any and all governmental,
legislative, administrative, judicial (including, without limitation, as
pertaining to arbitration tribunals or other bodies) or regulatory agencies,
commissions, boards, bureaus, departments, bodies, instrumentalities or other
authorities having jurisdiction over any or all of the parties hereto and/or the
transactions contemplated by this Agreement.
1.31. "Guaranteed Obligations" is defined in Section 9.1 hereof.
6
1.32. "Indemnified Party" is defined in Section 14.2 hereof.
1.33. "Indemnifying Party" is defined in Section 14.2 hereof.
1.34. "Interim Payment" shall mean Eight Hundred Thirty-Three Thousand,
Three Hundred Thirty-Three Dollars ($833,333).
1.35. "Interim Services Agreement" shall mean the Interim Services
Agreement, dated as of April 1, 1995 by and among CHCM, BCBSNJ, CAHS and CAI, as
in effect on the date hereof.
1.36. "Law" shall mean any law (including, without limitation, common law
and Federal, state and local law), constitution, statute, treaty, rule,
regulation, code, ordinance, order, injunction, writ, decree or award of any
Governmental Authority.
1.37. "License" shall mean any certificate, license, permit, right,
application, filing, registration, franchise, approval or other authorization
necessary for the provision of Services hereunder.
1.38. "Local 54 Contract" shall mean the Administrative Services Contract
commencing October 1, 1996 between BCBSNJ and the Union.
1.39. "Local 54 Process" shall mean the provision by CHCM of such services
as are contemplated by the Local 54 Contract.
1.40. "Market Segment" shall mean each market segment listed on Schedule
1.40 attached hereto and each other market segment to be included hereunder of
which BCBSNJ gives notice to CHCM from time to time during the Term in
accordance with the terms hereof in its sole and absolute discretion.
1.41. "Marks" shall mean any trademark, trade name, servicemark or service
name owned and/or utilized by any or all of BCBSNJ and its Affiliates.
1.42. "MEDecision License" is defined in Section 11.4 hereof.
1.43. "Modified Day" shall mean a day of inpatient hospitalization claimed
with respect to an Exposed Life following inpatient admission, but for which a
determination is made by CHCM that such day of inpatient hospitalization is not
medically appropriate, provided that such determination is maintained through a
completed appeals process. Any determination overturned on appeal for
administrative reasons, rather than for medical appropriateness reasons, shall
be deemed to have been maintained through a completed
7
appeals process unless the basis for such determination having been overturned
is a failure by CHCM to satisfy its obligations under this Agreement.
1.44. "Moral Turpitude" shall mean any act or omission that constitutes a
felony under any applicable Law or civil fraud or deceit.
1.45. "Original Agreement" is defined in the recitals hereto.
1.46. "Patient Information" shall mean any and all information or data
relating to the health of any member of the Serviced Population (including,
without limitation, an individual's health care history, diagnosis, condition,
treatment or evaluation) and any derivative works based on the foregoing
information or data.
1.47. "Performance Standards" shall mean:
(a) all performance standards and measures required by any applicable
Law (including, for this purpose only, at the discretion of the Senior Vice
President Health Industry Services of BCBSNJ, any Law applicable to health
maintenance organizations in the State of New Jersey);
(b) all performance standards and measures customary for statewide or
regional industry practice;
(c) all performance standards and measures agreed to by BCBSNJ and any
of its customers from time to time during the Term of which BCBSNJ gives
notice to CAI, CHCM and CAHS in accordance with the terms hereof; and
(d) all performance standards and measures set forth on Schedule 1.47
attached hereto;
provided, however, that BCBSNJ agrees to pay to CHCM CHCM's Costs attributable
to any changes subsequent to the Effective Date in the performance standards and
measures identified in clause (c) of this Section 1.47 (other than those changes
made at the request or recommendation of either CAI, CAHS or CHCM which are not
likely, in BCBSNJ's reasonable judgment, to enhance the benefits to BCBSNJ and
its customers expected to be generated by operation of this Agreement).
1.48. "Person" shall mean any individual, partnership, firm, enterprise,
corporation or other entity.
1.49. "Post-Termination License Agreement" is defined in Section 10.3(a)(i)
hereof.
8
1.50. "Restatement Date" is defined in the recitals hereto.
1.51. "Restrictive Covenants" is defined in Section 13.1 hereof.
1.52. "Serviced Population" shall mean:
(a) any and all individuals covered by BCBSNJ indemnity health
benefits plans;
(b) where specified by any applicable BCBSNJ customer, all applicable
individuals covered by an administrative services contract between such
customer and BCBSNJ;
(c) where specified by any applicable BCBSNJ customer, any and all
individuals covered by "Administrative Services Only" arrangements; and
(d) all applicable covered individuals with respect to any new
categories of BCBSNJ customers requiring utilization review or utilization
management services;
in each case, if and to the extent BCBSNJ gives notice to CHCM from time to time
during the Term in its sole and absolute discretion.
1.53. "Service Month" shall mean each calendar month during the Term.
1.54. "Services" shall mean, in connection with the provision of health
care:
(a) development of review protocols, guidelines and standards, which
must be approved by BCBSNJ in advance of their application and which BCBSNJ
may, from time to time, in its sole and absolute discretion, modify;
(b) pre-certification services, including, without limitation,
pre-admission review, pre-certification of selected surgical/diagnostic
procedures, pre-certification of selected outpatient/ambulatory procedures,
assignment of initial length of hospital stay;
(c) concurrent review services, including, without limitation,
appropriate concurrent inpatient service review, regular reassessment of
length of stay assignment, discharge planning support and outpatient
service coordination;
(d) procedure certification/mandatory second surgical opinion
services, including, without limitation, provision for telephonic
interviewing of patients and
9
their attending physicians for evaluation of proposed surgical and
diagnostic procedures with respect to appropriateness of care;
(e) large medical case management (including, without limitation,
management of medical cases involving long-term or catastrophic illnesses
to ensure cost-effective utilization of benefits), as such cases are
identified using BCBSNJ-approved criteria attached hereto as Schedule 1.54,
which criteria may be amended from time to time by BCBSNJ in its sole and
absolute discretion;
(f) focused and random retrospective review services for medical cases
that were or should have been subject to pre-certification or concurrent
services adequate to maintain optimal function of the other Services with
respect to such cases, and such retrospective review services shall
include, without limitation, retrospective medical record review, analysis
and evaluation of medical appropriateness, hospital admission and length of
stay trends, level and quality of care and changes in medical care
patterns;
(g) account education and relations services relating to utilization
review and utilization management, including, without limitation, provision
of communications materials to support the BCBSNJ marketing divisions in
their dealings with BCBSNJ customers and the Serviced Population, the cost
of such materials to be reasonably agreed upon by the parties (other than
utilization reporting materials prepared in the ordinary course of
business, which shall be provided without charge by CHCM);
(h) fulfillment of communication and reporting requirements,
including, without limitation, communication to BCBSNJ of all decisions
regarding medical appropriateness of pre-certification, concurrent review,
pre-procedure review and large medical case management;
(i) fulfillment of customer service requirements and responsibility
for direct communications with all BCBSNJ customers, Serviced Population,
patients and their families and with all physicians, hospitals and other
providers, in each case relating to Services;
(j) establishment and maintenance of required mechanisms for appeals
by members of the Serviced Population and provision of technical and
administrative support for BCBSNJ's appeals mechanisms;
(k) assisting BCBSNJ in the development of the utilization review and
utilization management components of future BCBSNJ products and lines of
business; and
10
(l) any other services similar or ancillary to any of the foregoing
Services mutually agreed upon by BCBSNJ and CHCM;
as all of the foregoing is more fully described on Schedule 1.54A attached
hereto. To the extent of any inconsistency between the terms of Schedule 1.54A
hereto relating to the Services or the provision thereof and the terms of other
provisions of this Agreement, such terms of Schedule 1.54A hereto shall govern
and apply.
1.55. "Specialty Advisory Process" shall mean formation of regional
specialty advisory committees ("Committees") for, on average, two (2) clusters
of approximately five (5) network hospitals per cluster per six (6) month period
during the term of the Specialty Advisory Process involving medical specialists
from those hospitals in selected, high prevalence clinical specialties in the
development and implementation of length-of-stay parameters. Committees for each
cluster will be formed in three (3) or more specialties. Two (2) meetings of
each Committee in each hospital cluster will be held. After three (3) clusters
of hospitals have been involved, in each specialty, guidelines of the several
Committees will be melded. The Specialty Advisory Process will also include the
performance of matched specialty concurrent reviews focused on each hospital
cluster for which Committee meetings are held during any BCBSNJ Fiscal Quarter.
A twenty percent (20%) sample of concurrent reviews, approximately, will be
forwarded to consultants on retainer to CAI for review and discussion with
attending physicians.
1.56. "Survey Person" is defined in Section 1.19 hereof.
1.57. "Target Days" shall mean
(a) with respect to the 1997 BCBSNJ Fiscal Year, the difference
calculated by subtracting thirty-five (35) from the Actual Prior Year's
Days;
(b) with respect to the 1998 BCBSNJ Fiscal Year, the difference
calculated by subtracting twenty-five (25) from the Actual Prior Year's
Days;
(c) with respect to the 1999 BCBSNJ Fiscal Year, the difference
calculated by subtracting fifteen (15) from the Actual Prior Year's Days;
and
(d) with respect to the 2000 BCBSNJ Fiscal Year, the difference
calculated by subtracting fifteen (15) from the Actual Prior Year's Days.
1.58. "Term" is defined in Section 3 hereof.
1.59. "Termination Payment" is defined in Section 10.1(b)(i) hereof.
11
1.60. "Union" shall mean the Hotel Employees and Restaurant Employees
International Union Welfare Fund.
1.61. "URAC" shall mean the Utilization Review Accreditation Commission or
its successors.
1.62. "UR/UM Materials" shall mean any and all (a) methods, processes,
manuals, trade secrets and other proprietary information used by CHCM in
rendering utilization review and utilization management services (or any other
Services or any other services similar or ancillary to any of the Services)
regardless of where provided, (b) software owned or used by CHCM and (c)
improvements, enhancements, modifications, updates and corrections with respect
to any of the foregoing, as and when same are released.
1.63. "Without Cause Termination Date" is defined in Section 10.1(a)
hereof.
2. Appointment of Exclusive Services Provider.
As of the Effective Date, BCBSNJ hereby appoints CHCM, and CHCM hereby
accepts appointment as, the exclusive provider of Services with respect to the
Serviced Population upon the terms and conditions set forth herein; provided,
however, it is hereby acknowledged that, subject to Section 15.4 hereof, CAHS or
CAI or a subcontractor may from time to time render Services hereunder.
3. Term.
The term of this Agreement (the "Term") shall commence on the Effective
Date and continue in effect until June 30, 2000, unless this Agreement is
earlier terminated pursuant to Section 10 hereof. The parties agree to commence
good faith discussions to extend this Agreement not later than June 30, 1999. In
the event that the parties do not agree to extend this Agreement by December 31,
1999, then CAI, CAHS and CHCM shall take such actions prior to the end of the
Term as may reasonably be requested by BCBSNJ to wind-up the relationship among
the parties as of the end of the Term. Notwithstanding any term or condition
contained in this Agreement to the contrary, none of the parties shall have any
obligations under this Agreement, including, without limitation, those
obligations arising under Section 4 hereof, prior to the Effective Date.
4. Compensation.
4.1. Compensation. In consideration for the Services rendered hereunder to
BCBSNJ and the performance of the other obligations under Section 5 hereof,
BCBSNJ shall compensate CHCM as follows:
12
(a) Closing Payment. On the Effective Date, BCBSNJ shall pay to CHCM
an amount equal to the difference of:
(i) the product of (A) the Interim Payment multiplied by (B) the
number of full months between January 1, 1996 and the Effective Date;
minus
(ii) the net amount previously paid by BCBSNJ to CAHS under the
Interim Services Agreement with respect to any period commencing on or
after January 1, 1996.
(b) Monthly Service Fee.
(i) For each Service Month during the 1996 BCBSNJ Fiscal Year,
including the Service Month during which the Effective Date occurs,
BCBSNJ shall pay to CHCM, not later than fifteen (15) days following
the end of such Service Month, the Interim Payment.
(ii) For each Service Month commencing on or after January 1,
1997, BCBSNJ shall pay to CHCM, not later than fifteen (15) days
following the end of each Service Month, with respect to each Market
Segment identified on Schedule 1.40 attached hereto, the price set
forth thereon with respect to such Market Segment for the applicable
BCBSNJ Fiscal Year, multiplied by the corresponding number of Exposed
Subscribers in such Market Segment during the applicable Service
Month.
