SERVICES AGREEMENT
BETWEEN
FLAGSHIP HEALTH, P.A.
and
PHYSICIANS QUALITY CARE, INC.
TABLE OF CONTENTS
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Page
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1. APPOINTMENT OF PQC; RETENTION OF CLINICAL AUTHORITY...................1
1.1. Appointment and Authority....................................1
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1.2. Retention of Authority.......................................1
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2. OBLIGATIONS OF MEDICAL GROUP..........................................2
2.1. Physician Personnel..........................................2
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2.2. Credentialing of Medical Group Physicians....................2
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2.3. Employment and Engagement of Medical Group Physicians........2
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(a) General.............................................2
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(b) Pods................................................3
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(c) Form of Agreements..................................3
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(d) Medical Group Physician Qualifications..............3
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2.4. Licensing and Accreditation..................................3
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2.5. Supervision and Direction of Clinical Staff..................3
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2.6. Liability Insurance..........................................3
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2.7. Medical Records..............................................4
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2.8. Assignment of Intellectual Property..........................5
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3. OBLIGATIONS OF PQC....................................................5
3.1. General......................................................5
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3.2. Facilities...................................................5
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3.3. Equipment and Office Furnishings.............................5
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3.4. Personnel and Payroll........................................5
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3.5. Borrowings...................................................6
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3.6. Supplies and Inventory.......................................7
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3.7. Contracts....................................................7
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3.8. Budgets......................................................7
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(a) General Preparation Principles......................7
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(b) Approval of Budgets.................................8
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(c) Reporting...........................................9
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3.9. Preparation of Tax Returns...................................9
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3.10. Charges......................................................9
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3.11. Billing and Collection.......................................9
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3.12. Payment of Accounts and Indebtedness........................10
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3.13. Power of Attorney for Billing and Payment of Accounts.......10
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3.14. Other ▇▇▇▇▇▇▇▇ and Charges..................................11
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3.15. Insurance...................................................11
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3.16. Other Administrative Services...............................12
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3.17. Development of Integrated Health Services...................12
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3.18. Advertising and Public Relations............................13
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4. MANAGEMENT FEE; FINANCIAL ARRANGEMENTS...............................13
5. TERM AND TERMINATION.................................................13
5.1. Term........................................................13
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5.2. Termination on Default......................................13
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5.3. Effect of Termination.......................................14
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6. JOINT POLICY BOARD; CERTAIN PROVISIONS REGARDING
GOVERNANCE OF MEDICAL GROUP...................................................15
6.1. Joint Policy Board..........................................15
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(a) Representation.....................................15
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(b) Authority and Responsibility.......................15
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(c) Voting; Procedures.................................17
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6.2. Medical Advisory Board......................................17
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6.3. The President of Medical Group..............................17
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6.4. The Medical Director of Medical Group.......................18
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6.5. Operating Manager...........................................19
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7. INTELLECTUAL PROPERTY................................................20
8. RESTRICTIVE COVENANTS................................................20
8.1. Noncompetition..............................................20
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8.2. Ancillary Enterprise........................................20
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8.3. Non-solicitation of Employees and Patients..................21
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8.4. Enforcement of Medical Group Physician
Employment Agreements.......................................21
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8.5. Remedies....................................................21
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9. MISCELLANEOUS........................................................21
9.1. Exclusivity.................................................21
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9.2. Names; Trademarks...........................................22
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9.3. Independent Contractors.....................................22
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9.4. [Reserved]..................................................22
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9.5. Severability................................................22
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9.6. Waiver......................................................22
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9.7. Notices.....................................................22
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9.8. Entire Agreement............................................22
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9.9. Amendment...................................................23
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9.10. Successors and Assigns......................................23
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9.11. Governing Law...............................................23
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9.12. Headings....................................................23
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9.13. No Obligation to Third Parties..............................23
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9.14. Contract Modifications for Prospective Legal Events.........23
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9.15. Availability of Certain Documents...........................24
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9.16. Gender......................................................24
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APPENDIX A............................................................................. 1
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APPENDIX B..............................................................................1
SCHEDULE B-1............................................................................5
APPENDIX C..............................................................................1
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APPENDIX D..............................................................................2
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EXHIBIT A...............................................................................1
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FLAGSHIP HEALTH, P.A.
SERVICES AGREEMENT
This Agreement (this "Agreement") is made as of November 30, 1996 by
and between Physicians Quality Care, Inc., a Delaware corporation ("PQC"), and
Flagship Health, P.A., a Maryland professional association ("Medical Group").
(All capitalized terms not defined below in this Agreement shall have the
meanings set forth in Appendix A or B attached hereto.)
WHEREAS, Medical Group has entered into a business arrangement with PQC
in order to help effectuate the parties' mutual vision of establishing a high
quality, competitive, cost-effective health care delivery system, as part of
which Medical Group and PQC will work together to enhance the efficiency of the
business aspects of Medical Group's practice, to promote the quality of care and
patient satisfaction, and to create sufficient economies of scale to permit
Medical Group to undertake risk-based managed care obligations;
WHEREAS, Medical Group engages in the provision of medical and surgical
services through its physicians (each a "Medical Group Physician" and
collectively the "Medical Group Physicians"), who currently practice in a number
of divisions (each a "Pod"), each of which may have one (1) or more Practice
Locations; and
WHEREAS, Medical Group wishes to retain PQC to provide or arrange for
comprehensive management, administrative and other support services to manage
Medical Group and each Pod in order better to serve its patients, enhance
efficiency, and improve financial results of operation of the Medical Group's
activities.
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereby agree as follows:
1. APPOINTMENT OF PQC; RETENTION OF CLINICAL AUTHORITY
1.1. Appointment and Authority. Medical Group hereby appoints and
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engages PQC as Medical Group's sole and exclusive business manager and PQC
accepts such appointment and engagement on and subject to the terms and
conditions set forth in this Agreement. Subject to the terms of this Agreement,
including applicable requirements of consultation and prior approval of the
Joint Policy Board, PQC shall have the authority and responsibility to: (i)
manage all business operations of Medical Group in an efficient and
cost-effective manner; (ii) provide or arrange for such services in any manner
as PQC, in the exercise of its reasonable business judgment, deems appropriate
to meet the day-to-day requirements of the business functions of Medical Group;
and (iii) negotiate and execute, on behalf of Medical Group, all contracts that,
in the exercise of PQC's reasonable business judgment, are necessary and
appropriate for the business and affairs of Medical Group, subject, in the case
of Payor Contracts, to the approval of the Joint Policy Board.
1.2. Retention of Authority. Notwithstanding anything to the
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contrary in this Agreement, Medical Group will have exclusive authority and
control over the provision of
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medical services, including all diagnoses, treatment and ethical determinations
with respect to patients. All diagnoses, treatments, procedures and other
medical and professional services shall be provided and performed exclusively by
or under the supervision of a physician employed or otherwise engaged by Medical
Group who meets the qualifications set forth in this Agreement. It is
acknowledged that PQC is not authorized nor qualified to engage in any activity
that constitutes the practice of medicine. To the extent, if any, that any act
or service of PQC under this Agreement is determined to constitute the practice
of medicine, the performance of such act or service by PQC shall be deemed
waived and excused by Medical Group.
2. OBLIGATIONS OF MEDICAL GROUP
2.1. Physician Personnel. Medical Group, subject to oversight by the
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Medical Advisory Board, shall be solely responsible for all determinations with
respect to an individual physician concerning the recruitment, hiring,
termination, credentialing, training and supervision of such physician. PQC
shall not exercise any control over nor have any responsibility for Medical
Group Physicians or other Clinical Staff (as defined in Section 2.5) with
respect to the provision of clinical services.
2.2. Credentialing of Medical Group Physicians. Medical Group, through
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the Medical Advisory Board, shall credential its physicians in conformance with
the requirements imposed under state and federal law and by the terms of any
third party payment agreement to which the Medical Group is bound. Medical Group
shall assure that each Medical Group Physician at all times is: (i) duly
licensed to practice medicine by the applicable state within the Geographic Area
(as defined in Section 10.8 of Appendix A); and (ii) a member in good standing
of the medical staffs of hospitals designated from time to time by the Joint
Policy Board or as may be necessary in connection with the participation in one
(1) or more Payor Contracts negotiated on Medical Group's behalf by PQC. No
physician other than those Medical Group Physicians who meet the requirements
and qualifications of this Agreement, including without limitation Section 2.3,
shall be permitted: (a) to use or occupy the Pod Practice Locations, except as
approved by the Joint Policy Board; or (b) except as may be required to assure
appropriate medical care (e.g., locum tenens coverage), to render services to
patients of Medical Group. New physicians may be employed by Medical Group, or
physician groups or practices may be acquired by Medical Group, subject to
approval of the Joint Policy Board and the Medical Advisory Board.
2.3. Employment and Engagement of Medical Group Physicians.
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(a) General. During the term of this Agreement, Medical Group, through
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its Pods, shall operate and maintain a full-time practice of
medicine providing primary care, medical and surgical specialty
services and such other services as are agreed upon by the Joint
Policy Board and PQC. Medical Group shall engage a sufficient
number of Medical Group Physicians to provide services to patients
of Medical Group during the normal office hours of the Practice
Locations and to provide after hours coverage for all patients of
Medical Group whether on an inpatient or outpatient basis;
provided, however, that a Pod may close its practice to new
patients for such period as the Joint Policy
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Board may determine to be necessary in the event the Pod has
reached capacity.
(b) Pods. Each Medical Group Physician hired or otherwise engaged by
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Medical Group shall be a member of a Pod and shall provide
services at the Practice Locations associated with that Pod.
(c) Form of Agreements. Medical Group shall maintain employment
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agreements with all Medical Group Physicians (individually, an
"Employment Agreement"). Such Employment Agreements shall be in
substantially the form attached hereto as Annex A with such
changes as may be agreed upon by PQC and Medical Group and
approved by the Joint Policy Board. Except as otherwise expressly
provided in this Agreement, Medical Group shall not amend any
Employment Agreements nor waive any rights thereunder without the
prior written approval of PQC. Except as otherwise expressly
provided in this Agreement, Medical Group shall not offer, agree
to or amend any salary, benefit or other compensation terms with a
Medical Group Physician except as expressly approved by PQC in
writing.
(d) Medical Group Physician Qualifications. Medical Group shall assure
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that each Medical Group Physician meets at all times each of the
qualifications set forth in the approved form of Employment
Agreement in addition to any other qualifications reasonably
established by the Medical Advisory Board and PQC. In the event
that any disciplinary, malpractice or other actions are initiated
against any Medical Group Physician, the Medical Group, through
the Medical Advisory Board, shall immediately inform PQC of such
action and shall inform PQC of the underlying facts and
circumstances.
