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RightChoice announces net profit for 1st quarter

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RightChoice Managed Care Inc. announced April 30 a net profit for the first quarter of 1998. RightChoice had revenues of $191.9 million for the three months that ended March 31, up 88 percent from $176.3 million in the same period a year ago.

Net income for the first quarter of 1998 was $968,000, or 5 cents per share, compared with $6.2 million, or 33 cents per share in the first quarter of 1997. First quarter 1998 net income included 2 cents per share of net realized investment gains, compared to net realized investment gains of 33 cents per share and relocation charges of 7 cents per share in the same period last year.

The company's pre-tax operating loss of $1.2 million in the first quarter of 1998 improved over an operating loss of $2.2 million in the first quarter of 1997.

"We're pleased to see that our performance is on track through the first quarter," said John A. O'Rourke, chairman, president and chief executive officer of RightChoice. "Our continuing focus on core operations will be enhanced by the proposed resolution of litigation and regulatory issues with the state, under the plan announced April 22 by RightChoice and our parent company, Blue Cross and Blue Shield of Missouri."

General rate increases and increased membership of self-insured groups contributed to higher total revenues. Premium revenue increased 8.5 percent to $173.7 million in the first quarter of 1998, from $160.2 million in the same period a year ago.

Higher medical costs and utilization increased health care services expenses by 11.9 percent, to $144.5 million from $129.2 million. As a result, the first-quarter 1998 medical loss ratio (MLR) increased to 83.2 percent, compared with 80.6 percent in the same period last year, but was reduced sequentially from 86 percent in the fourth quarter of 1997.

Underwritten membership on March 31 decreased to 485,000 members from 495,000 members at March 31, 1997, due in part to the company's planned exit from the Medicaid business and reductions in preferred provider organization membership.

However, the AllianceChoice point-of-service program and the health maintenance organization posted year-over-year membership increases of 15.1 percent and 8.4 percent, respectively. Membership in self-funded plans, primarily through HealthLink, increased 10.5 percent to 1.51 million members as of the end of the the first quarter of 1998, compared to 1.37 million as of the end of the first quarter of 1997.

The general and administrative (G&A) expense ratio was reduced to 21.3 percent of revenues in the first quarter of 1998, compared with 22.7 percent in the same period last year, as overhead expense was essentially unchanged at $40.9 million, compared with $40 million.

In addition to general overhead, G&A includes investments in ongoing corporate initiatives, such as the multi-year plan for improving information and operating systems, and programming to accommodate the year 2000. It also includes depreciation and amortization expense on projects already implemented.

Overhead expenses adjusted to exclude depreciation and amortization also decreased. The adjusted G&A ratio was 18.9 percent for the first quarter of 1998, compared to 19.8 percent for the same period in 1997.

"We remain on track with our outlook for generating an operating profit by year-end 1998," O'Rourke stated. "We plan to generate premium revenue growth with rates that reflect a more rational pricing environment, and also focus on controlling medical and overhead expenses. At the same time, we will maintain our market leadership through service enhancements, claims time lines, advanced information systems, disease management and wellness initiatives."

The company's stated performance targets for 1998 include:

?Average annual premium-revenue growth rate per member per month in the 9 percent to 10 percent range.

?Maintaining the MLR in the low 80s, with an anticipated net medical cost increase per member per month trend of approximately 5 percent to 7 percent.

?Continued reduction in core overhead expenses, resulting in a G&A expense ratio in the low 20s, including $10 million in non-cash amortization expense for corporate initiatives and $4 million anticipated expense for programming to accommodate the year 2000.

RightChoice Managed Care Inc. is the publicly held subsidiary of Blue Cross and Blue Shield of Missouri. The company has nearly 2 million members in seven states through underwritten health plans and its HealthLink subsidiary's self-funded, network rental and administrative services programs.

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