(c) Other Monthly Payments. In addition to amounts otherwise payable
to CHCM pursuant to this Section 4.1, BCBSNJ shall pay to CHCM, not later
than fifteen (15) days following the end of each Service Month:
(i) for each Service Month beginning on or after January 1, 1997,
but only during the pendency of the Local 54 Process as described in
Section 5.1(b) hereof, Five Thousand, Four Hundred Fifty-Eight Dollars
($5,458) per Service Month; provided, however, that amounts payable
pursuant to this clause (i) shall be reduced to the extent, if any,
that BCBSNJ is required to make any payments to the Union pursuant to
paragraph 2 of Section C of Schedule B to the Local 54 Contract; and
(ii) for each Service Month beginning on or after May 1, 1997,
but only during the pendency of the Specialty Advisory Process as
described in Section 5.1(c) hereof, Thirty-Three Thousand, Three
Hundred Thirty-Three Dollars ($33,333) per Service Month.
13
(d) Quarterly Bonus Payment. For each BCBSNJ Fiscal Quarter during the
Term beginning on or after January 1, 1997, BCBSNJ shall pay to CHCM, not
later than seventy-five (75) days following the end of such BCBSNJ Fiscal
Quarter, an amount equal to sixty percent (60%) of one-fourth (1/4) of the
Annualized Bonus Amount for the corresponding BCBSNJ Fiscal Year, projected
as of the end of such BCBSNJ Fiscal Quarter, plus the amount (positive or
negative) calculated by subtracting (i) aggregate payments pursuant to this
clause (d) with respect to prior BCBSNJ Fiscal Quarters during such BCBSNJ
Fiscal Year from (ii) the amount calculated by multiplying sixty percent
(60%) of one-fourth (1/4) of the Annualized Bonus Amount for such BCBSNJ
Fiscal Year, projected as of the end of such BCBSNJ Fiscal Quarter, by the
number of prior BCBSNJ Fiscal Quarters during such BCBSNJ Fiscal Year. A
sample quarterly payment calculation is attached for illustrative purposes
only as Exhibit 4.1(d) hereto.
(e) Annual Bonus Adjustment.
(i) For each BCBSNJ Fiscal Year during the Term, beginning with
the 1997 BCBSNJ Fiscal Year, BCBSNJ shall pay to CHCM, not later than
(x) November 15 of the calendar year next succeeding such BCBSNJ
Fiscal Year, in the case of the 1997, 1998 and 1999 BCBSNJ Fiscal
Years, or (y) May 15, 2001, in the case of the 2000 BCBSNJ Fiscal
Year, an amount equal to the positive difference, if any, calculated
by subtracting:
(A) the aggregate amount previously paid by BCBSNJ to CHCM
with respect to such BCBSNJ Fiscal Year pursuant to clause (d) of
this Section 4.1; from
(B) the Annualized Bonus Amount for such BCBSNJ Fiscal Year,
calculated as of the end of the third BCBSNJ Fiscal Quarter
immediately following the end of such BCBSNJ Fiscal Year.
(ii) In the event that the difference calculated pursuant to
clause (i), above, is negative, then CHCM shall pay to BCBSNJ, not
later than the applicable date specified in clause (i), an amount
equal to the additive inverse of such difference.
(iii) In addition to any amount otherwise payable pursuant to
this clause (e) with respect to the 1997 BCBSNJ Fiscal Year, BCBSNJ
shall pay to CHCM, on or prior to November 15, 1998, the amount, if
any, that would have been payable as a "Bonus Payment" (as defined in
the Original Agreement) with respect to the 1996 BCBSNJ Fiscal Year if
each month in
14
1996 had been a Service Month and such Bonus Payment had been
calculated in accordance with Section 4.1(c) of the Original
Agreement.
4.2. Shortfall Adjustment. In the event that the aggregate number of
Modified Days during the 1997 BCBSNJ Fiscal Year is not equal to or greater than
Twenty Thousand (20,000), then CHCM will pay to BCBSNJ, not later than February
15, 1998, the sum of Five Hundred Thousand Dollars ($500,000).
4.3. Special Compensation Provisions Applicable to 1996. CAI, CAHS and CHCM
acknowledge that BCBSNJ has paid CAHS and CHCM Ten Million Dollars
($10,000,000), in the aggregate, under the Interim Services Agreement and the
Original Agreement with respect to the 1996 BCBSNJ Fiscal Year. Simultaneously
with the execution and delivery of this Agreement, CHCM is executing and
delivering to BCBSNJ a promissory note, guaranteed by CAI and CAHS, secured to
the extent provided in, and otherwise in the form of, Exhibit 4.3 hereto, in the
principal amount of One Million, Eight Hundred Sixty-Two Thousand, Eight Hundred
Twenty-Three Dollars ($1,862,823), such amount representing the difference
calculated by subtracting from Ten Million Dollars ($10,000,000) the sum of:
(a) with respect to the first nine (9) months of the 1996 BCBSNJ
Fiscal Year, Five Million, Six Hundred Eighty-Nine Thousand, Ninety Dollars
($5,689,090), such amount representing the aggregate amount that would have
been payable as "Monthly Service Fees" (as defined in the Original
Agreement) with respect to the first nine (9) months of the 1996 BCBSNJ
Fiscal Year, if each such month had been a Service Month and such Monthly
Service Fees had been calculated in accordance with Section 4.1(b)(y) of
the Original Agreement; plus
(b) with respect to the last three (3) months of the 1996 BCBSNJ
Fiscal Year, Two Million, Fifteen Thousand Dollars ($2,015,000) in the
aggregate; plus
(c) with respect to the November 1996 and December 1996 Service
Months, Four Hundred Sixteen Thousand, Seven Hundred Twelve Dollars
($416,712) in the aggregate (the "Assumed 1996 Bonus"), such amount
representing the sum of:
(i) One Hundred Fifty-Four Dollars ($154) for each Modified Day
in excess of Five Hundred Eighty-Three (583) Modified Days, up to One
Thousand, Eighty-Four (1,084) excess Modified Days, during each such
Service Month; plus
(ii) One Hundred Nine Dollars ($109) for each Modified Day in
excess of One Thousand, Six Hundred Sixty-Seven (1,667) Modified Days
during each such Service Month;
15
assuming Two Thousand, Seventy-Four (2,074) Modified Days in the
November 1996 Service Month and Two Thousand, Twenty (2,020) Modified
Days in the December 1996 Service Month; provided, however, that the
actual number of Modified Days in the November 1996 and December 1996
Service Months will be determined as of the date that is thirty (30)
days after the Restatement Date (the "Adjustment Date"), based on
information then available (such actual number of Modified Days, the
"Adjusted Days"), and (x) if the difference calculated by subtracting
the Assumed 1996 Bonus from the amount computed pursuant to the
foregoing formula using the Adjusted Days is greater than zero, then
BCBSNJ will immediately pay to CHCM the amount of such difference, and
(y) if such difference is less than zero, then CHCM will immediately
pay to BCBSNJ an amount equal to the additive inverse of such
difference; plus
(d) with respect to the Local 54 Process, Sixteen Thousand, Three
Hundred Seventy-Five Dollars ($16,375) in the aggregate.
4.4. Compensation Dependent Upon Execution. Notwithstanding the provisions
of Section 4.1 providing for the payment by BCBSNJ of fees and bonuses in 1997
and subsequent years, and notwithstanding the provisions of Section 4.3
providing for the repayment of certain amounts by CHCM, the parties acknowledge
that the amounts due under such sections would not have been due had they not
executed this First Amendment and Restatement of the Services Agreement.
4.5. Revision of Compensation Arrangements. Anything herein contained to
the contrary notwithstanding, the parties agree to commence good faith
discussions and use their respective best efforts, as promptly as practicable
following the Restatement Date and, in any event, within one hundred twenty
(120) days of the Restatement Date, to revise the compensation arrangements set
forth in this Section 4 so that, as revised, such arrangements fully compensate
CHCM for the cost of providing the Services hereunder (including reasonable
overhead and profit) while creating financial incentives to reduce the overall
costs of healthcare services (whether facility-based or otherwise) provided to
the Serviced Population, on a "per member per month" basis, in a manner
consistent with the parties' strategic and other business objectives.
4.6. Manner of Payment. All payments hereunder between any of the parties
hereto shall be payable when due hereunder at the receiving party's offices
identified in Section 15.3 hereof, as such offices may be changed from time to
time.
4.7. Survival. The terms and conditions of this Section 4 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
16
5. Service Responsibilities of CHCM.
As of the Effective Date, CHCM hereby covenants and agrees for the benefit
of BCBSNJ as follows:
5.1. Performance of Services.
(a) Compliance with Standards and Policies. During the Term, CHCM, in
accordance with its acceptance of its appointment as the exclusive provider
of Services with respect to the Serviced Population under Section 2 hereof,
shall:
(i) perform the Services and its other respective obligations
hereunder in accordance with, and subject to, the terms hereof
(including, without limitation, in accordance with, and subject to,
the Performance Standards) and all applicable BCBSNJ policies,
protocols, guidelines and procedures (as such policies, protocols,
guidelines and procedures may be changed by BCBSNJ from time to time,
in its sole and absolute discretion, the "BCBSNJ Policies"), and in
all respects to the reasonable satisfaction of BCBSNJ; and
(ii) without limiting the generality of the foregoing, promptly
make any and all reasonable changes in its performance of the Services
and its other obligations hereunder as may be reasonably requested by
BCBSNJ from time to time.
(b) Change of BCBSNJ Policies -- General. BCBSNJ agrees to pay to CHCM
CHCM's Costs attributable to any changes in the BCBSNJ Policies (other than
those changes made at the request or recommendation of either CAI, CAHS or
CHCM which are not likely, in BCBSNJ's reasonable judgment, to enhance the
benefits to BCBSNJ and its customers expected to be generated by operation
of this Agreement) made subsequent to the Effective Date and established
pursuant to this Section 5.1, including, without limitation, any such
changes made pursuant to clause (c) of this Section 5.1.
(c) Formalization and Change of BCBSNJ Policies -- Post-Restatement
Date. Each of the parties acknowledges that some BCBSNJ Policies will be
formalized and other BCBSNJ Policies will be changed, effective
approximately one hundred twenty (120) days after the Restatement Date, to
include appropriate procedural guidelines with respect to the timely and
accurate collection, processing and dissemination of relevant information
between and among CHCM, BCBSNJ, Persons providing healthcare services to
the Serviced Population and others in connection with CHCM's performance of
the Services hereunder, and:
17
(i) to establish appropriate, related reporting requirements and
audit rights; and
(ii) to provide for the development and implementation of
corrective action plans following demonstrated non-compliance with any
such guidelines and to establish reasonable financial disincentives to
any violation by CHCM of any such guidelines, in each case, to the
extent that compliance with such guidelines is within CHCM's
reasonable control;
provided, however, that any such guidelines shall be subject to reasonable
agreement between the Senior Vice President - Health Industry Services of
BCBSNJ, on behalf of BCBSNJ, and CHCM regarding the timeframe for
implementation thereof and the magnitude of, and criteria for invoking,
related financial disincentives to any violation thereof.
(d) Local 54 Process. Beginning on October 1, 1996, and throughout the
Term or until such time as BCBSNJ advises CHCM, on not less than thirty
(30) days' prior written notice, that such services are no longer required,
CHCM shall provide the services incident to the Local 54 Process. Upon
termination of such services, no additional amounts will become payable to
CHCM under Section 4.1(c)(i) hereof.
(e) Specialty Advisory Process. Beginning on November 1, 1996 and
throughout the Term, CHCM shall provide the services incident to the
Specialty Advisory Process, including, without limitation, providing
reasonably detailed quarterly reports to BCBSNJ regarding expenses incurred
and expenditures made by CHCM in connection with the provision of such
services; provided, however, that CHCM shall discontinue its provision of
such services (i) in the event that BCBSNJ advises CHCM, on not less than
six (6) months' prior written notice or about April 30, 1998, that such
services are no longer required and (ii) in any event, unless otherwise
agreed by BCBSNJ and CHCM, on April 30, 1999. Upon termination of such
services, no additional amounts will become payable to CHCM under Section
4.1(c)(ii) hereof.
5.2. Management/Operational Responsibilities. During the Term, CHCM shall
provide the management oversight and supervision of its own operations necessary
to ensure the performance of the Services in accordance with the terms hereof.