2.4. Licensing and Accreditation. Medical Group, through the Medical
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Advisory Board, shall ensure that all Medical Group Physicians maintain such
licenses and certifications as are reasonably necessary for the provision of
medical services by Medical Group and all Medical Group Physicians in a manner
that complies with all laws and applicable third-party payor requirements.
Medical Group shall obtain and maintain such additional licenses and
accreditations as the Medical Advisory Board and PQC mutually determine are
advisable. Medical Group shall conduct its medical practice in compliance with
all applicable laws and all applicable contractual requirements.
2.5. Supervision and Direction of Clinical Staff. (As used in this
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Agreement, the term "Clinical Staff" shall mean nurses and any other
non-physician clinical personnel and shall not include Medical Group Physicians
or any other physician.) Medical Group Physicians shall supervise and direct the
Clinical Staff. Medical Group shall assure that all Clinical Staff members
perform only those duties permitted by applicable law and regulation to be
performed by such personnel, and only under such supervision and in such a
manner as permitted by applicable law and regulation.
2.6. Liability Insurance. Medical Group shall assure that each
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Medical Group Physician maintains in effect a policy of professional liability
insurance in accordance with
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the Medical Group Physician's employment agreement. Medical Group shall maintain
in effect a policy of comprehensive general liability and professional liability
insurance in the minimum amount of $1,000,000 per occurrence or claim and
$3,000,000 annual aggregate, or such greater amount as is required by the Joint
Policy Board or by law, to cover Medical Group, Medical Group Physicians and
Clinical Staff. In addition, Medical Group shall maintain in effect (i)
comprehensive general liability insurance with limits and a deductible
reasonably determined by PQC and the Joint Policy Board and (ii) property damage
insurance covering all Practice Locations and equipment with limits and
deductibles reasonably determined by PQC and the Joint Policy Board. Each such
policy shall name PQC as an additional insured. As set forth in Section 3.15,
PQC shall be responsible for administering Medical Group's insurance policies
required under this Section 2.6.
2.7. Medical Records. Medical Group, through its Pods, shall maintain
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and cause each Medical Group Physician to maintain accurate and complete patient
records in accordance with all applicable laws and regulations. Such records
shall be maintained by Medical Group in a manner sufficient to enable PQC, on
behalf of Medical Group, to ▇▇▇▇ and collect for the services provided by
Medical Group and Medical Group Physicians. Subject to the requirements of
applicable law, Medical Group shall permit PQC to access the patient records to
perform its duties under this Agreement, including, without limitation, billing
and collection services. All patient medical records relating to services
rendered by Medical Group and Medical Group Physicians shall be and remain the
property of Medical Group.
Medical Group hereby grants to PQC the exclusive right to develop and
commercialize any statistical data base or other quality assurance, utilization
review or medical management data base or software program derived from Medical
Group's medical records (collectively, "Medical Data") and agrees to include in
all patient consent forms a mutually agreeable provision permitting the
commercialization of such Medical Data; provided, however, that PQC shall in all
events delete or otherwise disguise any patient identifying information such as
the name or street address of a patient and comply with all applicable laws
concerning patient confidentiality. If PQC determines to commercialize any
Medical Data derived solely from medical records of Medical Group, then PQC
shall offer to Medical Group a right of first refusal to participate in the
effort to commercialize such Medical Data on terms consistent with those set
forth in Section 3.17 with respect to the development of Integrated Health
Services. If PQC determines to commercialize any Medical Data derived from both
Medical Group and other PQC-managed physician practices, then prior to entering
into any arrangement to commercialize such Medical Data, PQC shall solicit the
advice of the Medical Advisory Board, which may make a recommendation to PQC's
National Medical Advisory Board, concerning an allocation of revenue from such
commercialization to Medical Group and any other medical group or entity also
contributing data or software to the commercialization effort in a manner that
is fair and not inconsistent with PQC's legitimate business objectives and its
obligations to its shareholders. The recommendation, if any, of the National
Medical Advisory Board shall be considered by PQC in reaching its determination
concerning any commercialization of Medical Data and the allocation of proceeds
thereof, but ultimate decision-making authority with respect to such
commercialization and any recommended allocation of proceeds thereof shall
remain exclusively within the discretion of the Board of Directors of PQC and
Medical Group shall
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have no right to any allocation of proceeds except and to the extent, if any,
authorized by the Board of Directors of PQC after consultation as set forth in
this Section 2.7.
2.8. Assignment of Intellectual Property. Medical Group hereby assigns
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to PQC (i) any Intellectual Property rights that Medical Group acquires or
develops during the term of this Agreement and (ii) agrees to cause each Medical
Group Physician to assign to PQC such Intellectual Property rights as may be
specified in, and subject to the terms of, the applicable employment agreement,
as the case may be.
3. OBLIGATIONS OF PQC
3.1. General. Subject to Medical Group's control of the practice of
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medicine, PQC shall have authority and responsibility to conduct, supervise and
manage the day-to-day business operation of Medical Group and shall be
responsible for providing the services set forth in this Section 3 to Medical
Group. All services, facilities, furniture, fixtures and equipment provided by
PQC under this Agreement shall be in a manner consistent with community
standards for a medical practice of similar size. Notwithstanding anything in
this Agreement to the contrary, the parties realize that development of
appropriate reporting systems for financial and utilization information and
similar tools designed to support the efficient management and development of
Medical Group should be a collaborative process between the parties, and
accordingly the parties agree to work together to develop such tools,
particularly during the initial months following the Effective Date.
3.2. Facilities. PQC shall arrange for Medical Group to use the
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premises at the locations listed on Schedule 2 which may be amended by PQC from
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time to time (collectively, the "Practice Locations"), subject to the terms of
any leases for the premises entered into from time to time by Medical Group or
PQC, as the case may be, and subject to approval of the Joint Policy Board. PQC
shall provide or arrange for routine maintenance and cleaning services for the
Practice Locations required to cause the Practice Locations to satisfy the
standard set forth in Section 3.1.
3.3. Equipment and Office Furnishings. PQC shall arrange for Medical
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Group to have use of such equipment and office furnishings reasonably deemed
necessary by PQC, in consultation with the Joint Policy Board, for the operation
of Medical Group at each Practice Location (the "Equipment") in a manner
consistent with community standards for a medical practice of similar
characteristics. PQC shall arrange for reasonable and necessary repair and
maintenance of the Equipment. In connection with PQC's obligation hereunder,
Medical Group shall notify PQC immediately upon becoming aware of any Equipment
in need of repair.
3.4. Personnel and Payroll. PQC shall arrange for the provision to
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Medical Group of all administrative personnel deemed necessary by PQC, in
consultation with the Joint Policy Board, for the operation of Medical Group
(the "Administrative Staff"). PQC shall also arrange for the provision to
Medical Group of all Clinical Staff reasonably deemed necessary by PQC, in
consultation with Medical Group and the Joint Policy Board, for the efficient,
professional operation of Medical Group. All members of the Clinical Staff shall
be employees of Medical Group. All members of the Administrative Staff on the
Effective Date
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shall be employees of Medical Group. Subject to the provisions of Section 2.5
and this Section and in consultation with Medical Group and the Joint Policy
Board, PQC shall be responsible for recruiting, hiring, discharging and
determining the compensation, benefits and conditions of employment of the
Administrative Staff and Clinical Staff. PQC shall perform all payroll and
payroll accounting transactions for the Administrative Staff, the Clinical Staff
and the Medical Group Physicians. Any member of the Administrative Staff and
Clinical Staff may, upon assignment by PQC following consultation with the
affected Pods, provide services to more than one (1) Pod. If any Medical Group
Physician is dissatisfied with the services of any employee who provides
services for such Medical Group Physician at a Practice Location, PQC, after
consultation with the Joint Policy Board, shall in good faith determine whether
the performance of that employee could be brought to acceptable levels through
counsel and assistance, or whether the employment of such employee should be
terminated. If PQC determines to retain such employee and the Medical Group
Physician is still dissatisfied with such employee's services after a two (2)
month period, PQC shall either relocate such employee or otherwise cease to use
such employee unless PQC reasonably determines that such termination may expose
Medical Group to liability.
3.5. Borrowings.
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(a) All borrowings of Medical Group shall be subject to prior
approval by the Joint Policy Board. Upon receipt of such
approval to borrow funds on behalf of Medical Group, PQC shall
arrange for such borrowing on behalf of Medical Group on terms
approved by the Joint Policy Board pursuant to Section 6.
1(b)(i) and in accordance with the Practice Expense definition
set forth provisions in Section 10.22 of Appendix A. In
addition to or in lieu of the foregoing, and subject always to
prior approval by the Joint Policy Board, PQC may in its sole
discretion make loans to Medical Group from time to time to
fund capital expenditures or working capital of the Medical
Group, in each case on such terms and conditions as are agreed
upon by the parties and the Joint Policy Board.
(b) In the event that during the Fiscal Periods ended December 31,
1997 and December 31, 1998, Medical Group does not receive
distributions under Appendix B hereto equal to the full
Baseline Amount (as defined in Section 10.2 of Appendix A)
(minus the amount necessary to pay all Deductible Expenses);
due to (a) a failure by PQC to assist Medical Group in
establishing additional revenue sources from services other
than professional services so as to increase Practice
Revenues, or (b) such other cause as may be approved by the
Joint Policy Board, PQC shall loan to Medical Group an amount
not to exceed an aggregate of $1,000,000 at any one time
outstanding on a non-interest bearing basis to cover such
shortfalls in Baseline Amount, and in no event shall PQC
Direct Expenses be included in determining whether a shortfall
in Baseline Amount exists (the "Loan"). The Loan shall be
carried on the balance sheet of Medical Group and shall be
repaid in successive Fiscal Periods from the first available
dollars of Net Margin allocable to Medical Group. In the event
PQC undertakes a public offering of securities at any time
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prior to which the Loan has been repaid in full, the parties
agree to consider in good faith whether interest on the Loan
should be assessed at a fair market interest rate in order to
comply with then applicable health care laws.
3.6. Supplies and Inventory. PQC shall be responsible for all inventory
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systems of Medical Group at each Practice Location and for the ordering,
purchasing and maintenance of all supplies and inventory necessary for the
operation of Medical Group. All drugs shall be purchased and maintained by
Medical Group or, at PQC's discretion and to the extent consistent with
applicable law, on behalf of Medical Group by PQC.
