Coram Healthcare Terminates Resource
Network Master Agreement and Files $50 Million Lawsuit Against Aetna
U.S. Healthcare
Health/Medical Writers
DENVER--(BW HealthWire)--June 30, 1999--Coram Healthcare
Corporation (NYSE: CRH) announced today that it has sued Aetna U.S.
Healthcare, Inc. ("Aetna") in the United States District Court for the
Eastern District of Pennsylvania. The complaint includes claims
against Aetna for fraud, misrepresentation, breach of contract and
rescission relating to the Master Agreement between the parties,
effective May 1, 1998 (the "Agreement") for ancillary network
management services through its Resource Network Division. Coram
provided its notice of termination of the Agreement effective today.
As stated in the complaint, Aetna wrongfully induced Coram to
enter into the Agreement by, among other things, misrepresenting and
understating the utilization of home health care services by its own
enrollees. As further stated in the complaint, utilization has been
substantially higher than Aetna represented at the commencement of the
Agreement. In the lawsuit, Coram seeks compensatory and punitive
damages in excess of $50 million. Based on recent communications with
Aetna, Coram expects that Aetna will deny Coram's claims and may
pursue its own alleged claims of $30 million or more.
Prior to filing the complaint, Coram was negotiating with Aetna
over the disputes. During such discussions and without any disclosure
to Coram, Aetna filed its own complaint against Coram in the Court of
Common Pleas, Montgomery County, Pennsylvania, setting forth claims
for specific performance, injunctive relief and declaratory relief.
Pursuant to its complaint, Aetna seeks an adjudication that Coram may
not terminate the Agreement and is required to continue to perform
under the Agreement. "We were disappointed that Aetna would file its
complaint while we were simultaneously negotiating with Aetna, without
any disclosure whatsoever to Coram that it intended to file a
complaint," said Richard M. Smith, Coram's Chief Executive Officer and
President.
Under the Agreement which was anticipated to be five years, Coram
managed and provided home health care services for over 2 million
Aetna enrollees in eight states for a fixed monthly fee per enrollee.
Coram began serving Aetna enrollees under the Agreement on July 1,
1998.
"Our complaint against Aetna underscores our commitment to our
patients, employees and stockholders to preserve the financial health
of our company," said Richard M. Smith, Coram's Chief Executive
Officer and President. "The higher utilization pattern we have
experienced during the term of the Agreement has rendered the
Agreement infeasible, and we have been unable, despite numerous
attempts, to resolve our dispute with Aetna without legal action. We
are disappointed in Aetna. Nevertheless, we remain committed to
continuing to manage and provide high quality medical services to
Aetna's enrollees even in the face of this action while we attempt
professionally to transfer to Aetna the administrative services
contemplated by the Agreement."
Although Coram has provided notice of termination of the
Agreement, Coram intends to continue to arrange for the provision of
the home health care services through the network of home health care
providers during the month of July, 1999, pending transfer of the
management of the home health care services to Aetna. Coram has
offered to work closely with Aetna to assure that the transition is
conducted smoothly and efficiently without disruption of patient care
or of the network of home health care providers. In this regard, the
contracts with the network providers provide for a transition to
Aetna, and Coram has asked Aetna to confirm that Coram should continue
to authorize network providers to render home health care services,
subject to payment by Aetna. Coram has, however, advised Aetna that it
will not be financially responsible for the provision of home health
care services after the termination date, and that the financial
responsibility lies with Aetna.
"The Agreement with Aetna has been material to Coram's total
revenue," Mr. Smith continued. "Coram's branches also serve Aetna
enrollees not covered by this Agreement. The loss of revenues relating
to the Agreement, together with the potential loss of Aetna business,
should Aetna seek to terminate that business, will have a material
adverse effect on our revenue. In spite of the termination of the
Agreement, we have capital available under our credit agreement to
continue to operate our business, and we are very encouraged by the
continued support of our lending group. This event will not deter
Coram from pursuing its goals aggressively and maintaining focus on
the long term success of the Company."
"We continue to be encouraged by the increased internal growth of
our home infusion therapy business," Mr. Smith added. "We are serving
more medically complex patients and continue to take market share from
our competitors and sign new contracts with managed care and other
payers. Our Coram Prescription Services division continues to grow
rapidly in both the mail order pharmacy and pharmacy benefit
management businesses and will be able to transact business through
the Internet during the third quarter of 1999. Our newly formed
Clinical Research and Medical Informatics Division has been
successfully launched, and we anticipate substantial growth in this
division in 1999 and beyond." |
