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RightChoice announces fourth-quarter results

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RightChoice Managed Care Inc., operating locally as Alliance Blue Cross Blue Shield, has reported solid revenue growth for the fourth quarter ended Dec. 31, 1997. However higher expenses resulted in a net loss for the quarter.

RightChoice reported $186.5 million in total revenue for the fourth quarter of 1997, a 9.5 percent increase from $170.2 million in the same period 1996, according to a release from RightChoice.

Higher medical expenses and general and administrative expense, including depreciation and amortization, resulted in a net loss for the quarter of $5.2 million, or 28 cents per share, compared with a net loss of $3.7 million, or 20 cents per share, in fourth-quarter 1996, RightChoice stated.

For the full year, RightChoice reported $719.4 million in revenue, a 10.1 percent increase in total revenue, compared to more than $653.4 million in 1996, and a net loss of $24 million, or $1.29 per share, compared with a net loss of $2 million, or 11 cents per share, in 1996, the release said.

Excluding one-time relocation charges and the non-cash reserve provision for a single contract loss in the third quarter of 1997, RightChoice reported a net loss of $2.7 million, or 14 cents per share, for the year, compared with net income of $0.9 million, or 5 cents per share, in 1996, RightChoice stated.

The company also announced January enrollment and revenue figures, which show a 7.6 percent increase in underwritten premium revenue per member per month to $115.05 in January 1998, compared to $106.89 in January 1997.

RightChoice stated its underwritten premium revenue for the month of January 1998 increased 9.3 percent to $58.1 million from $53.2 million for the same month a year ago.

Underwritten membership increased a targeted 1.5 percent to 504,800 members from 497,294 in 1997.

"As we announced last November, we did not achieve our previous goal of returning to operating profitability during 1997 due to a combination of pricing and medical cost trends, a reserve provision for losses on a single contract and a one-time charge," said John A. O'Rourke, chairman, president and chief executive officer, in the release.

"However," he added, "January 1998 revenue per member provides an early measure of a key component of our strategy to maintain membership at increased premium levels. Approximately one-third of our underwritten business has historically renewed the first month of the year.

"While many factors will influence

our performance in 1998, we are pleased to see the increase in revenue per member in January as an early contribution to the improvement we're targeting this year."

RightChoice cited continuing increases in certain areas of medical expense, including pharmacy costs and specialist utilization, for raising the medical loss ratio to 86 percent in the fourth quarter of 1997, compared to 84.8 percent for the same period in 1996.

For the year, the medical loss ratio in 1997 was 84.8 percent, compared with 82.6 percent for 1996. The medical loss ratio measures medical expenses as a percentage of premium revenue, RightChoice stated.

The company continued to control core overhead as measured by the adjusted general and administrative ratio as a percentage of total revenues.

Excluding amortization, depreciation and a $1.7 million charge-off of amounts due to the company from a physician-hospital organization that declared bankruptcy, RightChoice reduced the adjusted general and administrative ratio to 18.4 percent in the fourth quarter of 1997, compared with 19.8 percent in the same period a year ago. For 1997, the adjusted general and administrative ratio was 19.2 percent, compared to 19.7 percent in 1996.

"The escalation of health care costs continues to outpace the improvements we see in revenue," O'Rourke said in the release. "We continue to negotiate with providers and offer incentives and opportunities for our members to stay healthy. However, the dynamics of the delivery of care, medical technology and direct-to-consumer pharmaceutical advertising continue to challenge us, as well as the entire industry.

"At the same time, we have made significant progress in controlling core overhead," O'Rourke stated. "We are applying discipline to our overhead budgets while making investments in the people, service and information systems that are crucial to sustaining our leadership in this market."

Meanwhile, RightChoice, and its parent Blue Cross and Blue Shield of Missouri, is preparing to defend itself against a lawsuit filed Feb. 9 by the Missouri attorney general, the company stated.

The suit alleges that the companies failed to pass along hospital discounts to members during the early 1990s.

The companies discontinued the copayment practice at the end of 1995 and paid $5 million in restitution to members and court costs in a class action suit settlement approved as "fair, reasonable and adequate" by the presiding judge in December 1995.

RightChoice also announced that an administrative order was issued on Feb. 11 by the Missouri Department of Insurance against the companies regarding a previously disclosed market conduct audit, which addresses, in part, the same copayment allegations.

The companies plan to vigorously defend these actions, RightChoice stated. No damages have been specified in either case.

RightChoice also announced its performance targets for 1998, including:

?an average annual premium revenue growth rate per member per month in the 9 percent to 10 percent range;

?maintaining its medical loss ratio in the low 80s, with an anticipated net medical cost increase per member per month of approximately 5 percent to 7 percent; and

?a continued reduction in overhead expenses, resulting in a general and administrative expense ratio in the low 20s, including $10 million in non-cash amortization expense for information and operating strategies and $4 million anticipated expense for programming to accommodate the year 2000.

The company's ability to deliver these performance targets is dependent on achieving targeted sales to new members and retention rates at higher prices, and realizing projected medical and overhead cost savings, RightChoice stated.

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