Without limiting the generality of the foregoing, CHCM shall:
(a) during the Term, select and appoint and employ and maintain
(including the Designated Employees pursuant to Section 5.5 hereof), in
accordance with the
18
terms of Schedule 1.47 hereto and all applicable BCBSNJ Policies, a
sufficient number of:
(i) professional review and case management personnel (including,
without limitation, physician advisors, registered nurses and other
appropriate medical professions) who shall review and manage large
medical cases and provide appropriate authorizations and
certifications in accordance with, and subject to, the terms hereof,
all applicable Law and BCBSNJ Policies; and
(ii) other review and support staff involved in, and as may be
required for, the provision of Services hereunder in accordance with
the terms hereof, which staff shall include, but not be limited to,
(A) legal support, (B) quality assurance personnel and (C) information
systems, communications, and systems and procedures professionals.
All such personnel and staff described in this Section 5.2 shall have the
appropriate qualifications and meet the applicable criteria set forth in
Schedule 5.2(a) attached hereto (including, without limitation, appropriate
credentialing criteria) or such other criteria as may be reasonably
established by BCBSNJ from time to time;
(b) during the Term, ensure that the personnel and staff described in
Section 5.2(a) hereof shall receive adequate initial and ongoing training
and education in accordance with all applicable BCBSNJ Policies (i) in the
systems, procedures and protocols required in connection with the delivery
of Services, (ii) in the subject areas underlying the Services and (iii)
all other matters required for their performance of the Services hereunder
in accordance with the terms hereof;
(c) obtain within twelve (12) months from the Effective Date, and
maintain during the Term, full accreditation and certification by URAC;
(d) during the Term, obtain and maintain any regulatory or other
Licenses that may be required to conduct the business of providing the
Services; and
(e) during the Term, operate and maintain adequate primary and backup
computer and telecommunications systems and facilities as determined by
BCBSNJ.
5.3. Performance Standards and Quality Assurance.
(a) Performance Standards. During the Term, CHCM shall adhere to, and
shall provide the Services hereunder in accordance with and subject to, the
Performance Standards.
19
(b) Quality Assurance.
(i) CHCM shall be responsible for the application of all
Performance Standards during the Term and shall ensure that all such
Performance Standards are followed during the course of the day-to-day
performance of the Services hereunder.
(ii) During the Term, CHCM shall, at the direction of BCBSNJ,
conduct or assist BCBSNJ in the conduct of, on a quarterly basis, a
number of quality assurance programs with respect to the provision of
Services hereunder, including, without limitation, reviews of
employees (including, without limitation, physicians and other medical
professionals) and the measurement of whether CHCM is meeting the
Performance Standards. In the event such programs are conducted by
CHCM, it shall promptly report the results of such programs to BCBSNJ
in writing in a form reasonably satisfactory to BCBSNJ. BCBSNJ may
audit the report presented by CHCM (and the books, records and data on
the basis of which the report is prepared, as applicable) through the
use of an independent third-party reasonably acceptable and mutually
agreed by BCBSNJ and CHCM. The results of such audit shall be final
and conclusive. The cost of any such audit shall be shared jointly by
the parties.
(iii) In the event, as a result of an employee review described
in Section 5.3(b)(ii) hereof, BCBSNJ, in its sole and absolute
discretion, informs CHCM that such employee should be reassigned from
the rendering of any Services to be performed under this Agreement,
CHCM hereby agrees that such employee shall be reassigned from the
rendering of such Services.
(iv) CHCM hereby acknowledges that certain of the Performance
Standards shall be measured by means of Customer Surveys.
(v) CHCM shall be responsible for all costs and expenses incurred
in connection with the conduct of any and all Customer Surveys
(including, without limitation, the fees of all Survey Persons).
5.4. Confidentiality of Patient Information. During the Term, subject to,
and in accordance with, all applicable BCBSNJ Policies, CHCM shall:
(a) adopt and implement security and confidentiality procedures that
comply with all applicable Law and BCBSNJ Policies regarding (including,
without limitation, procedures with respect to access to and possession of)
any and all Patient Information; and
20
(b) subject to subclause (a) above, preserve the confidentiality of
Patient Information and use such Patient Information only for the limited
purpose necessary to perform the Services in accordance with the terms
hereof.
5.5. Designated Employees. CHCM hereby acknowledges that, in order to
ensure the quality of the Services to be provided hereunder, those persons set
forth on Schedule 5.5 attached hereto are full-time employees of CHCM (all such
persons referred to as "Designated Employees"). CHCM hereby agrees that, during
the Term, if any of the Designated Employees is terminated, with or without
cause, or otherwise leaves the employment of CHCM, BCBSNJ (through a designated
representative) shall have the right to review and approve or disapprove, in its
reasonable discretion, any and all candidates proposed by CHCM to be successors
(immediate and otherwise) to such Designated Employees in accordance with
Section 6.1(a) hereof.
5.6. Information Systems. CHCM shall establish, provide and maintain during
the Term, in a manner satisfactory to BCBSNJ in all material respects
(including, without limitation, with respect to security matters), all necessary
secured telecommunication and MIS interfaces between its information systems and
the information systems of BCBSNJ required for the provision by CHCM of the
Services hereunder in accordance with the terms hereof (including, without
limitation, the utilization review and care management systems). CHCM shall bear
the cost of all such connectivity and interface between its information systems
and the information systems of BCBSNJ (including, without limitation, the
establishment of common linkage records). Notwithstanding any provision of this
Section to the contrary, BCBSNJ shall pay to CHCM's Costs for any such changes
BCBSNJ may require.
5.7. Reports; Retention of Records. CHCM shall create, maintain and retain,
using reporting systems and procedures that are in accordance with the BCBSNJ
Policies or otherwise acceptable to BCBSNJ, records of the activities of CHCM in
connection with the performance of Services hereunder; and CAI and CAHS shall
assume and be solely responsible for all costs incurred in connection with the
creation, installation and implementation of such reporting systems and
procedures. In connection with the creation, maintenance and retention of such
records, CHCM shall provide to BCBSNJ each of the reports described on Schedule
5.7 attached hereto at the applicable interval set forth thereon.
6. Responsibilities of BCBSNJ.
As of the Effective Date, BCBSNJ hereby covenants and agrees for the
benefit of CAI, CHCM and CAHS as follows:
21
6.1. General Responsibilities. During the Term, BCBSNJ shall:
(a) through a designated representative, review and approve or
disapprove, in its reasonable discretion, any and all candidates proposed
by CHCM in accordance with Section 5.5 hereof, to be successors (immediate
or otherwise) to the Designated Employees; and
(b) from time to time upon the reasonable request of CHCM, cause its
employees or agents to cooperate with CHCM in connection with the provision
of Services hereunder; provided, however, in no event shall BCBSNJ or any
of its employees or agents assume or satisfy any of the obligations of CHCM
hereunder or otherwise.
6.2. Access to Information. Subject to the satisfaction of the obligations
of CHCM under Section 5.6 hereof to establish, provide and maintain all
necessary telecommunication and MIS interfaces, BCBSNJ shall provide CHCM with
direct, on-line access to the information systems of BCBSNJ (including, without
limitation, the utilization review and care management systems) as such systems
relate to the Serviced Population and are required for the provision of the
Services hereunder in accordance with the terms hereof.
6.3. Provider Agreement. In the event that BCBSNJ proposes to amend any
provision in its provider contracts with inpatient hospitals in a manner that is
reasonably likely to have a material adverse affect on CHCM's ability to provide
Services hereunder or on the financial benefits otherwise available to CHCM
hereunder (including, but not limited to, the amendment of provisions requiring
that providers notify CHCM on behalf of BCBSNJ of an admission, or prohibiting
providers from balance billing patients for days not certified after medical
appropriateness review and appeal), then (i) BCBSNJ shall provide prior written
notice of such proposed amendment to CHCM and (ii) this Agreement shall be
revised as reasonably necessary, prior to the effective date of any such
amendment, to eliminate or fully mitigate such material adverse affect.
6.4 Computations and Determinations. Computations and determinations made
by BCBSNJ pursuant to this Agreement (including, but not limited to allocations
and reserve factors) will be arrived at by a method that is consistent with
generally accepted actuarial principles and/or GAAP, and the methods used
generally by BCBSNJ in making such determinations and computations for other
BCBSNJ business.
6.5 Inspection of Books and Records. CHCM shall have the right, through its
authorized agents, at any reasonable time and at its own expense, to inspect the
books, records and Contracts of BCBSNJ to the extent that they contain
information bearing on CHCM's compensation under this Agreement, and to make and
retain copies thereof and extracts therefrom, subject to the other provisions of
this Agreement.
22
7. Representations and Warranties of CAHS and CAI.
Each of CAHS and CAI, jointly and severally, hereby represents and warrants
to BCBSNJ, as of the Effective Date, as follows:
7.1. Organization.
(a) CAHS (i) is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware and (ii) has
delivered to BCBSNJ true and complete copies of its certificate of
incorporation, as amended, certified by the Secretary of State of Delaware,
and its by-laws, as amended, certified by its secretary.
(b) CAI (i) is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Delaware and (ii) has
delivered to BCBSNJ true and complete copies of its certificate of
incorporation, as amended, certified by the Secretary of State of Delaware,
and its by-laws, as amended, certified by its secretary.
7.2. Power and Authority.
(a) It has full power (corporate or otherwise) and authority to
execute, deliver and perform this Agreement in accordance with its terms
and to carry on its business as it is now being conducted.
(b) All action (corporate or otherwise) on its part necessary for the
authorization, execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby has been taken and
no further action or authorization (corporate or otherwise) on its part is
required to consummate the transactions provided for in this Agreement.
This Agreement constitutes its valid and legally binding obligation
enforceable in accordance with its terms, except as may be limited by
bankruptcy, moratorium, reorganization, insolvency and other similar Laws
of general application relating to or affecting the rights of creditors,
and by general principles of equity. The execution, delivery or performance
of this Agreement by it shall not: (i) violate, conflict with, or result in
a breach of, any provisions of its organizational or governing documents,
(ii) conflict with, constitute a default or result in a breach of, or give
rise to a right of or result in a termination of, or accelerate the
performance required by the terms of, any mortgage, deed of trust, lien,
lease, restriction or other Contract to which it or any of its assets are
bound or by which it or any of its assets are affected, (iii) violate or
conflict with the terms of any order, judgment, writ, or decree of any
Governmental Authority or (iv) result
23
in the creation or imposition of a lien or give any other Person any right,
title or interest in its assets or business.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement shall not require the
consent, approval or authorization of any Governmental Authority or any
other Person under any License, agreement, indenture or other instrument or
Contract to which it is a party or to which any of its property is subject,
and no declaration, filing or registration with any Governmental Authority
is required by it in connection with such transactions.
7.3. Power and Authority of CHCM.
(a) All action (corporate or otherwise) on the part of CHCM necessary
for the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby has
been taken and no further action or authorization (corporate or otherwise)
on the part of CHCM is required to consummate the transactions provided for
in this Agreement. This Agreement constitutes CHCM's valid and legally
binding obligation enforceable against CHCM in accordance with its terms,
except as may be limited by bankruptcy, moratorium, reorganization,
insolvency and other similar Laws of general application relating to or
affecting the rights of creditors, and by general principles of equity.
(b) The execution and delivery of this Agreement by CHCM and the
consummation of the transactions contemplated by this Agreement shall not
require the consent, approval or authorization of any Governmental
Authority or any other Person to which any of its property is subject, and
no declaration, filing or registration with any Governmental Authority is
required by it in connection with such transactions.
7.4. Litigation. Except as set forth on Schedule 7.4, there is no suit,
action, claim, proceeding, governmental investigation or governmental inquiry
pending or threatened against, or affecting, it or, to the best of its
knowledge, any of its directors, partners or officers, or relating to its assets
or business that, if adversely determined, could have a material adverse effect
upon any or all of CAHS or CAI, their respective assets, this Agreement or the
transactions contemplated hereby, and there is no legal, administrative or
arbitration proceeding pending, threatened against, or relating to it or, to the
best of its knowledge, any of its directors, partners or officers, or to which
it or any of its directors, partners or officers, might become party that, if
adversely determined, could have a material adverse effect upon any or all of
CAHS or CAI, their respective assets, this Agreement or the transactions
contemplated hereby; and there is no judgment, order or decree affecting it, or,
to the best of its knowledge, any of its directors, partners or officers, or its
assets that
24
remains unsatisfied or that continues in effect beyond the date hereof. Except
as set forth on Schedule 7.4, it has no knowledge of any facts that might form
the basis for any such suit, action, claim, proceeding, investigation or inquiry
in which the opposing party could be expected to prevail, and there is no
outstanding order, writ, injunction or decree of any Governmental Authority
against or affecting it or, to the best of its knowledge, any of its directors,
partners or officers, its business, this Agreement or the transactions
contemplated hereby.