3.7. Contracts. PQC shall negotiate and administer contracts for
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equipment, materials, supplies and data processing services for the Medical
Group and for each Pod. PQC shall seek, review, evaluate and negotiate Payor
Contracts on behalf of Medical Group. Medical Group agrees to enter into and be
bound by all such Payor Contracts negotiated on its behalf by PQC; provided,
however, that any such Payor Contract must be approved in advance by the Joint
Policy Board. If required by applicable law, such contracts will be entered into
in the name of Medical Group. PQC shall arrange for administrative support
appropriate to fulfill reporting requirements under Payor Contracts, such as
eligibility verification and financial and utilization reporting.
3.8. Budgets.
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(a) General Preparation Principles.
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(i) PQC, acting through the Operating Manager in
cooperation with a Physician representative (the
"Representative") of the Pod, shall have
responsibility for the preparation of budgets for
each Pod (a "Pod Budget").
(ii) Each Pod Budget shall consist of an operating budget
(revenues and expenses) and an annual capital
expenditures budget, prepared on an accrual basis of
accounting and in conformity with generally accepted
accounting principles.
(iii) PQC shall prepare, with input from the Joint Policy
Board, budget guidelines ("Budget Guidelines") that
PQC shall then follow in the preparation of each Pod
Budget. Examples of possible Budget Guidelines
include but are not limited to the following:
(A) each Pod Budget shall be constructed
on management policies that enable
the Pod to achieve its financial
goals (profit from operations);
(B) each Pod Budget shall provide
specific detail sufficient for the
Pod Physicians and PQC to evaluate
and prioritize changes in programs
and capital expenditures;
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(C) each Pod Budget period shall be for a
twelve (12) month period ending December
31 or, for the initial Pod Budget for
each newly formed Pod, such shorter
period ending December 31 as is
appropriate; and
(D) each Pod Budget shall be prepared on a
pre-physician compensation, pre-
management fee and pre-tax basis.
(iv) PQC shall prepare the initial Pod Budgets for each
Pod using available historical financial information.
PQC shall follow the Budget Guidelines and identify
budget preparation assumptions that deviate from the
acquired medical group's historical financial
information. Subsequent Pod Budgets shall be prepared
in a similar manner by PQC (on the basis of the prior
year's results) and take into account deviations from
the Pod Budget that occurred in the prior year.
(b) Approval of Budgets. The Joint Policy Board shall have the
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responsibility for and authority to approve each Pod Budget.
PQC shall submit each Pod Budget to the Joint Policy Board for
approval on a timely basis. Once approved in accordance with
this Section 3.8(b), all of PQC, Pod and Pod Physicians shall
be bound by the terms of the approved Pod Budget for the
following twelve (12) month period or such lesser period as
may be provided for in the Budget Guidelines, subject only to
any modifications suggested by PQC and/or Pod Physicians and
approved by the Joint Policy Board. At any point during a
Fiscal Period, including for example if the actual Physician
Pod Practice Revenues less actual Physician Pod Practice
Expenses is below budgeted levels for such Physician Pod or if
there is an actual or projected negative Net Margin the Joint
Policy Board may review the budgets for such Physician Pod and
make such changes to such budgets, including the aggregate Pod
Distributions (as defined in Section 3 of Appendix A to the
Employment Agreements), as the Joint Policy Board deems to be
appropriate. All capital and operating budgets, and changes
thereto, also shall be subject to the approval of PQC. The
Joint Policy Board shall not unreasonably withhold its
approval of a Pod Budget but if such approval is not
forthcoming, the following process shall prevail so that the
Pod may remain open to treat patients:
(i) If, prior to the commencement of any budget period,
the Joint Policy Board has not yet approved the Pod
Budget, then PQC and Medical Group will work
diligently in good faith to obtain such approval.
Until such approval is obtained, the following
procedures shall apply:
(A) as to any disputed line items, the
immediately preceding budget
period's Pod Budget shall be
controlling until such time, if any,
as agreement is reached on the
amounts to be allocated to such
disputed line items, except that:
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(1) non-recurring extraordinary items
shall not be continued from the Pod
Budget for the immediately preceding
budget period;
(2) if items such as lease payments or
payroll taxes are subject to an
automatic increase, such increases
shall be effective at the increased
rate; and
(3) for items such as personnel
salaries, the total salary number
shall be adjusted to take into
account changes in the number and
classifications of personnel members
employed or contracted; and
(B) as to any line items which are not in
dispute, the new Pod Budget submitted by
PQC shall be effective for the new budget
period.
(c) Reporting. PQC shall establish and administer the accounting
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procedures and control for Medical Group and the Pods in
accordance with generally accepted accounting principles. PQC
shall have the responsibility to prepare and submit to each
Pod and to the Joint Policy Board as soon as practicable after
the end of each month, but in any event within forty-five (45)
days of the end of each month, management reports designed to
convey Pod financial performance for the month and on a
year-to-year basis. PQC shall design the management reports to
highlight actual financial performance and actual to budget
variances in the Pod's financial performance. Additionally,
PQC shall from time to time attempt to identify, discuss with
the Joint Policy Board and implement appropriate management
intervention to counter adverse financial trends.
3.9. Preparation of Tax Returns. PQC shall prepare any and all required
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tax returns of Medical Group but shall not have responsibility for preparation
of individual tax returns or other tax returns (e.g., IRS forms W-2s, 5500s,
etc.) for any Medical Group Physician or for any entity of which such Medical
Group Physician was a shareholder, partner, member, or employee prior to the
date of execution of this Agreement.
3.10. Charges. PQC shall advise Medical Group on the establishment,
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maintenance and revision of a schedule of charges for physician services,
ancillary services, supplies, medication and all other services rendered by
Medical Group through each Pod. Revisions to the fee schedule of a Pod must be
approved by the Joint Policy Board.
3.11. Billing and Collection. PQC shall provide or arrange for such
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billing and collection services as are reasonably necessary to attempt to
collect in a timely manner all
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Practice Revenues, including without limitation all allowable charges resulting
from Medical Group's provision of all billable items and services.
3.12. Payment of Accounts and Indebtedness.
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(a) PQC shall review the payables of Medical Group and shall cause
payment of any undisputed amounts thereof to be made out of
the funds of Medical Group. In addition to billing, collecting
and payment services, PQC shall manage the cash and cash
equivalents of Medical Group.
(b) All Practice Revenues shall be deposited in one or more bank
accounts maintained in the name of and owned by Medical Group
(collectively, the "Medical Group Account") but managed solely
by PQC in accordance with the terms of this Agreement. The
bank in which the Medical Group Account is maintained shall be
federally insured and shall be selected by PQC subject to
approval by the Joint Policy Board. A representative of PQC
shall be the authorized signatory for the Medical Group
Account. Medical Group hereby appoints the Medical Group
Shareholder as an additional authorized signatory for the
Medical Group Account. Medical Group covenants that it will
not permit any funds to be withdrawn from the Medical Group
Account except as authorized by PQC in accordance with the
terms of this Agreement.
3.13. Power of Attorney for Billing and Payment of Accounts. Medical
------------------------------------------------------
Group hereby exclusively authorizes PQC to take the following actions for and on
behalf of and in the name of Medical Group throughout the term of this Agreement
and thereafter in accordance with Section 5:
(a) ▇▇▇▇, in Medical Group's name, under its provider number when
obtained and on its behalf, and until such time as Medical
Group has obtained its provider number, ▇▇▇▇, in the Medical
Group Physicians, names under their respective provider
numbers and on their behalf, all claims (including co-payments
due from patients) for reimbursement or indemnification from
all other Payors, fiscal intermediaries or patients for all
covered items and services provided by Medical Group or by the
Medical Group Physicians to patients;
(b) take possession of and endorse in the name of the Medical
Group Physicians or Medical Group, all cash, notes, checks,
money orders, insurance payments, and any other instruments
received as payment of accounts receivable (and Medical Group
will cause an individual Medical Group Physician who receives
any payments for the benefit of Medical Group directly, to
deliver such amounts promptly to PQC for deposit in the
Medical Group Account, and Medical Group covenants to transfer
and deliver promptly to PQC for deposit in the Medical Group
Account, all funds received by Medical Group from patients or
Payors for medical services), all such funds to be deposited
directly into a Medical Group Account and to be applied in a
manner consistent with this Agreement;
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(c) deposit all collections directly into the Medical Group
Account and to make withdrawals from such Medical Group
Account for such purposes as are permitted by this Agreement;
(d) in Medical Group's name and on its behalf, and in the Medical
Group Physicians' names and on behalf of each of them, as
necessary, collect and receive all accounts receivable
generated by such ▇▇▇▇▇▇▇▇ and claims for reimbursement, place
such accounts for collection, settle and compromise claims and
institute legal action for the recovery of accounts; Medical
Group shall cooperate fully with PQC in facilitating such
collections and in collecting accounts receivable transferred
to PQC for deposit in the Medical Group Account by Medical
Group, including endorsement of checks and delivery to PQC of
all revenues in whatever form, received from patients or
Payors on their behalf, and completion of all forms necessary
for the collection of said monies; and
(e) sign checks on behalf of Medical Group and make withdrawals
from the Medical Group Accounts for payments specified in this
Agreement and as requested from time to time by Medical Group.
In addition to the foregoing, Medical Group, to the extent not
prohibited by law, hereby grants to PQC an exclusive power of attorney and
appoints PQC its exclusive true and lawful attorney in fact to take each of the
actions specified in Sections (a) through (e) above for and on behalf of and in
the name of Medical Group throughout the term of this Agreement and thereafter
in accordance with Section 5.
Upon request of PQC, Medical Group shall, and shall cause each of the
Medical Group Physicians to, execute and deliver to PQC and to each financial
institution wherein Medical Group or PQC maintains an account, such additional
documents or instruments (including one (1) or more powers of attorney naming
PQC as its or their, as the case may be, exclusive true and lawful attorney in
fact) as may be necessary or desirable to evidence or effect the authority or
the power of attorney or both granted to PQC pursuant to this Section.
3.14. Other ▇▇▇▇▇▇▇▇ and Charges. PQC shall serve as Medical Group's
---------------------------
exclusive billing agent. Medical Group covenants that neither it nor any Medical
Group Physician shall ▇▇▇▇ or submit a statement of charges to, or enter into
any agreement or, except in the event of an emergency, any undertaking with, any
patient, third person or entity for the provision of items and services (with or
without consideration), nor shall it make any surcharge for care without the
prior written authorization and approval of PQC.
