Status of Coram and Aetna U.S.
Healthcare Lawsuit
Health/Medical Writers
DENVER--(BW HealthWire)--July 30, 1999--Coram Healthcare
Corporation (NYSE:CRH) sued Aetna U.S. Healthcare, Inc., in the United
States District Court for the Eastern District of Pennsylvania on June
30, 1999, for misrepresentation, breach of contract and rescission
related to a Master Agreement (dated May 1, 1998) between Coram and
Aetna. Pursuant to the Master Agreement, Coram's Resource Network
division managed the Aetna home healthcare network in 8 states. In the
suit, Coram alleges, among other things, that Aetna misrepresented the
utilization rates of the more than 2 million enrollees in Aetna's
HMO-based healthcare plans in the 8 covered states, thereby inducing
Coram to enter into and later to continue to perform under the Master
Agreement. During the term of the contract, Aetna refused to properly
compensate Coram. The suit also charges that Aetna failed to reimburse
Coram approximately $10 million or more due under the Master
Agreement. Coram seeks compensatory and punitive damages in excess of
$50 million in the lawsuit.
Coram also notified Aetna on June 30 that it was terminating the
Master Agreement but that it would nevertheless work with Aetna to
insure the continued and uninterrupted authorization of services for
patient care. Coram said today that it has largely completed an
orderly transition of its management responsibilities for the home
healthcare network back to Aetna.
On June 29, 1999, Aetna U.S. Healthcare also filed suit against
Coram in the Court of Common Pleas for Montgomery County,
Pennsylvania, seeking an injunction and specific performance
attempting to force Coram to continue to perform under the Master
Agreement. Coram removed that state court action to the United States
District Court for the Eastern District of Pennsylvania. Aetna then
filed a motion to have the case transferred back to the state court.
However, Aetna has since withdrawn that motion, such that the entire
dispute is now pending before the federal court. No injunction has
been issued requiring Coram to continue to perform under the Master
Agreement; instead, following court hearings, the parties agreed to an
order providing for an orderly and efficient transition back to Aetna.
On July 20, 1999, Aetna also filed a counterclaim against Coram
in the federal court lawsuit and a motion to dismiss the claims of
Coram for fraud, misrepresentation and rescission of the Master
Agreement. In its counterclaim, Aetna has sued Coram for, among other
things, breach of the Master Agreement and for fraudulent
misrepresentation, contending Coram never intended to perform under
the Master Agreement. Aetna seeks in excess of $100 million in the
lawsuit, plus punitive damages.
Coram began serving Aetna enrollees under the Master Agreement on
July 1, 1998. "Despite the disputes with Aetna, our Company provided
outstanding service to the Aetna home healthcare group," said Richard
M. Smith, Coram's Chief Executive Officer and President. Due to
termination of the Master Agreement, Aetna's failure to pay amounts
due thereunder and Aetna's misrepresentations, Coram was forced to lay
off 114 employees in its Whippany, New Jersey, office, who were
responsible for managing the Aetna Master Agreement. Coram has also
notified approximately 350 healthcare providers, who were contracted
with the Resource Network division to provide services in connection
with the Master Agreement, of the termination. As of 5:00 p.m. EDT,
July 23, 1999, Aetna assumed the service functions that were
previously performed by Coram under the Master Agreement for services
rendered after that time.
"Coram has worked diligently and professionally for the past four
weeks to accomplish the orderly transition back to Aetna," said Mr.
Smith. During this time, Aetna sought to obtain the intervention of
the Court to delay or impede the transition process. On July 28, 1999,
the Court entered an order resolving various disputed issues regarding
the transition and instructed the parties that it would be
inappropriate for either side to comment on the Court's decision.
Coram is complying with the Court's instruction, and is completely
satisfied with the manner in which these transition disputes have been
resolved.
Because of the actions of Aetna and the inability to resolve the
disputes with Aetna, and because of the uncertainties of litigation,
Coram will take a significant charge against second quarter earnings,
to be announced on or before August 16, 1999. "We are still evaluating
the financial impact of the contract on the Company," Mr. Smith said.
Total cash received in the 12 months under the contract was $79.6
million. Revenues under the Master Agreement with Aetna represented
about 8% of Coram's revenues in fiscal year ended December 31, 1998,
and 16% of Coram's revenues for the first quarter of 1999.
Coram intends to vigorously prosecute its claims in the federal
lawsuit and defend against Aetna's claims. Nevertheless, due to the
uncertainties inherent in litigation, the ultimate disposition of the
matters described above cannot presently be determined. An adverse
outcome in such litigation could have a material adverse effect on the
financial position, results of operations and liquidity of Coram.
Mr. Smith stated, "We are preparing a revised operational plan to
present to our debtholders and at this point, with their support, we
anticipate having and generating sufficient liquidity to fund
operations. It is our intention to outline this plan for the public at
the earliest appropriate opportunity."
"While this dispute with Aetna will significantly impact our
financial statements, we have reached a point whereby the issues are
primarily contained within a lawsuit. We look forward to pursuing our
claims against Aetna. Meanwhile my message to Coram employees and the
public is that we will not lose the momentum we have built in the
infusion business, Coram Prescription Services division, and the
Clinical Research and Medical Informatics division. Each will report
growth in net revenues for the second quarter," commented Mr. Smith.
Aside from services previously rendered under the Master
Agreement, Denver-based Coram is a leading provider of high-quality
home infusion therapy operating from 90 locations in 44 states and
Ontario, Canada. Through its Resource Network division, the Company
manages networks of home healthcare providers on behalf of managed
care plans and other payers. Coram's Prescription Services Division
provides pharmacy benefit management services as well as mail-order
prescription drugs for chronically ill patients. The Clinical Research
and Medical Informatics Division provides home care and product
development services to pharmaceutical, biotechnology and medical
device companies sponsoring clinical trials. Coram serves
approximately 260,000 patients per month through its operating
subsidiaries. For more information, visit Coram's web site at
www.coramhealthcare.com. |