7.5. Licenses. It owns, holds or otherwise possesses, or lawfully uses, all
Licenses that are in any manner necessary for it to consummate the transactions
contemplated hereby and to perform its obligations as well as the obligations of
CHCM hereunder, including, without limitation, the provision of Services upon
the terms and conditions set forth in this Agreement. Schedule 7.5 attached
hereto contains a true and complete list of such Licenses. No proceeding is
pending or, to its knowledge, threatened or seeking the revocation or limitation
of any License and it has no knowledge of any facts that might form the basis
for such a proceeding in which the opposing party could be expected to prevail
or any reason why any License may terminate because of, or may not be included
as part of, the transactions contemplated hereby or why they may not be valid
indefinitely or renewable in accordance with applicable Law.
7.6. Compliance with Laws, etc. Its business and operations have been
conducted, and are in compliance in all material respects with all applicable
Law, including, without limitation, those pertaining to antitrust, pricing and
trade practices, equal opportunity, employment, discrimination, securities
issuance and regulation, and occupational health and safety; and, to its
knowledge, there are no pending notices, allegations or threatened claims of its
violation of any such Laws.
7.7. Disclosure.
(a) The information furnished by it or on its behalf to BCBSNJ or its
representatives in connection with this Agreement and the transactions
contemplated hereby does not contain and shall not contain any untrue
statement of material fact and does not omit and shall not omit to state
any material fact required to be stated therein or necessary to make the
statements made, in light of the circumstances under which they were made,
not misleading.
(b) None of its representations or warranties contained in this
Agreement, in any schedule or exhibit hereto or in any agreement,
instrument or certificate furnished to BCBSNJ pursuant to this Agreement,
contains or shall contain any untrue statement of a material fact or omits
or shall omit to state any material fact required to be stated therein or
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
25
7.8. UR/UM Materials. CHCM is, and shall remain for the Term, a licensee or
sublicensee, as applicable, of the UR/UM Materials; and CHCM has, and shall
obtain and maintain for the Term, title to or the right to license or
sublicense, as applicable, the UR/UM Materials.
7.9. Survival of Representations and Warranties. The representations,
warranties and covenants of each of CAHS and CAI contained in this Section 7
shall expressly survive the date hereof.
8. Representations and Warranties of BCBSNJ.
BCBSNJ hereby represents and warrants to each of CAHS and CAI, as of the
Effective Date, as follows:
8.1. Organization. BCBSNJ (i) is a health service corporation duly
organized, validly existing and in good standing under the Laws of the State of
New Jersey and (ii) has delivered to CAI and CAHS true and complete copies of
its certificate of incorporation, as amended, certified by the Secretary of
State of New Jersey, and its by-laws, as amended, certified by its secretary.
8.2. Power and Authority of BCBSNJ.
(a) BCBSNJ has full power (corporate or otherwise) and authority to
execute, deliver and perform this Agreement in accordance with its terms
and to carry on its business as it is now being conducted.
(b) All action (corporate or otherwise) on the part of BCBSNJ
necessary for the authorization, execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
has been taken and no further action or authorization (corporate or
otherwise) on its part is required to consummate the transactions provided
for in this Agreement. This Agreement constitutes its valid and legally
binding obligation enforceable in accordance with its terms, except as may
be limited by bankruptcy, moratorium, reorganization, insolvency and other
similar Laws of general application relating to or affecting the rights of
creditors, and by general principles of equity. The execution, delivery or
performance of this Agreement by BCBSNJ shall not: (i) violate, conflict
with, or result in a breach of, any provisions of its organizational or
governing documents, (ii) conflict with, constitute a default or result in
a breach of, or give rise to a right of or result in a termination of, or
accelerate the performance required by the terms of, any mortgage, deed of
trust, lien, lease, restriction or other Contract to which it or any of its
assets are bound or by which it or any of its assets are affected, (iii)
violate or conflict with the terms of any order, judgment, writ, or decree
of any Governmental Authority or
26
(iv) result in the creation or imposition of a lien or give any other
Person any right, title or interest in its assets or business.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement shall not require the
consent, approval or authorization of any Governmental Authority or any
other Person under any License, agreement, indenture or other instrument or
Contract to which BCBSNJ is a party or to which any of its property is
subject, and no declaration, filing or registration with any Governmental
Authority is required by it in connection with such transactions.
8.3. Disclosure.
(a) The information furnished by it or on its behalf to CAHS or CAI or
their respective representatives in connection with this Agreement and the
transactions contemplated hereby does not contain and shall not contain any
untrue statement of material fact and does not omit and shall not omit to
state any material fact required to be stated therein or necessary to make
the statements made, in light of the circumstances under which they were
made, not misleading.
(b) None of its representations or warranties contained in this
Agreement, in any schedule or exhibit hereto or in any agreement,
instrument or certificate furnished to CAHS or CAI pursuant to this
Agreement, contains or shall contain any untrue statement of a material
fact or omits or shall omit to state any material fact required to be
stated therein or necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
8.4. Survival of Representations and Warranties. The representations and
warranties of BCBSNJ contained in this Section 8 shall expressly survive the
date hereof.
9. Guaranty.
9.1. Enforcement of Guaranteed Obligations. Each of CAHS and CAI, jointly
and severally, hereby (a) irrevocably and unconditionally guarantees to BCBSNJ
the timely and satisfactory performance of the obligations of CHCM hereunder
(including, without limitation, the indemnity obligations under Section 14
hereof, the "Guaranteed Obligations") and (b) acknowledges and agrees that (i)
such guaranty of performance is the primary obligation of each of CAHS and CAI
and (ii) BCBSNJ may enforce such guaranty against any or all of CAHS and CAI
without any prior attempted enforcement of the Guaranteed Obligations against
CHCM.
27
9.2. No Impairment or Discharge. Each of CAHS and CAI hereby acknowledges
and agrees that its liability to BCBSNJ under this Section 9 shall not be
impaired or discharged by reason of (a) any time or other indulgence granted by
BCBSNJ to CHCM or any guarantor thereof, (b) any arrangement, reorganization,
insolvency or bankruptcy Law modifying the rights and remedies of BCBSNJ with
regard to the Guaranteed Obligations, this Agreement or any of the transactions
contemplated hereby, (c) enforcement or failure of enforcement by BCBSNJ of its
rights hereunder with respect to the Guaranteed Obligations or (d) any change in
the terms of this Agreement (by formal amendment of this Agreement pursuant to
Section 15.6 hereof or otherwise). Neither partial enforcement against, nor
partial satisfaction by, CHCM of the Guaranteed Obligations shall waive or limit
in any manner whatsoever the guaranty obligations of CAHS or CAI under this
Section 9. Enforcement of the guaranty under this Section 9 is in addition to,
and not in lieu of, any other rights and remedies available to BCBSNJ under this
Agreement or at law or in equity (or otherwise).
9.3. Waiver. Each of CAHS and CAI hereby waives all defenses or conditions
precedent to enforcement of its guaranty under this Section 9.
9.4. Survival. The terms and conditions of this Section 9 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
10. Termination of Agreement.
10.1. Termination without Cause. BCBSNJ shall have the right, in its sole
and absolute discretion, to terminate this Agreement without cause at any time:
(a) upon ninety (90) days' prior written notice to CHCM, CAHS and CAI
(such date ninety (90) days from delivery of such notice, the "Without
Cause Termination Date"); and
(b) in the event that the Without Cause Termination Date occurs prior
to June 30, 2000, BCBSNJ shall pay to CHCM liquidated damages promptly upon
the calculation of such in accordance with this Section 10.1 (but in no
event prior to the Without Cause Termination Date) in an amount (the
"Termination Payment") equal to the sum of:
(i) that amount equal to forty percent (40%) of the fair market
value of CAI as of the Without Cause Termination Date, after giving
effect to the termination of this Agreement and any payments to be
made pursuant to this Section 10.1(b)(i); plus
28
(ii) the present value as of the Without Cause Termination Date
of the future valuation of this Agreement over the remainder of the
Term of this Agreement from (and not including) the Without Cause
Termination Date; plus
(iii) the present value as of the Without Cause Termination Date
of the future valuation of any third-party contract that CAI can
establish, as fully and finally determined by a court of competent
jurisdiction (and following the expiration of any appeals therefrom),
was lost solely as a direct result of BCBSNJ's termination of this
Agreement under this Section 10.1.
(c) Each of BCBSNJ and CAI hereby agrees that the fair market value of
CAI after giving effect to the termination of this Agreement, the present
value of this Agreement and the present value of any third-party contracts,
each with respect to calculating the Termination Payment in accordance with
subclause (b)(i) above shall be determined by an independent valuation
expert mutually acceptable to BCBSNJ and CAI and using a valuation
methodology acceptable to BCBSNJ and CAI, which determination shall be
final and binding upon the parties hereto and the cost of which expert
shall be borne equally by BCBSNJ and CAI. In the event that sixty (60) days
prior to the Without Cause Termination Date BCBSNJ and CAI cannot mutually
agree upon a valuation expert, each such party shall promptly select and
retain at their own expense a valuation expert and notify the other party
of the identity of the expert so selected and the two (2) selected experts
shall appoint a third, the cost of which third expert shall be borne
equally by BCBSNJ and CAI. The mean of the valuation of each of the three
(3) experts for each of the fair market value of CAI after giving effect to
the termination of this Agreement, the present value of this Agreement and
the present value of the third-party contracts shall be final and binding
upon the parties hereto and shall be the valuation used for purposes of
calculating the Termination Payment in accordance with clause (b) above.
10.2. Termination for Cause.
(a) BCBSNJ. BCBSNJ may, at any time, in its reasonable discretion,
terminate this Agreement upon the expiration of any applicable cure
periods, effective by delivering written notice to CHCM, CAHS and CAI upon
the occurrence or existence of any one or more of the following events or
conditions (each and any such event or condition that precipitates a
termination of this Agreement in accordance with the terms of this Section
10.2(a), a "For Cause Event of Termination"):
(i) Representations and Warranties. Any representation or
warranty made by CAHS or CAI hereunder shall prove to have been false
or
29
misleading in any material respect as of the time made (including by
omission of material information necessary to make such representation
or warranty not misleading).
(ii) Covenant Performance. CHCM shall commit any breach, failure
or violation of any material covenant, agreement, undertaking or duty
hereunder, where such breach, failure or violation continues for
thirty (30) days after receipt by CHCM of written notice specifying
such breach, failure or violation in reasonable detail, or, a
repetition of such breach, failure or violation (or the occurrence of
a substantially similar breach, failure or violation) that had
previously been cured. Without limiting the generality of the
foregoing, the parties hereto hereby acknowledge and agree that for
purposes of this Section 10.2(a)(ii) either of the following shall be
deemed a breach of a material covenant of this Agreement: (A) any
failure to provide and/or perform the Services in accordance with
and/or subject to the Performance Standards or any other material
deviation from the Performance Standards in connection with the
performance of the Services hereunder or (B) Customer Dissatisfaction.
(iii) Bankruptcy. CAI shall dissolve or be liquidated, or CAHS,
CAI, or CHCM shall (A) make an assignment for the benefit of
creditors, (B) petition or apply to any tribunal for, or otherwise
seek, consent to, or acquiesce in, the appointment of a custodian,
receiver or trustee for it or a substantial part of its assets, (C)
commence, consent to, or acquiesce in, any proceeding under any
bankruptcy, reorganization, arrangement, dissolution or liquidation
Law of any jurisdiction, whether now or hereafter in effect, or (D)
have had any such petition or application filed, or any such
proceeding shall have been commenced, against it, in which an
adjudication or appointment is made or order for relief is entered and
which remains undismissed or unstayed for a period of thirty (30) days
or more. Moreover, (i) any of CAHS, CAI and CHCM (x) has become
insolvent, or (y) is generally not paying, or is unable to, or shall
admit in writing its inability to, pay its debts as such debts become
due, (ii) such party has received a written demand from BCBSNJ seeking
further assurance that such party will be able to perform its
obligations under this Agreement without impairment, and (iii) such
party has not responded to BCBSNJ within five (5) days of such demand
with adequate evidence, as determined in BCBSNJ's sole and reasonable
discretion, of such further assurance.
(iv) Moral Turpitude. CHCM, CAI or CAHS, or any of their
respective officers, directors or partners, or any holder of five
percent (5%) or more of any class of Equity Securities of either CHCM,
CAHS or CAI,
30
shall commit an act of Moral Turpitude that materially adversely
affects, or that could reasonably be expected to materially adversely
affect, BCBSNJ, its business or reputation.