3.15. Insurance. PQC, on behalf of Medical Group, shall negotiate,
----------
obtain, and maintain with such licensed insurance companies as are reasonably
acceptable to the Joint Policy Board the policies of general liability, fire and
property insurance that satisfy the requirements of Section 2.6. PQC shall
furnish certificates of insurance to Medical Group evidencing the coverage set
forth in this section upon request by Medical Group. Subject to approval by the
Joint Policy Board, PQC may arrange for a group professional liability
-11-
insurance policy covering Medical Group Physicians that would satisfy Medical
Group's obligations under 2.6.
3.16. Other Administrative Services. In addition to the business and
------------------------------
administrative services specifically described above in this Section 3, PQC
shall be responsible for providing all other administrative services necessary
to the business operations of Medical Group, including without limitation human
resource services, administrative support for Medical Group's recruitment
efforts, management information systems (including development on a uniform data
base across all PODs), accounting services and systems, and advertising, sales
and marketing services.
3.17. Development of Integrated Health Services. Neither PQC nor any
------------------------------------------
Affiliate shall provide Integrated Health Services in the Geographic Area unless
PQC gives Medical Group the option to be the exclusive provider of these
services, as provided in this Section. To that end, if PQC or one (1) of its
Affiliates proposes to provide any Integrated Health Service in the Geographic
Area, PQC shall notify Medical Group and the Joint Policy Board of the nature of
the service and the terms upon which PQC or its Affiliate proposes to provide
the service, and the Joint Policy Board, on behalf of Medical Group, shall have
forty-five (45) days during which to elect to participate in the provision of
such Integrated Health Service in the Geographic Area on such terms as are
mutually acceptable to Medical Group and PQC. Any such proposal shall specify
the proposed manner in which the net revenues (meaning all receipts from such
Integrated Health Services less all expenses attributable to such Integrated
Health Services, determined in accordance with generally accepted accounting
principles) shall be allocated between Medical Group and PQC, but to the extent
permitted by law in any event such proposal shall offer to Medical Group the
right to receive an allocation to the Variable Distribution Pool (as defined in
the Employment Agreements) of at least fifty percent (50%) of the net revenues
attributable to such Integrated Health Service provided that as a condition
thereof Medical Group shall agree that a percentage of any net loss attributable
to such Integrated Health Service equal to the percentage of net revenues
attributable to such Integrated Health Service shall be offset against amounts
otherwise allocable to Medical Group under Appendix B in any one (1) or more
Fiscal Periods thereafter occurring. Medical Group shall not agree to
participate in any Integrated Health Service or fail to elect to participate in
such Integrated Health Service except as approved by and on such terms as have
been approved by the Joint Policy Board. If Medical Group does not elect to
participate in such Integrated Health Service in the Geographic Area within such
forty-five (45) day period, PQC may, but shall not be obligated to, provide such
Integrated Health Service directly or through another Affiliate or subsidiary
(but in no event through or with any outside third party without the prior
consent of the Joint Policy Board) and Medical Group shall have no right to
participate in the revenues or income from such Integrated Health Service;
provided, however, that PQC shall not directly or indirectly provide such
Integrated Health Service if within such forty-five (45) day period the Medical
Advisory Board reasonably determines and notifies PQC that the provision of such
services have not been determined to be clinically efficacious, are clinically
dangerous, or would otherwise adversely affect the reputation of PQC and/or
Medical Group as to quality of care.
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3.18. Advertising and Public Relations. PQC shall design and implement
---------------------------------
local public relations and advertising programs, subject to approval by the
Joint Policy Board. In the event that there is any adverse incident involving
Medical Group or any Medical Group Physician or patient, any public statement
and announcement by or on behalf of Medical Group or any Medical Group Physician
shall be approved in advance by PQC.
4. MANAGEMENT FEE; FINANCIAL ARRANGEMENTS
In consideration for the services furnished by PQC to Medical Group
under this Agreement and in order to encourage the cost-effective management of
the Medical Group, PQC shall be entitled to receive, and Medical Group hereby
agrees to pay PQC, an aggregate management fee calculated under the formulas set
forth in Appendix B hereto.
5. TERM AND TERMINATION
5.1. Term. The term of this Agreement shall commence on the date first
----
written above and shall continue until the date forty (40) years thereafter,
unless terminated earlier in accordance with this Agreement. After the
expiration of the initial forty (40) year term, this Agreement shall
automatically renew for successive forty (40) year terms unless sooner
terminated in accordance with the provisions hereof.
5.2. Termination on Default.
-----------------------
(a) Either party shall be entitled to terminate this Agreement if
the other party fails to perform in any material respect any
material obligation required of it hereunder, and such default
continues for sixty (60) days after the giving of written
notice by the nondefaulting party, specifying the nature and
extent of such default; provided, however, that the non-
-------- -------
defaulting party shall not be entitled to terminate this
Agreement if the defaulting party commences the cure of such
default within the first sixty (60) day period and thereafter
diligently and in good faith continues to cure such default
until completion.
(b) Termination at election of PQC. PQC shall be entitled to
terminate this Agreement upon written notice to Medical
Group if:
(i) a law firm with a nationally recognized expertise in
health care law and acceptable to PQC and the Joint
Policy Board renders an opinion to PQC, with a copy
provided to the Joint Policy Board, stating that a
material provision of this Agreement is in violation
of applicable law, and the parties do not agree to
amend this Agreement pursuant to Section 9.14 hereof
to cure such violation; or
(ii) any court or regulatory agency enters an order
finding a material provision of this Agreement is in
violation of applicable laws and the parties do not
agree to amend this Agreement pursuant to Section
9.14 hereof to cure such violation; or
-13-
(iii) PQC is prevented by Medical Group or any person under
the Medical Group's direction or control, from
entering any material portion of the Pod Practice
Locations considered on any aggregate basis, and such
inability to enter such premises continues for more
than forty-eight (48) hours after notice thereof to
the Joint Policy Board.
(c) Termination by Medical Group. Notwithstanding Section 5.2(a),
Medical Group may terminate this Agreement (if and only if
such termination has been approved by the Joint Policy Board)
for the reasons set forth below:
(i) upon written notice to PQC of the failure of PQC to
remit any funds or make any payments required under
this Agreement when due and continued failure to
remit those funds or make the payment after thirty
(30) days notice of such failure to PQC unless the
amount of such payment is being contested in good
faith; or
(ii) a law firm with a nationally recognized expertise in
health care law and acceptable to PQC and the Joint
Policy Board renders an opinion to the Medical Group,
with a copy provided to the Joint Policy Board,
stating that a material provision of this Agreement
is in violation of applicable law, and the parties do
not agree to amend this Agreement pursuant to Section
9.14 hereof to cure such violation; or
(iii) any court or regulatory agency enters an order
finding a material provision of this Agreement is in
violation of applicable laws, and the parties do not
agree to amend this Agreement pursuant to Section
9.14 hereof to cure such violation.
Medical Group shall take appropriate action to terminate this
Agreement pursuant to this Section (c) if recommended by the
Joint Policy Board.
5.3. Effect of Termination. Upon termination of this Agreement
----------------------
pursuant to this Section 5:
(a) PQC and Medical Group shall cooperate and continue to perform
their obligations under this Agreement as may be necessary to
ensure the provision of proper care to patients under
treatment, consistent with applicable law concerning
continuation of benefits under Payor Contracts, until
appropriate alternative arrangements are made.
(b) Medical Group and PQC shall cooperate to ensure the
appropriate billing and collection for all health care items
and services provided by Medical Group prior to the effective
date of termination, and any proceeds of such ▇▇▇▇▇▇▇▇ or
collections shall be retained by Medical Group and/or paid to
PQC in accordance with the terms of this Agreement.
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(c) Any amounts due and owing to PQC under any loan to Medical
Group shall become immediately due and payable, subject to
offset for amounts owed hereunder by PQC to Medical Group.
(d) Medical Group shall reimburse PQC for all drug and
pharmaceutical inventory retained by Medical Group following
termination to the full extent of funds advanced by PQC for
the purchase of such inventory pursuant to Section 3.6.
(e) Provisions of this Agreement shall survive any termination if
so provided herein or if necessary or desirable fully to
accomplish the purposes of such provision.
6. JOINT POLICY BOARD; CERTAIN PROVISIONS REGARDING
GOVERNANCE OF MEDICAL GROUP
6.1. Joint Policy Board. Medical Group and PQC shall establish
-------------------
and maintain the Joint Policy Board, which shall have the representation,
responsibility and authority described below.
(a) Representation. For purposes of this Agreement, "Physician
--------------
Members" means only those Medical Group Physicians whose
Employment Agreement permits them to share in Net Revenues as
provided in Appendix B. The Joint Policy Board shall consist
of nine (9) individuals: four (4) elected by plurality vote of
the Physician Members (the "Medical Group Representatives"),
at least one of whom must be a primary care physician; four
(4) appointed by PQC (the "PQC Representatives"), and the
President of Medical Group (who shall serve ex-officio with
vote). Each Medical Group Representative shall be a physician
selected for a three (3) year term by Physician Members. Each
Medical Group Representative may serve an unlimited number of
terms and shall serve until a successor is selected. The PQC
Representatives shall be appointed from time to time by PQC.
The Medical Group Representatives shall select, from among the
physicians who are members of the Joint Policy Board, the
Chair of the Joint Policy Board.
(b) Authority and Responsibility. The Joint Policy Board shall be
-----------------------------
responsible for periodically reviewing and making any
appropriate recommendations to PQC and the Board of Directors
of Medical Group regarding the operations of Medical Group,
and, to the extent expressly provided in this Agreement, shall
have the right to approve certain decisions by Medical Group
and PQC. Any amendment of this Agreement that would limit or
otherwise materially diminish the authority or responsibility
of the Joint Policy Board, including without limitation any
changes to this Section 6 or Appendix B, shall require the
prior approval of the Joint Policy Board. In addition, the
following actions shall require the affirmative vote of a
majority of the members of the Joint Policy Board:
(i) approval of all budgets and borrowings pursuant
to Section 6.1;
-15-
(ii) approval of the number and type of physicians
required for the efficient operation of Medical
Group;
(iii) review and approval of all advertising and other
marketing of the services performed by Medical Group;
(iv) approval of Integrated Health Services and the scope
of those services to be provided by Medical Group as
contemplated by Section 3.17;
(v) approval of the formation, maintenance and/or
termination of relationships with institutional
health care providers and payors, including Payor
Contracts in accordance with Section 3.7;
(vi) approval of all contracts material to Medical Group,
including all amendments to real property leases in
effect as of the date of this Agreement, and all the
terms of and amendments to real property leases
entered into after such date governing the space
utilized by any Medical Group Physician;
(vii) consideration and determination of non-clinical
matters raised by Medical Group Physicians;
(viii) approval of fee schedules and charges;
(ix) approval of business and strategic plans;
(x) approval of the Operating Manager;
(xi) approval of Medical Group's termination of a Medical
Group Physician on the basis of disability;
(xii) approval of any change in the Baseline Amount (as
defined in Section 10.2) to reflect the addition or
termination of Medical Group Physicians; and
(xiii) approval of the modification or waiver of the
restrictive covenants applicable to any Medical Group
Physician.