(v) Transactional Documents. CHCM, CAHS or CAI shall commit any
material breach, failure or violation, subject to the lapse of any
applicable cure period without cure thereof, of any condition,
undertaking, representation, warranty or covenant made for the benefit
of BCBSNJ and/or Enterprise Holding Company, Inc. in (A) the note
referred to in Section 4.3 of this Agreement, following thirty (30)
days' prior written notice from BCBSNJ, provided that such breach,
failure or violation has not been cured prior to the expiration of
such 30-day notice period, or (B) any of the Transactional Documents
(as such term is defined in the Acquisition Agreement).
(vi) ▇▇▇▇▇▇▇ Acquisition. Any of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇")
and/or any nominee of ▇▇▇▇▇▇▇ and/or any Person controlled by ▇▇▇▇▇▇▇
acquires, holds, controls or is issued, directly or indirectly,
separately or jointly, five percent (5%) or more of any class of
Equity Securities of either CHCM, CAHS or CAI.
(b) CHCM. CHCM may, at any time, in its discretion, terminate this
Agreement effective immediately by delivering written notice to BCBSNJ upon
the occurrence or existence of any one or more of the following events or
conditions (whatever the reason for such event and whether voluntary,
involuntary, or effected by operation of law):
(i) Representations and Warranties. Any representation or
warranty made by BCBSNJ hereunder shall prove to have been false or
misleading in any material respect as of the time made (including by
omission of material information necessary to make such representation
or warranty not misleading).
(ii) Payment of Compensation. BCBSNJ shall fail to make any
payment of any amount when due as compensation to CHCM hereunder and
such failure continues for five (5) business days after receipt by
BCBSNJ from CHCM of written notice specifying such failure in
reasonable detail.
(iii) Covenant Performance. BCBSNJ shall commit any breach,
failure or violation of any material covenant, agreement, undertaking
or duty of BCBSNJ hereunder (except for any breach, failure or
violation pertaining to any of its payment obligations hereunder),
where such breach, failure or
31
violation continues for thirty (30) days after receipt by BCBSNJ from
CHCM of written notice specifying such breach, failure or violation in
reasonable detail.
(iv) Bankruptcy. BCBSNJ shall (A) become insolvent, (B) dissolve
or be liquidated (except in connection with a liquidation required by
applicable Law resulting from a voluntary corporate reorganization),
(C) generally not, or be unable to, or shall admit in writing its
inability to, pay its debts as such debts become due, (D) make an
assignment for the benefit of creditors, (E) petition or apply to any
tribunal for, or otherwise seek, consent to, or acquiesce in, the
appointment of a custodian, receiver or trustee for it or a
substantial part of its assets, (F) commence, consent to, or acquiesce
in, any proceeding under any bankruptcy, reorganization, arrangement,
dissolution or liquidation Law of any jurisdiction, whether now or
hereafter in effect (except in connection with a liquidation required
by applicable Law resulting from a voluntary corporate
reorganization), or (G) have had any such petition or application
filed, or any such proceeding shall have been commenced, against it,
in which an adjudication or appointment is made or order for relief is
entered and which remains undismissed or unstayed for a period of
thirty (30) days or more.
10.3. Effect of Termination.
(a) Post-Termination Activities. Upon termination of this Agreement
pursuant to Section 10.2(a) hereof, each of CAI, CAHS and CHCM agrees,
jointly and severally, as follows:
(i) For a period of ten (10) years from the date of termination
of this Agreement, each of CAI, CAHS and CHCM agrees to license and
assign to BCBSNJ for use in its business (x) any methods, processes,
manuals, trade secrets or other proprietary information used by CAI,
CAHS or CHCM in rendering the Services hereunder, and (y) any and all
improvements, enhancements, modifications, updates and corrections
with respect thereto, all pursuant to the terms and conditions of a
license agreement (the "Post Termination License Agreement"), the
final form of which is attached hereto as Exhibit 10.3(a). Each of
CAI, CAHS and CHCM agrees to execute and deliver the Post-Termination
License Agreement upon termination of this Agreement. Each of CAI,
CAHS and CHCM hereby authorizes BCBSNJ and does hereby make,
constitute and appoint BCBSNJ, and any officer or agent of BCBSNJ,
with full power of substitution, as such party's true and lawful
attorney-in-fact, with power, in its own name or in the name of CAI,
CAHS and CHCM, respectively, to execute the Post-Termination License
32
Agreement and any other documents necessary to effect the terms of
this Section 10.3(a). Pursuant to this Section 10.3(a), BCBSNJ hereby
covenants and agrees that, in connection with its use of the Power of
Attorney granted to it by each of CAI, CAHS and CHCM hereunder, it
will not interfere with the conduct of either CAI's, CAHS' or CHCM's
business as it is then conducted except to the extent necessary to
give effect to the Post-Termination License Agreement.
(ii) Each of CAI, CAHS and CHCM agrees to sublease to BCBSNJ (x)
for a period of one (1) year subsequent from the date of termination
of this Agreement, a sufficient amount of leased space at CAI's
offices located at ▇▇▇-▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇ any
subsequent offices which CAI may occupy from time to time, and (y)
subleases for such office equipment and furnishings, including,
without limitation, the Term Master Lease Agreement dated April 6,
1995 between CAI and IBM Credit Corporation, as may be necessary to
enable BCBSNJ independently to render the Services. Each of CAI, CAHS
and CHCM agrees that any lease of office space, equipment or
furnishings made to BCBSNJ pursuant to this Section 10.3(a)(ii) shall
be based upon the cost of such leases to CAI, CAHS or CHCM,
respectively. Any rent due hereunder shall constitute CHCM's Costs.
(iii) Each of CAI, CAHS and CHCM agrees to cooperate and not
interfere with BCBSNJ in having those personnel then currently
employed by CAI, CAHS and CHCM, including, without limitation, the
Designated Employees (other than ▇▇▇▇ ▇▇▇▇▇▇ or any person who
succeeds to his position and the CAI Director-MIS), hired and employed
by BCBSNJ, as BCBSNJ may designate in its sole and reasonable
discretion, in order to enable BCBSNJ independently to render the
Services. In the event that any of such personnel designated by BCBSNJ
do not accept employment by BCBSNJ and remain in the employ of either
CAI, CAHS and CHCM, each of CAI, CAHS and CHCM agrees to make the
services of such personnel as well as ▇▇▇▇ ▇▇▇▇▇▇ or any person who
succeeds to his position and the CAI Director-MIS available to BCBSNJ
for a period of one (1) year from the date of termination of this
Agreement in order to enable BCBSNJ independently to render the
Services. The costs of making such personnel available shall
constitute CHCM's Costs.
(iv) Each of CAI, CAHS and CHCM agrees to use its best efforts to
enable BCBSNJ to enter into agreements with those vendors of CAI, CAHS
and CHCM whom BCBSNJ desires to contract with, to the extent that said
employees or vendors have participated in the provision of the
Services to BCBSNJ.
33
(v) Each of CAI, CAHS and CHCM agrees to license or sublicense to
BCBSNJ, on a cost basis, or use its best efforts to arrange for the
license to BCBSNJ, at a cost no greater than that paid by CAI, CAHS or
CHCM in its provision of the Services, all software not owned by CAI,
CAHS or CHCM and used by such parties with respect to their provision
of utilization review and utilization management services (including,
without limitation, the Services).
(vi) Each of CAI, CAHS and CHCM agree to take any other actions
required hereby or otherwise reasonably necessary to wind-up the
relationship among the parties.
(b) Survival of Rights. Notwithstanding the foregoing provisions of
this Section 10, including, without limitation Section 10.3(a) hereof,
expiration or earlier termination of this Agreement shall not (i) act to
diminish, waive or terminate any rights or remedies of a party hereto
arising out of or relating to any breach, failure or violation of this
Agreement (including, without limitation, the rights relating to any
breach, failure or violation of the obligations described in Sections 10.5,
11.1, 11.2, 11.3 and 12 hereof or giving rise to such termination) and such
rights shall expressly survive such termination and (ii) relieve, release
or discharge a party hereto from any obligation, debt or liability that may
previously have accrued and remains to be performed upon the effective date
of termination (including, without limitation, the guarantee obligations of
CAHS and CAI under Section 9 hereof). Except for (A) the obligations, debts
and liabilities contemplated by the immediately prior sentence and (B) any
obligations, debts or liabilities that by their terms expressly survive
(including, without limitation, obligations, debts and liabilities arising
under Sections 9 and 14 hereof), upon expiration or earlier termination of
this Agreement, no party hereto shall have or owe any further obligation,
debt or liability to the other.
(c) Confidential Information. In the event of the expiration or
earlier termination of this Agreement, each of the parties hereto shall as
promptly as practicable, deliver to the appropriate party, but in no event
later than ten (10) days following such expiration or termination, and
without retaining copies thereof, all Confidential Information and all
documents, work papers and other materials obtained from such other party
relating to such party and/or the transactions contemplated hereby, whether
so obtained before or after the execution hereof. The parties hereto hereby
acknowledge and agree that the Patient Information, the Confidential
Information of BCBSNJ and any and all information or data created or
generated in connection with the provision of Services hereunder is the
exclusive property of BCBSNJ.
34
10.4. Equitable Remedies. The parties hereto hereby acknowledge and agree
that the occurrence or existence of an event or condition under Sections 10.2,
10.3 and 10.5 hereof that permits the non-breaching party to terminate this
Agreement thereunder may cause such non-breaching party irreparable harm and
injury and, accordingly, in anticipation of, or following the commission or
discovery of any such event, the non-breaching party, in addition to,
independent of, and severally enforceable from, any and all other rights and
remedies available to the non-breaching party pursuant to this Agreement, at law
or in equity (or otherwise), shall, notwithstanding any other provision hereof,
be entitled, in its sole and absolute discretion, to seek and obtain, equitable
relief, including, without limitation, injunctive relief and specific
performance, in any court of competent jurisdiction.
10.5. Non-Solicitation. During the Term and for a period of two (2) years
thereafter, other than those individuals solicited in accordance with Section
10.3(a)(iii) hereof, none of the parties hereto shall, directly or indirectly,
without the prior written consent of the applicable party, hire, solicit or
entice away, or attempt to hire, solicit or entice away from such party, any
director, partner, officer, employee, consultant, independent contractor (other
than Persons rendering legal, accounting or financial services) or agent
thereof.
11. Restrictive and Other Covenants.
11.1. Provision of Services of CHCM, CAHS and CAI. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, during the Term, none of CAI, CAHS and CHCM, nor, on behalf
of CAI, CAHS and CHCM, any of their respective Affiliates, directors, officers,
employees or agents of either CHCM, CAHS or CAI, shall, directly or indirectly,
whether personally or as owner, director, control person, shareholder, partner,
member, manager, operator, joint venturer, agent, consultant or otherwise, enter
into or engage in any discussion, agreement or other binding obligations with
any third party relating to the provision of services substantially similar to
the Services within the State of New Jersey, without the prior written consent
of BCBSNJ, which consent shall not be unreasonably withheld.
11.2. BCBSNJ's Contracts with Third Parties. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, during the Term, none of BCBSNJ, nor, on behalf of BCBSNJ,
any of its Affiliates, directors, officers, employees, or agents, shall,
directly or indirectly, whether personally or as owner, director, control
person, shareholder, partner, member, manager, operator, joint venturer, agent,
consultant or otherwise, enter into or engage in any discussion, agreement or
other binding obligations with any third party relating to the provision of
services to BCBSNJ substantially similar to the Services.
11.3 Noncompetition. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, during the
Term, none
35
of CAHS, CAI or CHCM nor, on behalf of CAI, CAHS and CHCM, any of their
respective Affiliates, directors, officers, partners, employees or agents of
either CHCM, CAHS or CAI, shall, directly or indirectly, whether personally or
as owner, director, control person, shareholder, partner, member, manager,
operator, joint venturer, agent, consultant or otherwise, engage in any
business, venture or enterprise in competition with any of the principal
businesses carried on by BCBSNJ or any of its Affiliates.