The Joint Policy Board may consult with Medical Group, PQC and any
Medical Group Physician before taking any action specified in this Section
6.1(b), but, except as otherwise provided in this Agreement, neither the
recommendations of Medical Group, PQC nor any Medical Group Physician shall be
binding on the Joint Policy Board. Any determination of the Joint Policy Board
pursuant to (i), (ii), (iii), (iv), (v), (vi), (xii) and (xiii) shall not be
effective unless approved by the Medical Group Shareholder.
-16-
(c) Voting; Procedures.
-------------------
(i) Each Medical Group Representative shall have one
(1) vote and shall have the right to grant his proxy
to another Medical Group Representative. Each of the
PQC Representatives and the President of Medical
Group shall have one (1) vote and shall have the
right to grant his proxy to another member of the
Joint Policy Board. No action of the Joint Policy
Board shall be effective unless authorized by a
majority of the members of the Joint Policy Board. A
quorum of the Joint Policy Board shall consist of at
least three (3) Medical Group Representatives and
three (3) PQC Representatives, present in person or
by proxy; provided, however, that if a meeting is
called and a quorum cannot be obtained within thirty
(30) days of notice of such meeting, then the quorum
requirement shall be automatically reduced for the
first meeting thereafter to a majority of the members
of the Joint Policy Board, present in person or by
proxy.
(ii) The Joint Policy Board shall meet from time to time
when a meeting is called by the chair or by three (3)
or more members of the Joint Policy Board upon at
least five (5) days' written notice to the other
members of the Joint Policy Board, which notice
requirement may be waived with respect to any member
of the Joint Policy Board by the attendance at such
meeting. The Joint Policy Board may also hold
meetings by telephone or act by written consent
according to procedures established by the Joint
Policy Board. Minutes shall be kept of all formal
actions taken by the Joint Policy Board. The Joint
Policy Board may appoint a secretary who is not a
member of the Joint Policy Board.
6.2. Medical Advisory Board. A Medical Advisory Board shall be
-----------------------
established, which shall be responsible for: (i) providing medical advice to
Medical Group on managed care contracting, including oversight of all
utilization review, risk management, and peer review functions required by any
Payor Contract; (ii) developing and disseminating, subject to Medical Group's
approval, medical protocols and quality and outcome measures for Medical Group
and the Physicians; (iii) advising Medical Group with respect to the number and
qualifications of physicians required for the efficient operation of Medical
Group's practice; and (iv) overseeing the recruitment by Medical Group and
credentialing of new physicians. The Medical Advisory Board shall consist of
seven (7) members. The members of the Medical Advisory Board shall be the
Medical Director of Medical Group and six (6) other licensed physicians elected
by a plurality vote of the Physician Members, of whom three (3) shall be primary
care physicians and three (3) shall be engaged in a specialist practice. The
Medical Director of Medical Group shall act as chair of the Medical Advisory
Board.
6.3. The President of Medical Group.
-------------------------------
(a) Medical Group shall appoint, in the manner set forth in
(b) below, a physician to act as President of Medical Group
who shall work in conjunction with PQC
-17-
in order to implement the policies established by the Joint
Policy Board. Such individual shall also be an employee of
PQC. Subject to the direction and supervision of the Medical
Group Shareholder, the duties of the President shall include,
without limitation:
(i) interfacing with representatives from the national
corporate offices of PQC;
(ii) implementing the business and strategic plans of
Medical Group and overseeing the business operation
of Medical Group; and
(iii) working with PQC representatives in negotiating and
interfacing with Payors and other regulatory
agencies.
The Medical Group Shareholder shall determine the salary and fringe
benefits of the President.
Subject to the By-Laws of Medical Group (which shall not be amended to reduce
the rights of the Medical Group Physicians under this section without the prior
consent of a majority of the Physician Members), the Physician Members shall
nominate by plurality vote three (3) candidates, who shall be primary care
physicians and who shall be Physician Members, for the position of President,
and the Medical Group Shareholder shall select one (1) candidate from among such
nominees to be President. In the event that there is a vacancy in the position
of President at any time for any reason, the Medical Group Shareholder shall
have the authority to appoint a person to serve as interim President until
another person is duly appointed in accordance with the above specified
procedures. The President shall serve part-time in this capacity until such time
as his responsibilities warrant full-time employment status. Notwithstanding the
foregoing, the President shall be a Medical Group Physician active in the
practice of medicine, until such time as the President's responsibilities
warrant full-time employment status with the Medical Group. The President shall
serve for an initial period of two (2) years which may be renewed for a maximum
of two (2) additional two (2) year terms, subject to the control of and review
by Medical Group. Medical Group may remove the President at any time in the
event that the employment agreement between the President and PQC is terminated,
but in such event the position of President may be filled by Medical Group
Shareholder for an interim period only until a successor to the position of
President has been appointed in accordance with the provisions of this Section
6.3(b). Medical Group shall assist in the development of procedures for the
nomination, appointment and replacement of the President in such a manner as to
ensure a smooth transition period in the medical practice of any individual who
assumes the position of the President.
6.4. The Medical Director of Medical Group.
--------------------------------------
(a) Medical Group shall hire and appoint a physician to act as
Medical Director to provide guidance and advice to Medical
Group on clinical issues. The duties of the Medical Director
shall include, without limitation:
-18-
(i) interfacing with the National Medical Advisory
Board of PQC and representing Medical Group on the
PQC National Medical Advisory Board;
(ii) chairing the Medical Advisory Board;
(iii) providing medical advice on managed care contracting
by Medical Group;
(iv) leading the development and dissemination of medical
protocols, quality and outcome measures; and
(v) overseeing the recruitment and credentialing of new
physicians.
The Medical Group Shareholder shall determine the salary and
fringe benefits of the Medical Director.
(b) Subject to the By-Laws of Medical Group (which shall not be
amended to reduce the rights of the Medical Group under this
Section without the prior consent of a majority of Physician
Members), the Physician Members shall nominate by plurality
vote three (3) candidates who shall be Physician Members for
the position of Medical Director, and the Medical Group
Shareholder shall select one (1) candidate from among such
nominees to be Medical Director. In the event that there is a
vacancy in the position of Medical Director at any time for
any reason, the Medical Group Shareholder shall have the
authority to appoint a person to serve as interim Medical
Director until another person is duly appointed in accordance
with the above specified procedures. The Medical Director
shall serve part-time in this capacity until such time as his
responsibilities warrant full-time employment status.
Notwithstanding the foregoing, the Medical Director shall be a
Medical Group Physician active in the practice of medicine,
until such time as the Medical Director's responsibilities
warrant full-time employment status with the Medical Group.
The Medical Director shall serve for an initial period of two
(2) years, which may be renewed for a maximum of two (2)
additional two (2) year terms, subject to the control of and
review by Medical Group. Medical Group shall assist in the
development of procedures for the nomination, appointment and
replacement for the Medical Director in such a manner as to
ensure a smooth transition period in the medical practice of
any individual who assumes the position of the Medical
Director. The Physician Members shall have the right to remove
the Medical Director upon a two-thirds (2/3) vote of all
Physician Members, but in such event the position of Medical
Director may be filled only in accordance with the provisions
of this Section 6.4(b).
6.5. Operating Manager. Subject to the reasonable approval of
------------------
the Joint Policy Board, PQC shall retain a full-time non-physician employee to
serve as an operating manager (the "Operating Manager"). The Operating Manager
shall manage and administer all of the
-19-
day-to-day business transactions necessary for the operation of Medical Group.
PQC shall determine the salary and fringe benefits of the Operating Manager, who
shall be an employee of PQC. At the direction, supervision and control of PQC,
the Operating Manager shall implement the policies established by Medical Group
and the Joint Policy Board and shall generally perform the duties and have the
responsibilities of an administrator.
7. INTELLECTUAL PROPERTY
Medical Group acknowledges that PQC will continually develop
Intellectual Property and that Medical Group may have access to and use
Intellectual Property during the term of this Agreement. Medical Group agrees
that, except as required for the proper operation of the medical practice in
accordance with applicable law and the terms of this Agreement, it will not,
directly or indirectly, use or disclose any Intellectual Property. Medical Group
understands and agrees that this restriction will continue to apply after the
termination of this Agreement for any reason.
Medical Group agrees that all Intellectual Property to which it has
access as a result of its relationship with PQC under this Agreement is and
shall remain the sole and exclusive property of PQC. Except as required for the
proper operation of the medical practice in accordance with applicable law and
the terms of this Agreement, Medical Group will not copy any documents, tapes or
other media containing Intellectual Property ("Documents"). Medical Group will
return to PQC immediately after this Agreement terminates, and at such other
times as may be specified by PQC, all Documents and copies of Documents. Medical
Group shall use its best efforts to assure that all Medical Group Physicians and
other employees and agents of Medical Group are aware of and comply with the
restrictions on disclosure and use of Intellectual Property set forth in this
Section. (For purposes of this Section, references to PQC shall be deemed to
refer to PQC and any Affiliates.)
8. RESTRICTIVE COVENANTS
The parties recognize that the services to be provided by PQC hereunder
shall be feasible only if Medical Group operates an active medical practice to
which the physicians associated with Medical Group devote their full time and
attention. Accordingly, the parties hereto agree as follows:
8.1. Noncompetition. During the term of this Agreement, Medical Group
---------------
shall not, without the prior written consent of PQC, establish, operate or
provide physician or other medical services at any medical office, clinic or
other health care facility providing services similar to those provided by
Medical Group, PQC or any Affiliate of PQC, within the Geographic Area.