11.4. New Market Segments, Performance Standards and Services. The parties
hereto hereby acknowledge and agree that BCBSNJ, during the Term, from time to
time during the Term in its sole and absolute discretion, shall give notice to
CHCM and CAHS that (a) Services are to be provided hereunder to a market segment
(fully-insured or otherwise) that does not appear on Schedule 1.40 hereto or to
a new category of BCBSNJ customers requiring utilization review or utilization
management services that does not itself constitute a market segment hereunder,
and thereafter Services shall be provided thereto in accordance with the terms
hereof, (b) additional or revised performance standards and measures have been
agreed to by BCBSNJ and one or more of its customers, and from the date of such
notice all references to "Performance Standards" herein with respect to the
provision of Services hereunder to such customer(s) shall be deemed to include
such additional or revised standards and measures, provided, however, that the
cost of any changes due to such additional or revised performance standards and
measures (other than those changes made at the request or recommendation of
either CAI, CAHS or CHCM which are not likely, in BCBSNJ's reasonable judgment,
to enhance the benefits to BCBSNJ and its customers expected to be generated by
operation of this Agreement) shall be borne solely by BCBSNJ, (c) additional or
revised performance standards and measures not unreasonable in light of
statewide or regional industry practice have been adopted by BCBSNJ, and from
the date of such notice all references to "Performance Standards" herein shall
be deemed to include such additional or revised standards and measures, and (d)
BCBSNJ requests that services similar or ancillary to any of the Services
specified by BCBSNJ in such notice be provided as Services hereunder, which
described services shall be included hereunder as mutual agreed by BCBSNJ and
CHCM.
11.5. MEDecision License. For good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, during
the Term, each of CAI, CAHS and CHCM agrees that, with respect to the one
hundred (100) user license (the "MEDecision License") granted to CAHS by
MEDecision, Inc. under an Agreement for Products & Services dated November 7,
1994, as amended to date, each of such parties shall not permit any users to
utilize the MEDecision License, other than users engaged in the provision of
Services to BCBSNJ, unless in BCBSNJ's sole and absolute judgment, there are a
sufficient number of users designated by BCBSNJ to permit the adequate provision
of the Services to BCBSNJ.
36
11.6. Further Assurances. Each party hereto hereby agrees to perform any
further acts and execute and deliver any documents that may be reasonably
necessary to carry out the provisions and purposes of this Agreement.
12. Confidentiality; Marks.
12.1. Confidentiality. Each party hereto hereby agrees that, during the
Term and after the termination of this Agreement, it shall (a) not, directly or
indirectly, use (other than for the purposes contemplated hereby during the
Term), (b) keep secret and retain in strictest confidence, and (c) not disclose
to any third party, Confidential Information. Notwithstanding the foregoing, a
party may disclose Confidential Information: (i) when compelled to do so by
applicable Law, a court of competent jurisdiction or a Governmental Authority
and (ii) to those of such party's officers, directors, partners, employees and
agents who have a "need to know".
12.2. Marks. During the Term and after the termination of this Agreement,
each of CHCM, CAI and CAHS shall use its best efforts to protect the Marks. Each
of CHCM, CAI and CAHS hereby acknowledges and agrees that it does not now own,
nor, by virtue of the Services rendered hereunder shall it acquire, any right,
title or interest with respect to the Marks, and that all such right, title and
interest is owned by BCBSNJ and its Affiliates. Each of CHCM, CAI and/or CAHS
shall promptly notify BCBSNJ in writing of any unauthorized uses, infringements
or violations of the Marks of which it becomes aware. Each of CHCM, CAI and CAHS
further acknowledges and agrees that BCBSNJ and its Affiliates have substantial
goodwill in and with respect to the Marks, that nothing in this Agreement or
with respect to the transactions contemplated hereby is intended to diminish or
otherwise adversely affect such goodwill and that none of CHCM, CAI or CAHS
shall acquire any right, title and interest in or to such goodwill by virtue of
this Agreement or the transactions contemplated hereby. None of CHCM, CAI or
CAHS shall use the Marks, including, without limitation, with respect to any of
its advertising or public disclosures, without the prior written consent of
BCBSNJ and its Affiliates, which consent BCBSNJ and its Affiliates may grant or
deny in their sole and absolute discretion, provided, however, that, in the
event that BCBSNJ shall not have given a response or reply to any written
requests for approval specifically referencing this Section 12.2 for the use of
its Marks by either CHCM, CAI or CAHS within ten (10) days of BCBSNJ's receipt
of such request for approval, such approval shall be deemed to have been given
by BCBSNJ to either CHCM, CAI or CAHS, as applicable, for the use of such Marks,
provided, further, however, that nothing in this Section 12.2 shall prohibit any
use of the Marks in connection with any public disclosure required by law
provided that CAI, CAHS and CHCM, as the case may be, furnishes advance written
notice of such use to BCBSNJ to the greatest extent practicable.
37
13. Equitable Remedies.
13.1. Rights and Remedies. If any party breaches or threatens to commit a
breach of any of the provisions of Section 10.5, 11.1, 11.2, 11.3 or 12 hereof
(the "Restrictive Covenants"), the affected non-breaching party shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
affected non-breaching at law or in equity (or otherwise):
(a) the right and remedy to have the breaching party enjoined (whether
by temporary restraining order, temporary injunction or permanent
injunction) by any court of competent jurisdiction from breaching or
continuing to breach any of the Restrictive Covenants, it being agreed that
any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the affected non-breaching party and that money
damages would not provide an adequate remedy to the affected non-breaching
party;
(b) the right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being
agreed that any breach or threatened breach of the Restrictive Covenants
would cause irreparable injury to the affected non-breaching party and that
money damages would not provide an adequate remedy to the affected
non-breaching party; and
(c) the right and remedy to require the breaching party to account for
and pay over to the affected non-breaching party all compensation, profits,
monies, accruals, increments or other benefits derived or received by the
breaching party as the result of any transactions constituting a breach of
the Restrictive Covenants.
13.2. Geographical and Temporal Scope; Enforceability. The parties hereto
hereby acknowledge and agree that the Restrictive Covenants are reasonable and
valid in geographical and temporal scope and in all other respects. If any court
determines that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the geographic or durational scope of such provisions,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and in its reduced form, such provision shall
then be enforceable. If any court determines that any of the Restrictive
Covenants, or any part thereof, is invalid or unenforceable, the remainder of
the Restrictive Covenants shall be given full effect, without regard to the
invalid portions.
13.3. Jurisdiction; Severability. Notwithstanding any other provision
hereof, the parties hereto each intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. If the courts of any one or
more of such jurisdictions hold the
38
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the affected non-breaching party's right to the relief
provided in this Section 13 in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
13.4. Tolling. During any period of a breach by a party of the Restrictive
Covenants, the relevant restricted periods shall be tolled until such breach is
cured or otherwise terminated, and the period of such breach shall be added to
each restricted period.
14. Indemnity; Insurance.
14.1. Indemnity.
(a) CAI, CAHS and CHCM. Each of CAI, CAHS and CHCM shall indemnify,
defend and hold harmless BCBSNJ, its Affiliates and the respective
directors, partners, officers, employees and agents of BCBSNJ and its
Affiliates, from and against any and all claims, actions, losses (whether
joint or several), liabilities, damages, costs and expenses (including,
without limitation, attorneys' fees and expenses) (collectively "Damages")
arising out of or relating to: (a) any breach, failure or violation by it
of any of its respective representations, warranties, covenants and
undertakings set forth in this Agreement, and (b) any of its acts or
omissions, or an act or omission of its respective partners, officers,
employees, agents or subcontractors, outside of the scope of its respective
obligations hereunder.
(b) BCBSNJ. BCBSNJ shall indemnify, defend and hold harmless CAI, CAHS
and CHCM, their respective Affiliates and the respective directors,
partners, officers, employees and agents of CAI, CAHS and CHCM and their
respective Affiliates, from and against any and all Damages arising out of
or relating to: (a) any breach, failure or violation by it of any of its
respective representations, warranties, covenants and undertakings set
forth in this Agreement, and (b) any of its acts or omissions, or an act or
omission of its respective partners, officers, employees, agents or
subcontractors, outside of the scope of its respective obligations
hereunder.
14.2. Notice; Defense. Each party hereto entitled to indemnification under
this Section 14 (each, an "Indemnified Party") hereby agrees to give the
applicable party or parties obligated to indemnify it under this Section 14
(each, an "Indemnifying Party") written notice of any event or assertion of
which the Indemnified Party obtains knowledge concerning any Damage and as to
which the Indemnified Party may request indemnification hereunder. The
Indemnified Party shall cooperate with the Indemnifying Party in
39
determining the validity of any claim or assertion requiring indemnity hereunder
and in defending against third parties with respect to the same. The defense of
such litigation shall be within the control of the Indemnifying Party, or, as
the case may be, any Persons providing indemnity and defense to such
Indemnifying Party; provided, however, that an Indemnifying Party's choice of
counsel shall be reasonably satisfactory to the Indemnified Party. The
Indemnified Party may participate in the defense of any claim or assertion
requiring indemnity hereunder, and in such event, shall cooperate fully in
connection therewith. If an Indemnifying Party fails to perform its obligations
under this Section 14.2, then the Indemnified Party may directly assume the
defense of the claim or assertion at issue, and such Indemnifying Party shall
promptly reimburse the Indemnified Party for all costs and expenses (including,
without limitation, attorneys' fees and expenses), incurred in connection
therewith. The Indemnified Party's failure to give timely notice or to provide
copies of documents or to furnish relevant data in connection with any such
third-party claim shall not constitute a defense (in part or in whole) to any
claim for indemnification by it. Each of CAI, CAHS, CHCM and BCBSNJ hereby
agrees not to settle or compromise any such third-party suit, claim or
proceeding without prior written consent of the applicable Indemnified Party,
which consent shall not be unreasonably withheld as to suits, claims and
proceedings at law.
14.3. Insurance. In order to secure their respective indemnity obligations
arising under this Section 14, (a) CHCM shall maintain in full force and effect
during the Term an occurrence basis (or if unavailable, a claims-made basis,
with appropriate "tail" coverage) policy or policies of professional
responsibility/errors and omissions/utilization review and utilization
management insurance in per occurrence and aggregate face amounts reasonably
acceptable to BCBSNJ, with insurance carriers reasonable acceptable to BCBSNJ,
naming BCBSNJ as an additional insured, such policy or policies not to be
cancelable upon less than thirty (30) days' prior notice, and providing that
BCBSNJ shall receive copies of all notices thereunder ("Acceptable Policies")
and (b) CAHS and CAI shall maintain Acceptable Policies in full force and effect
during the Term.
14.4. Survival. The terms and conditions of this Section 14 shall expressly
survive any termination of this Agreement and shall continue in full force and
effect thereafter.
15. General.
15.1. No Employment Relationship. Except as otherwise set forth herein, the
directors, partners, shareholders, trustees, officers, employees, agents or
representatives of any of the parties hereto shall not be deemed directors,
partners, shareholders, trustees, officers, employees, agents or representatives
of another party hereto, and such individuals shall not be entitled or eligible
to participate in or receive benefits or privileges provided or extended by
another party hereto to such party's directors, partners, shareholders,
trustees, officers, employees, agents or representatives.
40
15.2. Survival. Except as may otherwise be specifically provided in this
Agreement, the representations, warranties, covenants, agreements and
undertakings contained in this Agreement and in any schedule, document,
agreement, certificate or other instrument executed and/or delivered pursuant
hereto shall survive the execution and delivery of this Agreement and the
consummation of the transactions called for hereby and shall remain in full
force and effect, regardless of any investigation made by or on behalf of any
party hereto.
15.3. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given upon receipt, and shall be
addressed as follows:
If to CHCM: Contemporary HealthCare Management, Inc.
Metropolitan Corporate Center ▇▇▇-▇
▇▇▇▇▇ ▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D., Vice President
If to BCBSNJ: Blue Cross and Blue Shield of New Jersey, Inc.
Three ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. Pures
Senior Vice President - Administration, Chief
Financial Officer and Treasurer
with a copy to: Blue Cross and Blue Shield of New Jersey, Inc.
Three ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
General Counsel
If to CAHS: CareAdvantage Health Systems, Inc.
Metropolitan Corporate Center ▇▇▇-▇
▇▇▇▇▇ ▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇
If to CAI: CareAdvantage, Inc.
Metropolitan Corporate Center ▇▇▇-▇
▇▇▇▇▇ ▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇
41
or to such other address as any party hereto shall have designated to the other
parties in accordance with the provisions of this Agreement.
15.4. Binding Agreement; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns and subcontractors. No party hereto shall sell,
assign, transfer, convey, subcontract or otherwise dispose of its rights or
obligations under, title to, or interest in, this Agreement, in whole or in
part, to any third party, except that:
(a) BCBSNJ may sell, assign, transfer, convey, subcontract or
otherwise dispose of its rights or obligations under, title to, or interest
in, this Agreement, to a successor-in-interest of all or substantially all
of its indemnity insurance business (i) in connection with (A) a transfer
to an Affiliate, (B) a reorganization or (C) a merger, consolidation or
other business combination, or (ii) in the event of a sale of substantially
all of its assets (whether through asset or stock sale or otherwise); and
(b) CHCM may (i) sell, assign, transfer, convey, subcontract or
otherwise dispose of its rights or obligations under, title to, or interest
in, this Agreement to any Affiliate, provided that such Affiliate agrees in
writing to be bound by all of the provisions hereof and, prior to such
Person ceasing to be an Affiliate, all such rights and obligations are
transferred back to CHCM or (ii) delegate or subcontract the performance of
any of its obligations under this Agreement, in each instance with the
prior written consent of BCBSNJ, to CAHS or any third-party subcontractor
that agrees to be bound by the confidentiality provisions hereof.
In connection with any delegation or subcontracting of obligations pursuant to
subclause (b) above, (I) CHCM shall supervise such performance to ensure that
such obligations are completed in accordance with the terms hereof in all
respects and (II) such performance shall not result in the payment of, or give
rise to a right of CHCM, CAHS or such subcontractor, as the case may be, to
receive, or an obligation on the part of BCBSNJ to make, any payment in addition
to the compensation as calculated pursuant to the terms of this Agreement for
any provision of Services rendered in connection with this Section 15.4. Nothing
expressed or implied in this Agreement is intended to, or shall confer upon, any
Person other than the parties hereto and their respective permitted assignees or
subcontractors (which the parties acknowledge and agree are third-party
beneficiaries hereof), any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
15.5. Headings. The subject headings of the Sections and subsections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
42
15.6. Entire Agreement; Amendment. This Agreement and all schedules and
exhibits attached hereto and thereto, which by this reference are incorporated
herein and made a part hereof, embody the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof. The parties
hereto hereby acknowledge and agree that in the event of a conflict between the
terms and conditions of this Agreement and the terms and conditions of any
certificate or other instrument executed and/or delivered pursuant to this
Agreement, the terms and conditions of this Agreement shall control. This
Agreement may not be amended except by a writing executed by each of the parties
hereto.
15.7. Waiver. Waiver by the parties of a breach, failure or violation of
any provision of this Agreement may be made only in writing executed by the
parties hereto and such waiver shall not constitute a waiver of any subsequent
breach, failure or violation of the same or other provisions hereof.
15.8. Governing Law; Jurisdiction. This Agreement shall be construed in
accordance with and governed by the internal Laws of the State of New Jersey
applicable to contracts made and to be performed therein. Except as otherwise
set forth herein, the courts of the State of New Jersey in Essex County and the
United States District Court for the District of New Jersey shall have
jurisdiction over the parties with respect to any dispute or controversy among
them arising under or in connection with this Agreement and, by execution and
delivery of this Agreement, each of the parties to this Agreement submits to the
jurisdiction of those courts.
15.9. Severability. If any term of this Agreement or application thereof
shall be invalid or unenforceable, the remainder of this Agreement shall remain
in full force and effect.
15.10. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original but all of which shall constitute one
and the same instrument.
15.11. Costs and Expenses. Except with respect to those costs and expenses
that the parties agree shall be divided equally or otherwise allocated, each
party shall bear such party's own costs and expenses (including, without
limitation, expenses of counsel, outside auditors and consultants) in
negotiating this Agreement and otherwise in connection with the transactions
contemplated hereby.
15.12. Interim Services Agreement. From and after the Effective Date, the
obligation of CAHS to provide utilization review services to BCBSNJ and the
obligation of BCBSNJ to pay CAHS for such services, in each case pursuant to the
Interim Services Agreement, shall be terminated.
43
IN WITNESS WHEREOF, the parties hereto have duly executed and acknowledged
this Agreement as of the date first above written.
CONTEMPORARY HEALTHCARE
MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
President
BLUE CROSS AND BLUE SHIELD
OF NEW JERSEY, INC.
By: /s/ ▇▇▇▇▇▇ ▇. Pures
------------------------------------
Title: ▇▇▇▇▇▇ ▇. Pures
SVP- Administration, Chief
Financial Officer $ Treasurer
CAREADVANTAGE HEALTH
SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
President
CAREADVANTAGE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Title: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
President
44
Schedule 1.40
Prices for Services in Market Segments
(Prices per Exposed Subscriber per Service Month)
1997 1998 1999 2000
Market Segment Price Price Price Price
-------------- ----- ----- ----- -----
Individual Under 65 CMM $4.96 $4.61 $4.26 $4.26
Individual Under 65 non-CMM 4.96 4.61 4.26 4.26
Small Employer 5.19 4.82 4.45 4.45
Corporate 50-99 4.64 4.31 3.98 3.98
Corporate 100+ 2.06 2.06 2.06 2.06
National Accounts 2.06 2.06 2.06 2.06
State Account 1.70 1.70 1.70 1.70
Other Government Accounts 1.08 1.08 1.08 1.08
Schedule 1.47
Performance Standards
CHCM shall comply with all customer service requirements as specified for
accreditation with URAC.
Unless more stringently specified by URAC standards, customer service levels
shall be maintained at least at the following levels:
Telephone calls shall be answered on average within 20 seconds.
Lost call ratios shall be maintained at under 5 percent.
Line busy rates shall be maintained at under 5 percent.
98% of prospective, urgent review appeals shall be decided and communicated
within one (1) business day of receipt.
98% of second level review appeals shall be decided and communicated within ten
(10) business days of receipt. 98% of third level appeals shall be decided and
communicated within twenty (20) business days of receipt of all relevant
information, including the clinical record.
CHCM shall develop, maintain and implement a written quality
management/improvement plan that is consistent with the BCBSNJ Service Quality
Plan and practices. The plan shall provide for the following elements:
Satisfactions surveys
Process tracking, stabilization and improvement
Employee education and involvement
RN peer review system
Silent telephone performance monitoring system
Staff audits and evaluation
Schedule 1.54
Criteria for Identification of Large Medical Cases
Description
-----------
Neonatal ▇▇▇▇▇ Bifida
Premature Delivery
Bronchopulmonary Dysplasia
Cystic Fibrosis
Hydrocephalus, newborn
Congenital Anomaly
Stroke/Cerebrovascular Accident Hemiplegia
Intracranial Hemorrhage
Respiratory Failure with Ventilator Dependence
Terminal Cancer
Muscular/Neurological Disorders Muscular Dystrophy
Multiple Sclerosis
Amyotrophic Lateral
Solerosis
Paralysis
Polio
Cerebral Palsy
AIDS, HIV+ and complications Kaposi Sarcoma
PCP-Pneumocystis Carinii
Pneumonia
Cryptosporidiosis
Lymphoma
Major Head Trauma/Traumatic Brain Injury Head Injury
Skull Fracture
Coma
Spinal Cord Injury Diseases of Spinal Cord
Fracture of Neck & Trunk
Limb Amputation with Complications
Third Degree ▇▇▇▇▇
Other
-----
1. Prolonged and complicated hospital stays.
2. Acute care stay which do not meet criteria but require skilled care.
3. All rehabilitation admissions.
Schedule 1.54A
Services
For all services specified below, BCBSNJ will define the medical procedures to
which these services shall apply. The review protocols, guidelines and standards
used in the provision of the services specified below must be approved by BCBSNJ
in advance of their application and BCBSNJ may, from time to time, in its sole
and absolute discretion, modify such protocols, guidelines and standards. The
application of such protocols, guidelines and standards by CHCM, all physician
advisors and all other individuals providing services shall result in a uniform
and consistent application of a single set of protocols, guidelines and
standards for the provision of care.
It is understood that BCBSNJ shall maintain control of its preferred provider
networks in all respects (including, without limitation, the rates set for and
paid thereto), in addition to the selection of, and the rates set for and paid
to, all other providers of health care and all vendors utilized in connection
therewith as may arise in connection with the provision of Services.
Pre-certification Review Services -- Pre-certification Review is performed to
determine the appropriateness of proposed services, medical necessity of the
care setting, safe and effective alternatives to the planned services and
feasibility of any identified alternative setting. Precertification review also
serves as a case-identification device for initiation of concurrent review
services and large medical case management.
Pre-certification Review Services include the following:
Pre-admission Review -- Pre-admission review occurs prior to a
patient's non-emergency or scheduled inpatient admission to help
determine the medical necessity of the patient's inpatient
hospitalization and to establish an initial length of stay (LOS). If
the criteria for inpatient necessity is met, the case is certified and
an estimated number of days of inpatient stay is assigned based upon
pre-admission information. If the case cannot be certified by the
initial reviewer, the case is referred to a qualified physician
advisor for investigation, leading to the approval or denial of the
requested service and/or LOS.
Pre-certification of BCBSNJ-Selected Outpatient/Ambulatory Procedures
--Prospective review of BCBSNJ-selected surgical, diagnostic or
therapeutic outpatient procedure recommended for the patient occurs
prior to the rendering of the procedure to determine the medical
necessity of the procedure. If criteria are met, the case is
certified. If the case cannot be certified by the initial reviewer,
the case is referred
to a qualified physician advisor for investigation, leading to
approval or denial of the requested service.
Physician advisors must review at least eight percent (8%) of all
pre-admission Review cases. As a result, physician advisors actively
participate in the development of treatment plans and discharge
planning activities (which activities are described in greater detail
below).
Only physician advisors may decline to approve benefits for requested
services.
Concurrent Review Services -- Concurrent review determines if care being
rendered is medically necessary and effective, and if it is being rendered at
the appropriate level of care for the patient's condition.
Concurrent review services are applicable to acute and non-acute medical
services. Approval for extensions of LOS or services beyond original
authorizations must be certified by a licensed registered nurse ("RN") or a
qualified physician advisor using BCBSNJ-approved clinical guidelines, which
guidelines may be modified by BCBSNJ from time to time in its sole and absolute
discretion. Non-physician case managers must refer questionable cases to
physician advisors for review. Only physician advisors may decline to approve
benefits for requested services.
Physician advisors must review at least ten percent (10%) of all
concurrent review cases.
CHCM may conduct concurrent review by on-site nurse case managers or
physician advisors whenever financially feasible and agreeable for the
BCBSNJ client.
In addition to the foregoing, concurrent review services include the
following:
Daily or intermittent concurrent inpatient care management and
case review.
Regular reassessment of LOS assignment.
Discharge planning and support services for any continuation of
care management needed by the patient upon discharge including
home health care, specialty referral and coordination of
post-delivery services.
Outpatient case coordination -- Outpatient case coordination
includes working with hospital staff and community resources when
referrals are made for home health care services, specialty
services, durable medical equipment or other post-delivery
services that are requested and medically appropriate.
Referrals shall be to providers in preferred provider networks established by
BCBSNJ at preferred rates, provided, however, other providers may be used if
cost effectiveness can be demonstrated.
Large Medical Case Management Services -- Large medical case management involves
the coordination of care for selected catastrophic or potentially high dollar
cases. Licensed RNs assist the patient and the patient's family and primary care
physician in reviewing treatment plans and special services needed for care
management. Physician Advisors shall be consulted during the review of any
questionable case or plan of treatment. BCBSNJ will determine the guidelines for
case selection and case management services to be provided and may, from time to
time, in its sole and absolute discretion, redefine the guidelines.
Large medical case management services include the following:
Identification and management of cases involving long-term or
catastrophic illness or injury to ensure cost-effective utilization of
benefits.
Investigation of referrals from BCBSNJ, the pre-admission review, the
providers and the individual BCBSNJ subscribers to determine medical
appropriateness of large medical case management services.
Identification, investigation and use of cost-effective alternative
settings.
Case acceptance and receipt of a signed agreement from patient or
patient's guardian for services to be provided; establishment and
maintenance of appropriate contact with BCBSNJ marketing divisions,
patients and patients' family and providers.
Provision of discharge planning support to assist social services,
hospital utilization review and staff and nursing services to place
the patient in sub-acute facilities or in the home for continued
therapy when medically appropriate.
Use, whenever possible, of preferred provider networks established by
BCBSNJ for the provision of appropriate services at preferred rates;
however, other providers may be used if cost-effectiveness can be
demonstrated and prior approval is received from BCBSNJ in each
instance.
Procedure Certification/Mandatory Second Surgical Opinion Services (MSSOP) --
These services are provided for all subscriber contracts requiring MSSOP. These
services shall be incorporated into the pre-certification review services
described above.
MSSOP services include the following:
Utilization of a second opinion panel of qualified specialists
developed and maintained by BCBSNJ.
Provision for telephonic interviewing of patients and their attending
physician/surgeons for the evaluation of proposed surgical and
diagnostic procedures for appropriateness of care.
Arrangement, if requested by the patient or patient's representative,
for a third opinion in the event of a non-confirming second opinion.