8.2. Ancillary Enterprise. During the term of this Agreement, except as
---------------------
permitted by this Agreement, Medical Group shall not provide any of the
additional services that have been approved by the Joint Policy Board and PQC as
"Integrated Health Services" or any other services provided by PQC. For two (2)
years after termination of this Agreement, except as permitted by this
Agreement, Medical Group shall not provide any of the additional services that
have been approved by the Joint Policy Board and PQC as
-20-
"Integrated Health Services" or any other services provided by PQC, within
fifteen (15) miles of any Pod Practice Location.
8.3. Non-solicitation of Employees and Patients. During the term of
-------------------------------------------
this Agreement and for a two (2) year period thereafter, Medical Group shall not
recruit, solicit or induce or attempt to induce, any employee or employees of
Medical Group or PQC to terminate their employment with, or otherwise cease
their relationship with, Medical Group or PQC. During the term of this Agreement
and for a one (1) year period thereafter, Medical Group shall not solicit,
attempt to divert or to take away, the business or patronage of any of the
patients, clients, customers or accounts, or prospective patients, clients,
customers or accounts of Medical Group.
8.4. Enforcement of Medical Group Physician Employment Agreements.
-------------------------------------------------------------
Medical Group shall enforce the Employment Agreements of Medical Group
Physicians, including, without limitation, restrictive covenants and liquidated
damages provisions contained in such agreements. In the event that, after a
request by PQC, Medical Group does not pursue any remedy that may be available
to it by reason of a breach or default of the restrictive covenants and
liquidated damages provisions or any other provision of any Employment
Agreement, upon the request of PQC, and in addition to any rights PQC may have
under Section 9.13 hereunder, Medical Group shall assign to PQC such causes of
action and any other rights it has related to such breach or default and shall
cooperate with and provide reasonable assistance to PQC with respect thereto.
8.5. Remedies. PQC and Medical Group acknowledge and agree that a
---------
remedy at law for any breach or attempted breach of the provisions of this
Section 8 shall be inadequate, and, therefore, either party shall be entitled to
specific performance and injunctive or other equitable relief in the event of
any such breach or attempted breach, in addition to any other rights or remedies
available to either party at law or in equity or under the Employment
Agreements, including without limitation provisions thereunder relating to the
repurchase by the Medical Group and/or the Medical Group Physicians of certain
assets. Each party hereto waives any requirement for the securing or posting of
any bond in connection with the obtaining of any such injunctive or other
equitable relief. If any provision of this Section 8 relating to the restrictive
period, scope of activity and the territory described therein shall be declared
by a court of competent jurisdiction to exceed the maximum time period, scope of
activity restricted or geographical area such court deems reasonable and
enforceable under applicable law, the time period, scope of activity restricted
and area of restriction held reasonable and enforceable by the court shall
thereafter be the restrictive period, scope of activity restricted and the
territory applicable to such provision of this Section 8. The invalidity or
non-enforceability of any provision of this Section 8 in any respect shall not
affect the validity or enforceability of the remainder of this Section 8 or of
any other provisions of this Agreement.
9. MISCELLANEOUS
9.1. Exclusivity. During the term of this Agreement, PQC shall be
------------
the exclusive provider to Medical Group of the types of services to be provided
under this Agreement by PQC (the "Management Services"). During the Term,
Medical Group shall not establish,
-21-
operate, or provide medical services or practice medicine at a medical office,
clinic or other health care facility anywhere except at offices, clinics and
facilities at which PQC is the exclusive provider of Management Services;
provided, however, that the Medical Group may provide services at hospital and
other facilities unaffiliated with PQC so long as PQC retains the sole right to
provide Management Services in connection with all activities conducted by
Medical Group at such hospitals and other facilities. Except in connection with
any Integrated Health Services which PQC is permitted to provide itself or
through an Affiliate pursuant to Section 3.8, neither PQC nor any Affiliate may,
during the term of this Agreement, provide to any other person or entity which
is located or doing business in the Geographic Area, the management or other
services to be provided by PQC pursuant to this Agreement.
9.2. Names; Trademarks. Medical Group and the Pods shall conduct
------------------
their professional practice under the name or names mutually agreed upon by PQC
and Medical Group and subject to the terms of applicable trademark licenses
between PQC and Medical Group.
9.3. Independent Contractors. For the purpose of this Agreement
------------------------
and for all services to be provided hereunder, each party will be, and will be
deemed to be, independent contractors and not (except to the limited extent
provided in Sections 3.7, 3.13 and 3.14) employees or agents of the other party.
9.4. [Reserved]
----------
9.5. Severability. If any provision of this Agreement is found by
-------------
a court of competent jurisdiction to be void, invalid or unenforceable, the same
will either be reformed to comply with applicable law or stricken if not so
conformable, so as not to affect the validity or enforceability of the remainder
of this Agreement.
9.6. Waiver. Failure of either party to enforce a right under
-------
this Agreement will not act as a waiver of that right or the ability to later
assert that right relative to the particular situation involved.
9.7. Notices. Any notice required to be given pursuant to the terms and
--------
provisions of this Agreement shall be in writing and shall be sent by certified
mail, return receipt requested, postage prepaid or by reputable overnight
delivery service, to PQC and Medical Group at their respective places of
business as designated from time to time by the parties and to the Joint Policy
Board at the address of its Chair. Notices shall be effective the second day
after mailing (in the case of certified mail) or the first day after mailing (in
the case of overnight delivery). A copy of any notice given to Medical Group
shall be addressed to the President of Medical Group with a copy to PQC.
9.8. Entire Agreement. This Agreement, together with all appendices,
-----------------
schedules and exhibits attached hereto, constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior and
contemporary agreements, understandings, negotiations, and discussion, whether
oral or written, of the parties respecting the subject matter hereof. All
appendices, schedules and exhibits attached hereto
-22-
are hereby made a part of this Agreement.
9.9. Amendment. Except as specifically provided elsewhere in this
----------
Agreement, no change or modification of this Agreement shall be valid unless the
same shall be in writing and signed by an authorized officer of Medical Group
and PQC and shall have been approved by the Joint Policy Board. Except as
specifically provided elsewhere in this Agreement, no waiver of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Medical Group and PQC.
9.10. Successors and Assigns. PQC shall have the right to assign its
-----------------------
rights and obligations under this Agreement to any entity controlled by,
controlling or under common control with PQC. Except as set forth in the prior
sentence, neither PQC nor Medical Group may assign its rights or delegate its
obligations under this Agreement without the prior written consent of the other
party. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective transferees, successors and assigns.
9.11. Governing Law. This Agreement will be construed and enforced in
--------------
accordance with the laws of the State of Maryland. Each of the parties hereto
submits to the exclusive jurisdiction of the United States federal district
courts seated in that state and agrees that process may be served upon it if it
cannot otherwise be served in such state by registered or certified mail
addressed as provided for notices under this Agreement.
9.12. Headings. Headings in this Agreement are inserted for
---------
convenience only and are not to be considered in construing the provisions
hereof.
9.13. No Obligation to Third Parties. Except as expressly set forth in
-------------------------------
this Section 9.13, none of the obligations and duties of PQC or Medical Group
under this Agreement shall in any way or in any manner be deemed to create any
obligation of PQC or of the Medical Group to, or any rights in, any person or
entity not a party to this Agreement. Notwithstanding the foregoing, in
accordance with and subject to the terms of the provisions of the Employment
Agreements between the Medical Group Physicians and Medical Group, the Medical
Group Physicians are hereby made third party beneficiaries of and may enforce
the obligations of PQC hereunder (as the same may be amended from time to time
in accordance with the provisions of Section 9.9 hereof) by any means, at law or
in equity, all in accordance with any procedural requirements set forth in the
said Employment Agreements; it being expressly agreed that this Agreement may be
amended by the parties in accordance with Section 9.9 without the consent of the
Medical Group Physicians.
9.14. Contract Modifications for Prospective Legal Events. In the event
----------------------------------------------------
(a) any state or federal laws or regulations, now existing or enacted or
promulgated after the Effective Date are interpreted by judicial decision, a
regulatory agency, or legal counsel with a nationally recognized expertise in
the field of law in question in such a manner as to indicate that this Agreement
or any provision hereof may be in violation of such laws or regulations, or (b)
the Financial Accounting Standards Board, Emerging Issues Task Force or other
applicable accounting standard setting entity promulgates standards or issues a
consensus that would prevent PQC from consolidating for financial statement
presentation purposes all Practice Revenues of Medical Group on PQC's
consolidated financial statements, then PQC
-23-
shall propose to the Joint Policy Board and Medical Group for their approval
such amendments to this Agreement as necessary to conform the Agreement to all
applicable law and preserve the underlying economic and financial arrangements
between PQC and Medical Group without substantial economic detriment to either
PQC or Medical Group. Any such amendment approved by the Joint Policy Board and
Medical Group shall be binding upon Medical Group, and Medical Group hereby
consents to any such amendment. To the extent any act or service required of PQC
should be construed or deemed, by any governmental authority, agency or court,
to constitute the practice of medicine by PQC, the performance of said act or
service by PQC shall be deemed waived and forever unenforceable and the
provisions of this Section 9.14 shall be applicable. To the fullest extent
permitted by law, Medical Group hereby waives and agrees not to assert
illegality as a defense to the enforcement of this Agreement or any provision
hereof, instead, any such purported illegality shall be resolved pursuant to the
terms of this Section 9.14.
9.15. Availability of Certain Documents. The parties agree, to the
----------------------------------
extent required by law necessary to permit receipt of reimbursement for services
by Medical Group, to make available to the Secretary of Health and Human
Services, the Comptroller General of the General Accounting Office, or their
authorized representatives, any books, documents and records in their possession
relating to the nature and extent of the costs of services hereunder for a
period of four (4) years after the provision of such services.
9.16. Gender. References herein to the masculine shall be deemed
-------
to refer to the feminine or neuter gender as the context may require.
-24-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
FLAGSHIP HEALTH, P.A. PHYSICIANS QUALITY CARE, INC.
("Medical Group") ("PQC")
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------- -----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President Chief Executive Officer
-25-
APPENDIX A
----------
DEFINITIONS
10. As used in this Agreement, the following terms shall have the
meanings set forth below:
10.1. "Affiliate" or "Affiliates" means with respect to any person, a
--------- ----------
person that directly or indirectly through one (1) or more intermediaries
controls, or is controlled by or is under common control with, such person.
10.2. "Baseline Amount" means $ . The Baseline Amount shall be
---------------
adjusted from time to time as determined by the Joint Policy Board and Medical
Group (i) to reflect the addition of new Physicians or the termination or
resignation of any Medical Group Physician or (ii) to reflect such other factors
as PQC and the Joint Policy Board shall mutually agree to be appropriate, in
consultation with the Medical Group Compensation Committee, as appropriate.
10.3. "Book Value" means the value of an asset, after deduction for any
----------
depreciation or amortization, reflected on a balance sheet prepared in
accordance with generally accepted accounting principles.
10.4. "Deductible Expenses" with respect to any Fiscal Period shall
-------------------
mean, when used with respect to any Pod, an amount equal to (i) any income tax
Medical Group is required to pay or withhold with respect to Medical Group
Physicians assigned to such Pod, (ii) the cost of any pension and any other
benefits not included in Practice Expenses, in each case that are provided to
such Medical Group Physicians and (iii) any Discretionary Expenses; provided,
however, that the parties agree and understand that Deductible Expenses may
include items that are not deductible for income tax purposes, and PQC makes no
representation as to the deductibility of such items for purposes of income tax
liabilities of any Medical Group Physician or Medical Group.
10.5. "Discretionary Expenses" means, during the Fiscal Period ended
----------------------
December 31, 1996, any increase in actual staffing or other expenses, including
Physician Pod Practice Expenses, above the levels set forth in Appendix D to
this Agreement, subject to adjustment in successive Fiscal Periods pursuant to
approval by the Joint Policy Board as part of the budgetary process contemplated
in Appendix A to the form of Employment Agreement attached hereto. With respect
to any Fiscal Period commencing after December 31, 1996, Discretionary Expenses
means any personnel, operating and other expenses, including Physician Pod
Practice Expenses, over and above the standard levels developed by the Joint
Policy Board and approved by PQC and included in a Pod's annual operating
budget, as adjusted from time to time in accordance with Appendix B attached
hereto or the terms of any Employment Agreement. In addition, "Discretionary
Expenses" shall include for a given Pod any liability for federal, state, local
or other taxes attributable to the merger into Medical Group (or attributable to
taxable periods preceding the merger) of any entity owned by one
A-1
or more Medical Group Physicians practicing in such Pod; provided, however that
there shall be excluded any such tax liability if and to the extent that Medical
Group or PQC has received payment from the Physician Members of the applicable
Pod pursuant to the indemnification provisions of any agreement of merger
pursuant to which the said merger has occurred; and provided, further that if
any such Discretionary Expense arises prior to an initial public offering of PQC
stock, the Joint Policy Board may recommend to PQC that it consider taking steps
to finance such taxes or otherwise stage the imposition of such Discretionary
Expenses over a period of three years, which recommendation shall be subject to
the Board of Directors of PQC.
10.6. "Effective Date" means the date of execution of the Agreement.
--------------
10.7. "Fiscal Period" means the twelve (12) month or shorter period
-------------
ending on December 31 of each year.
10.8. "Geographic Area" means the states of Maryland, Delaware,
---------------
Pennsylvania (including all areas within a 15 mile radius of Philadelphia),
Virginia, West Virginia, and the District of Columbia.
10.9. "Gross Margin" means, for any Fiscal Period, the excess
------------
(or deficit) of Practice Revenues over Practice Expenses.
10.10. "Including" or "to include" any item shall mean containing
--------- ----------
or to contain such item as part of a whole, without any implied exclusion of
other items.
10.11. "Integrated Health Services" means any business that Medical
--------------------------
Group or PQC establishes in the Geographic Area, whether directly or through a
subsidiary, that (i) provides medical or medical related services that are not
traditionally performed by physicians or physician practices at medical offices
(it being agreed that in-office laboratory and other ancillary services
performed by the Medical Group Physicians on the Effective Date of this
Agreement shall be deemed to be medical services and are not Integrated Health
Services) and (ii) are determined to be Integrated Health Services by PQC,
Medical Group, and the Joint Policy Board.
10.12. "Intellectual Property" means all (i) patents, patent
---------------------
applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, registrations and applications for
registrations, (ii) trademarks, services marks, trade dress, logos, trade names
and corporate names and registration and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data and documentation, (vi) trade secrets and confidential
business information, whether patentable or non-patentable and whether or not
reduced to practice, know-how, clinical product and service processes and
techniques, research and development information, medical protocols,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vii) other proprietary rights relating to the foregoing
(including, without limitations, remedies against infringement thereof and
A-2
rights of protection of interest therein under the laws of all jurisdictions)
and (viii) copies and tangible embodiments thereof; provided, however, that
there is excluded from the definition of "Intellectual Property" any information
(a) previously known to or under development by a Medical Group Physician and
listed on an Appendix to his Employment Agreement, (b) generally known in the
health care industry, or (c) obtained by a Medical Group Physician from a third
party lawfully possessing such Intellectual Property.
10.13. "Medical Group Shareholder" means the individual or individuals
-------------------------
in whose name the shares of Medical Group have been issued.
10.14. "Net Margin" means, for any Fiscal Period, the excess
----------
(or deficit) of Gross Margin less the sum of (i) the Baseline Amount, and (ii)
PQC Direct Expenses.
10.15. "Payor" shall mean any insurer, health maintenance organization,
-----
preferred provider organization, self-insured employer, labor union or other
organization or entity that arranges for the delivery of health care services to
enrollees or patients, including the Medicare and Medicaid programs and
including independent practice associations, physician-hospital organizations,
medical groups and other licensed providers.
10.16. "Payor Contracts" shall mean the contracts, agreements and
---------------
arrangements between Medical Group and Payors for the provision of health care
items and services.
10.17. "Physician Draw" shall mean, with respect to each Physician, for
--------------
each Fiscal Period (prorated for any partial Fiscal Periods) the amount of cash
to be advanced to Physician on a bi-weekly basis as an interim payment of the
portion of Gross Margin and Net Margin due to Physician hereunder, which amount
of Physician Draw shall be subject to change from time to time in accordance
with the provisions of Section 3 of Appendix B hereof. For purposes of the
Fiscal Period commencing January 1, 1996, the Physician Draw shall be, for each
Physician, the amount set forth on Schedule B-1 attached to this Agreement.
10.18. "Pod Physician" shall mean, with respect to a Pod, all Medical
-------------
Group Physicians who are assigned to the Pod.
10.19. "Pod Practice" or "Pod" shall mean, with respect to a Pod, the
------------ ---
medical practice of Medical Group as conducted through the Pod: (i) a Pod
Practice Location, or (ii) a group of Pod Practice Locations, or (iii) a
functional line of business such as a laboratory, and in the case of clause (ii)
or (iii), as approved by the Joint Policy Board to function as a distinct
reporting unit within Medical Group.
10.20. "Pod Practice Locations" shall mean, with respect to a Pod,
----------------------
all Practice Locations assigned to the Pod.
10.21. "PQC Direct Expenses" or "Direct Expenses" shall mean all actual
------------------- ---------------
direct expenses of PQC incurred in connection with providing management services
to Medical Group under this Agreement calculated in accordance with generally
accepted accounting principles, including rent, utilities, cleaning, and other
occupancy costs attributable to PQC's Baltimore office or any other office in
the Geographic Area maintained for the purpose of
A-3
supporting one (1) or more Pod Practice Locations (together with PQC's Baltimore
office, the "Area Offices"); salary and benefit expense for PQC's employees
providing services to benefit any one (1) or more of the Pod Practice Locations;
depreciation and amortization of equipment located at the Area Offices except
depreciation and amortization with respect to the assets initially acquired by
PQC or Medical Group from Medical Group Physicians on their practices;
telephone, facsimile, and similar communication charges (including the cost of
any so-called tie-line from the Area Offices to the office housing the principal
central computer system for physician practice sites managed by PQC or any of
its affiliates); maintenance and repair costs for the Area Offices and equipment
located therein; insurance related to the Area Offices and PQC's employees based
in any such office or any one (1) or more of the Pod Practice Locations;
professional services (including legal and accounting) related directly to the
Area Offices or any of the Pod Practice Locations; office supplies used by PQC's
Area Offices or any of PQC's employees located at any of the Pod Practice
Locations; and other expenses incurred by PQC with the consent of the Joint
Policy Board.
10.22. "Practice Expenses" shall mean, with respect to a Pod,
-----------------
the following expenses:
(a) Salaries, fringe benefits, and employment taxes and
insurance of all Administrative Staff and Clinical Staff (as
defined in Sections 3.4 and 2.5 of this Agreement) and
physicians who are not Member Physicians, whether employees
or independent contractors, working at or for the direct
benefit of the Pod Practice Locations; and employment taxes
and expenses for a standard package of health and disability
insurance approved by the parties prior to the Effective Date
and for up to $50,000 of term life insurance coverage for Pod
Physicians;
(b) The direct cost (excluding any general and administrative
overhead of PQC) of any other management, administrative or
professional services provided at or in connection with the
Pod Practice that are incurred by PQC, including management,
billing and collections, business office consultation,
accounting and legal services for the Pod Practice;
(c)
(i) The cost of capital (including actual interest on
indebtedness incurred by or on behalf of Medical
Group but only to the extent actual interest is
incurred from a third party other than ▇▇▇▇ Capital),
to finance or refinance obligations of Medical Group
related to the Pod Practice, to purchase medical or
nonmedical equipment for the Pod Practice (other than
those assets, if any, purchased by PQC as part of the
initial acquisition of the medical practice that
served as the basis of the Pod) or to provide working
capital or finance new ventures of Medical Group
related to the Pod Practice;
(ii) depreciation and amortization charges to be paid to
PQC, the amounts of which shall be set forth in the
Pod Budget or for costs of capital described in
Section 10.21(c)(i) of this Appendix A, or, if in
excess of the budgeted amount, is agreed upon by PQC
and the Joint Policy Board
A-4
(expressly excluding any depreciation and
amortization charges relating to assets, if any,
purchased by PQC as part of the initial acquisition
of the medical practice that served as the basis of
the Pod);
(d) Occupancy costs attributable to the Pod Practice (whether
principal, interest, depreciation, taxes or rent) incurred in
obtaining, improving, developing, leasing, operating,
maintaining, replacing and preserving office space and
equipment for the Pod Practice, including janitorial
services, refuse disposal and medical waste disposal;
(e) Direct costs incurred in obtaining, leasing, operating,
maintaining and replacing computer systems and software
located at the Pod Practice Locations, including billing
systems, outcomes reporting systems and financial reporting
systems and the cost of so-called tielines;
(f) All utilities, including but not limited to telephone service
(including business calls on cellular telephones), answering
services, electricity, heat, water, and sewer that are used
at the Pod Practice Locations;
(g) Postage, facsimile, collection and credit verification costs
incurred for the Pod Practice;
(h) Pharmaceuticals, x-ray and laboratory expenses (both in-house
and other) for the Pod Practice;
(i) Medical supplies for the Pod Practice;
(j) All office supplies for the Pod Practice;
(k) Copying charges for the Pod Practice;
(l) Professional journals and books, professional dues and
memberships, and magazine and newspaper subscriptions for
the Pod Practice;
(m) Continuing Medical Education expenses for the Pod Physicians,
within guidelines approved by the Joint Policy Board;
(n) Direct advertising, accounting and legal expenses incurred
in connection with the Pod Practice;
(o) Insurance expenses, including but not limited to (1) general
liability, fire, and property for each Pod Practice Location
and (2) professional liability insurance for Pod Physicians
and for Clinical Staff while providing services in connection
with the Pod Practice;
A-5
(p) Any casualty losses suffered by Medical Group that are
related to the Pod Practice to the extent that such losses
are not reimbursed by any third party responsible therefor or
through insurance;
(q) A pro rata share calculated on the basis of the ratio of
the number of Pod Physicians to the number of Medical Group
Physicians or such other reasonable allocation methodology as
PQC may develop from time to time and as may be approved by
the Joint Policy Board, of expenses incurred by PQC and
included within a budget approved by the Joint Policy Board
for Medical Group as a whole (excluding any corporate-related
general and administrative overhead of PQC), for example,
Medical Group-wide management information system expenses,
malpractice costs for Medical Group as a whole (as opposed to
individual physicians), accounting and pension plan services,
Medical Group tax return preparation, and providing or
arranging for other necessary administrative, accounting and
legal services.