Retrospective Review Services -- The retrospective review process is conducted
when precertification has not been obtained or when a BCBSNJ client receives
services that were not authorized. The medical record is reviewed by a physician
advisor to ascertain if the admission or days of care in question met medical
necessity criteria. Information obtained from retrospective chart review shall
be used to evaluate quality of care and appropriateness of services and to
monitor trends in the delivery of health care services.
CHCM shall perform retrospective review of cases that were or should have been
subject to precertification review or concurrent review by CHCM and when a
BCBSNJ client receives services that were not authorized. The results of such
review shall be reported promptly to BCBSNJ for its claim action. BCBSNJ shall
also perform retrospective review necessary to support its basic business
functions. CHCM and BCBSNJ retrospective review functions shall be coordinated
in such a fashion as to minimize duplication and unnecessary administrative
burden either upon themselves or upon providers.
BCBSNJ shall provide to CHCM paid claims data necessary to conduct retrospective
analysis at regular intervals to be mutually agreed to by the parties, but in
any event, no less than semi-annually.
Retrospective review services include the following:
Performance of retrospective medical record review to analyze and
evaluate medical appropriateness, admissions, LOS and level and
quality of care.
Conduct of focused and random retrospective reviews to ensure Plan
payment is made for medically appropriate admissions. For the purposes
of this review, two percent (2%) of all cases subject to CHCM review
shall be reviewed annually.
Quarterly analysis and evaluation of medical appropriateness, hospital
admission and LOS trends, level and quality of care and changes in
medical care patterns shall be conducted quarterly and shall be
promptly reported to BCBSNJ.
Communication and Reporting Requirements -- Communication mechanisms will
include, as appropriate, CHCM provided publications and circulars, telephone,
facsimile, meeting and seminars, written correspondence, and electronic data
transmissions and techniques.
Communication services will include, but not be limited to, the following:
Communication to BCBSNJ of all decisions regarding medical
appropriateness of pre-certification review, concurrent review,
pre-procedure review and large medical case management to facilitate
claims adjudication and assist with client relations. Such
communications will include automated linkages to BCBSNJ claims
systems and individual discussions where required by BCBSNJ. The
current recording of pre-certification review, concurrent review,
pre-procedure review and large medical case management review on CARS
screens shall be maintained until a mutually agreeable alternative has
been developed.
Communication of utilization management decisions shall be made to
subscribers, their physicians and hospitals by telephone, written
correspondence and systems updates. Communication timeliness shall be
as specified by URAC and shall utilize forms approved by BCBSNJ.
Communication to network hospitals shall be made to assure proper
understanding and use of utilization management procedures, policies
and practices. Communication with physicians and other provider
communities shall be made to explain and justify review and treatment
protocols, cost containment measures and case management findings.
Appeals -- In order to provide mechanisms that will assure, and be seen to
assure, fairness in Utilization Management processes with respect to the
provision of services to health care recipients, a three (3) level appeals
process shall be established and maintained. With the prior approval of BCBSNJ,
CHCM shall establish and maintain the required mechanisms for such appeals
process and provide technical and administrative support therefor. Except as set
forth above with respect to such mechanisms and support, the appeals process
shall be conducted and controlled in all material respects by BCBSNJ.
The three levels of medical appeal shall include:
Review by the physician advisor rendering an initial denial where
additional clinical information is presented, which may be used to
modify the original decision.
Review by a physician advisor, other than the physician advisor
rendering the original decision, who is a licensed, board certified
physician or other medical
specialist in the same or similar specialty as typically manages the
medical condition, procedure or treatment as mutually deemed
appropriate.
Review by a panel of reviewers that shall include a representative of
each of the following organizational units: CHCM, BCBSNJ medical
staff, BCBSNJ legal staff and the appropriate BCBSNJ Marketing
Divisions.
When ASO cases are appealed, a fourth level of appeal shall include the
BCBSNJ clientpurchaser of the benefit plan.
All appeals will be reviewed promptly and resolved within the time frames
specified by URAC. Decisions shall be communicated in writing to those
affected (patient, physician, and hospital). Data regarding appeals and
their results shall be used by CHCM in reviewing and educating review
personnel.
Appeals unrelated to clinical decisions on medical necessity and
appropriateness, which may include scope of benefits and administrative
matters, shall be reviewed and decided by BCBSNJ.
Customer Service -- CHCM shall comply with all customer service requirements as
specified for accreditation with URAC.
Unless more stringently specified by URAC standards, customer service levels
shall be maintained at least at the following levels:
Telephone calls shall be answered on average within 20 seconds.
Lost call ratio shall be maintained at under five percent (5%).
Line busy rates shall be maintained at under five percent (5%).
98% of prospective, urgent review appeals shall be decided and communicated
within one (1) business day of receipt.
98% of second level review appeals shall be decided and communicated within
ten (10) business days of receipt. 98% of third level appeals shall be
decided and communicated within twenty (20) business days of receipt of all
relevant information, including the clinical record.
Account Education and Relations -- CHCM shall provide account education and
relations services relating to utilization review and utilization management,
including, without limitation, provision of communications materials to support
the BCBSNJ marketing divisions in their dealings with
BCBSNJ customers and the Serviced Population, the cost of such materials to be
agreed upon by the parties (other than utilization reporting materials prepared
in the ordinary course of business, which shall be provided without charge by
CHCM);
CHCM shall be involved in the planning and conduct of new account education.
CHCM's sales staff shall be available and participate, if requested, with BCBSNJ
in the sale of CHCM's services to new accounts and prospects.
Product Development -- CHCM shall reasonably cooperate with BCBSNJ in the
development of the Utilization Review and Utilization Management components of
future products and lines of business.
Group Claims and Utilization Reporting
BCBSNJ shall retain responsibility for group claims, basic utilization and
reporting of actuarial data to BCBSNJ customers. CHCM and BCBSNJ shall
develop specifications for a mutually acceptable level of detail and
frequency of reporting necessary to meet requirements to be set by BCBSNJ.
Schedule 5.2(a)
Qualifications and Criteria for
Professional Review and Case Management Personnel
and Certain Review and Support Staff
Appropriately qualified professional review personnel shall review cases and
provide indicated authorizations and certifications according to BCBSNJ-approved
review protocols and procedures. Qualifications are described below and must be
met unless a higher standard is required for URAC certification, which shall
supersede the requirements described below.
Appropriately trained non-clinician staff (subject to BCBSNJ approval),
licensed registered nurses or Physician Advisors may pre-certify requested
services.
New Jersey licensed registered nurses (RNs), using BCBSNJ approved
criteria, or Physician Advisors may provide approval for extension of stay
or services beyond initial authorizations.
Under no circumstances shall a reviewer, other than an appropriately
qualified Physician Advisor, render a non-certification decision. Physician
Advisors shall review all admissions and continued stays that do not
satisfy guidelines for inpatient care, and all determinations require
interaction with the patient's attending physician.
CHCM shall maintain a team of expert Physician Advisors, appropriately
qualified, to provide all necessary services to BCBSNJ.
All review and support staff shall receive initial and regular continuous
training in medical terminology, utilization management practices, review
protocols, telephone techniques, computer and systems techniques, insurance
plan programs, hospital guidelines, URAC policies and procedures, and other
topics to ensure first quality service and to comply with URAC
accreditation requirements.
Schedule 5.5
Designated Employees
Individual Title
---------- -----
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Senior Vice President
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Vice President of Care Management
Schedule 5.7
Required Reports and Reporting Intervals
CHCM shall provide the following quarterly reports to BCBSNJ:
Activity Reports showing, at a minimum, 1) Total
Reviews, Days Requested, Days Approved, and Days
Denied for all inpatient cases (specifying, as
appropriate, subacute inpatient cases,
rehabilitative facility cases and skilled nursing
facility cases) initiated during the quarter, 2)
Outpatient Services Reviewed, Services Approved,
and Services Denied, 3) the number and percentage
of i) inpatient and ii) outpatient cases referred
to Physician Advisors during the quarter and 4)
results of all case management activities,
including case volumes and estimated savings.
Efficiency Reports showing, at a minimum, Staffing
and activity including phone calls, Faxes, Total
Inpatient Review, Total Outpatient Review, Number
of Retrospective Reviews, and Number of Large
Medical Case Management cases opened, number
closed, and number open at the end of the Quarter.
HEDIS-compatible reports identifying savings in
medicine and surgery resulting from review, impact
on length of stay, appropriateness of setting,
necessity of procedures and case management
aversion.
Customer Service Reports showing, on a weekly
basis: 1) the percentage of calls answered within
20 seconds; 2) lost call ratios; and 3) line-busy
ratios.
Results of Retrospective Reviews will be reported as reviewed, which shall be no
less frequently than semi-annually.
Customer Service Reports will be sent to BCBSNJ promptly following the end of
the month. All other reports will be sent to BCBSNJ within 45 days following the
end of the quarter.
Report formats and content will be suggested by CHCM and shall be subject to
approval by BCBSNJ.
Schedule 7.4
Litigation
CAI has been served with a demand for Arbitration by ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇, a former
employee as claimant (the "Claimant"), dated November 13, 1995 pursuant to the
American Arbitration Association Commercial Arbitration Rules. The Demand for
Arbitration alleges that CAI breached the Claimant's written employment
agreement by failing to pay salary to the Claimant and by its subsequent failure
to pay liquidated damages. By letter dated October 31, 1995, CAI terminated the
employment agreement with the Claimant for "cause" as defined in the employment
agreement. The Demand for Arbitration specifies a claim for relief by the
Claimant of approximately $625,000 in salary plus other unspecified compensatory
and punitive damages. CAI has recorded separation costs of $640,000 in
connection therewith as of October 31, 1995.
CAI and the Claimant have been engaged in settlement discussions since the
filing of the Demand for Arbitration and Management believes that the parties
have reached an agreement in principle on the material terms of a proposed
settlement, subject to the preparation and execution of definitive settlement
agreements. No assurances can be given, however, that the settlement of this
proceeding will be effectuated.
On January 30, 1995, CAI entered into a three (3) year Consulting Agreement with
a consultant, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Consultant"), who was an executive of the
former parent company, for strategic planning services and assistance in
securing financial arrangements. This Consulting Agreement was terminated on
April 24, 1995 in connection with the closing of the Separation Agreement with
Primedex Health Systems, Inc. On May 1, 1995, CAI agreed to enter into a new
consulting agreement with an entity (the "Entity") affiliated with the
Consultant (the "New Consulting Agreement") providing for payments for services
at the monthly rate of $38,500 to commence on October 1, 1996 (one day after the
expiration of the Consultant's consulting agreement with Primedex Health
Systems, Inc.) and to terminate on December 31, 1998. Pursuant to the New
Consulting Agreement, the Entity will provide advice and counsel to CAI
regarding business strategies and implications, oversight and assistance in
financing arrangements. On August 22, 1995, pursuant to a resolution approved by
its Board of Directors on August 17, 1995, CAI terminated the New Consultation
Agreement with the Consultant or any entity affiliated with the Consultant for
cause. Management believes that any potential claim against CAI by the
Consultant is without merit.
Schedule 7.5
Licenses Required to Perform Obligations
The following licenses are to be maintained until BCBSNJ approved replacement
systems/licenses are in place:
Medical Approval Protocol System (MAPS)
PAS length of stay tables
Access to BCBSNJ's National Second Opinion Panel for a Second Opinion Network
MEDecision site licenses
Exhibit 4.1(d)
Illustrative Quarterly Bonus Payment Calculation
as of Third-Quarter 1997
Assumptions: Entries in columns (1), (2), (3)
First-Quarter Payment (FQP) = $0, Second-Quarter
Payment (SQP) = $10,000
(1) (2) (3) (4) (5)
Individual Under 65 CMM 15 550 500 515 $222,075
Individual Under 65 non-CMM 65 365 325 330 320,775
Small Employer 75 285 250 250 0
Corporate 50-99 25 310 280 275 (123,375)
--------
S
Section
Reference
---------
(1) = Average number over first nine months of 1997 of
members of the Serviced Population for the
Current Year/1,000 N/A
(2) = Days/1,000 Prior Year 1.3
(3) = Days/1,000 Current Year 1.2
(4) = Target = (2) - 35 1.57
(5) = Calculation = [(4) - (3)] x $987 x (1) 1.7
S = Sum of entries in column 5 = $419,475 1.7
Annualized Bonus Payment (ABA) = .25 x S (if S >= 0) = $104,869 1.7
Third-Quarter
Bonus Payment = .60 (ABA/4) + [[(.60 ABA/4) x 2] - (FQP + SQP)] 4.1(d)
= $15,730 + [($31,461 - ($0 + $10,000)]
= $37,191
Exhibit 10.3(a)
Form of Post-Termination License Agreement
[Not attached; on file with the Company]