10.23. "Practice Revenues" with respect to a Pod, the amount equal to
-----------------
all revenues of Medical Group attributable to the Pod Practice or assigned by
the Pod Physicians pursuant to their Employment Agreements with the Medical
Group, net of federal, state and local income taxes of Medical Group,
adjustments for uncollectible accounts, Medicare, Medicaid and other contractual
allowances, discounts, workers' compensation adjustments, professional
courtesies and other reductions in collections, including: (a) all professional
fees and other charges actually recorded each month on an accrual basis of
accounting under generally accepted accounting principles as a result of medical
services rendered by Medical Group through the Pod and the Pod Physicians,
whether rendered in an outpatient or inpatient setting; (b) the technical
component of fees earned with respect to services rendered by Medical Group
through the Medical Group Pod (including all fees for technical and ancillary
services and all facility fees and similar charges); (c) all collections from
managed care organizations and Payors, or payments made in respect of enrollees
of such managed care organizations or Payors, including payments made
periodically on a per member basis for the partial or total medical needs of a
subscribing member, and any co-payments and incentive bonuses, management fees
and other amounts received and fees paid in respect of services provided by or
through the Pod as a result of a capitation plan or risk-sharing arrangement;
(d) grants, fees and other payments in connection with basic or clinical
research conducted by Pod Physicians or under grant programs, whether publicly
or privately funded, including grants or programs for the care of special
patient populations; (e) consulting fees of Pod Physicians, including without
limitation honoraria, witness fees and like amounts; (f) fees and payments for
workers compensation evaluations or independent medical examinations; (g) all
coordination of benefits, patient co-payments or deductibles and third-party
liability recoveries; and (h) any other revenues from the practice of medicine
or provision of health care items and services of any kind, except to the extent
that the parties may otherwise agree in writing). Notwithstanding the foregoing,
Practice Revenues shall not include any income unrelated to any of the foregoing
items that is personal to a Pod Physician and unrelated to the provision of
health care or ancillary services (e.g., personal dividend or trust income), and
provided further that the Joint Policy Board may approve in writing the
retention by a Pod Physician of limited honoraria and similar amounts.
▇-▇
▇▇▇▇▇▇▇▇ ▇
FINANCIAL ARRANGEMENTS
ARTICLE A. COMPENSATION TO PQC
-------------------
1. General. As set forth in greater detail below and subject to all of
--------
the conditions and provisions hereof, the parties agree that the aggregate
compensation to be paid to PQC for services rendered under this Agreement shall
equal the sum of (1) all PQC Direct Expenses incurred in connection with the
provision of services to Medical Group and (2) additional compensation equal to
fifty percent (50%) of Net Margin of the Medical Group. This Appendix B also
provides for the priority of application of Practice Revenues to various
categories of expenditures.
2. Application of Practice Revenues.
---------------------------------
Practice Revenues shall be applied to expenses and other required
distributions under this Agreement in the following order of priority:
(a) Step 1 - Practice Revenues shall be
------
applied to pay Practice Expenses.
(b) Step 2 - Any Gross Margin
------
remaining after Step 1 above shall
next be applied to payment of (i)
the Baseline Amount (minus the
amount necessary to pay all
Deductible Expenses) and (b) PQC
Direct Expenses on a proportional
basis equal to the ratio of the
Baseline Amount to PQC Direct
Expenses as approved by the Joint
Policy Board for the then current
Fiscal Period or in the absence of
approval of a budget for the then
current Fiscal Period, in the ratio
set forth on Schedule B-1 attached
to this Agreement. By way of
example only and not as a
limitation, if the Baseline Amount is
$12 million and budgeted PQC
Direct Expenses are $1 million, then
under this Step 2 12/13ths or
92.31% of each dollar of Gross
Margin shall be allocated to
Medical Group for payment of the
Baseline Amount and the remaining
B-1
1/13th or 7.69% of each dollar of
Gross Margin shall be allocated to
PQC.
(c) Step 3 - After completion of Step 2,
------
any remaining Net Margin shall be
allocated fifty percent (50%) to
Medical Group for distribution to the
Medical Group Physicians and fifty
percent (50%) to PQC as additional
compensation hereunder.
Subject to review by the Joint Policy Board, PQC shall calculate the
amounts of Gross Margin and Net Margin to be allocated to each of Medical Group
and PQC under this Section 2. If the Gross Margin is negative in any Fiscal
Period, such negative amount shall constitute Practice Expenses for the next
following Fiscal Period. In the event Net Margin is negative in the Fiscal
Periods ending December 31, 1997 or December 31, 1998, PQC may be obligated to
make a loan to Medical Group in accordance with the provisions of Section 3.5 of
the Agreement.
3. Payment of Physician Draw. On a bi-weekly basis, PQC shall
--------------------------
distribute to Medical Group from the account referred to in Section 3.12 of this
Agreement ("Medical Group Account") an amount equal to one twenty-sixth of the
budgeted aggregate Physician Draw (minus the amount necessary to pay all
Deductible Expenses) for distribution by Medical Group to the Pods; provided,
however, if (a) at any time during a Fiscal Period, PQC determines that the
amount of Practice Revenues allocated to the payment of aggregate Physician Draw
under Section 2 of this Appendix B for any Fiscal Period may be less than
ninety-five percent (95%) of the budgeted aggregate Physician Draw for such
Fiscal Period, or (b) if PQC or the Joint Policy Board determines (1) the
aggregate Practice Expenses for such Fiscal Period will exceed the aggregate
budgeted Practice Expenses for such Fiscal Period, or (2) the aggregate Practice
Revenues will be less than the aggregate budgeted Practice Revenues, PQC may,
and upon direction from the Joint Policy Board, shall, reduce the aggregate
Physician Draw in such manner as PQC determines to be appropriate. Subject to
the provisions of Section 3.5 of this Agreement, the aggregate Physician Draw
shall be adjusted to reflect the addition of new Medical Group Physicians or the
termination or resignation of any Medical Group Physician or to reflect such
other factors as PQC and the Joint Policy board shall mutually agree to be
appropriate. PQC may, but shall not be required to, advance money to the
Compensation Pool as defined in Appendix A to the Employment Agreement to fund
such Physician Draw.
4. Payment of Variable Distribution Pool. Within forty-five (45) days
--------------------------------------
of the end of each of the first three (3) calendar quarters in each Fiscal
Period, PQC shall advise Medical Group's Compensation Committee (as defined in
Employment Agreements) of the amount (the "Variable Distribution"), if any, of
Net Margin allocable to Medical Group under Section 2 that has not been used, or
is not reasonably anticipated by PQC to be needed for Medical Group to fund, all
amounts required to be funded by Section 3. PQC shall disburse to Medical Group
from the account referred to in Section 3.12 of this Agreement the amount of
B-2
the Variable Distribution, which shall be distributed to the Physicians in such
manner consistent with law as is described in Section 4 of Appendix A to the
Employment Agreements.
5. Annual Reconciliation of Distributions. Within sixty (60) days after
---------------------------------------
the end of each year, PQC shall (i) total and report Practice Revenues and
Practice Expenses for each Pod, (ii) total and report aggregate Practice
Revenues for all Pods and aggregate Practice Expenses for all Pods, (iii) total
and report PQC Direct Expenses, (iv) total and report all amounts advanced as
Physician Draws and Variable Distributions, (v) total and report the level of
Gross Margin, whether positive or negative, and (vi) total and report the level
of Net Margin, whether positive or negative (taking into account any adjustments
necessary in the event that distributions during the said Fiscal Period or any
prior Fiscal Periods have resulted in an over-advancement or under-advancement
of funds). Each Pod, as a Discretionary Expense of its Member Physicians, may
inspect Medical Group's books and records and PQC's books and records in order
to verify the amount and proper calculation of the sums to be determined
hereunder. PQC may not charge any Pod or Physician Member any access or similar
fee in connection with any request to review books and records. If such
independent accounting presents a report identifying a departure in such
financial reports from generally accepted accounting principles, which departure
has had a material adverse effect on the revenues allocated to Physician Group,
PQC shall reimburse the Physician Members for the cost of such report.
6. Distribution in Event of Actual or Anticipated Negative Gross
-------------------------------------------------------------
Margin. In the event that for any calendar quarter, Gross Margin is a negative
-------
number or in the event either party gives notice to the other that there is
reason to believe Gross Margin may be a negative number, PQC shall promptly
propose a remedial plan of action to the Joint Policy Board and the parties
agree to cooperate in good faith in order to implement such remedial plan or
such other corrective action as shall be approved by the Joint Policy Board. At
PQC's sole discretion, PQC may elect to advance working capital funds to Medical
Group in such amounts and at such times, and from time to time, as PQC shall
determine necessary to satisfy aggregate Practice Expenses for all Pods, such
advances to be treated as loans, the repayment of which shall be required in
accordance with the definition of "Practice Expenses" in Section 10.22 of
Appendix A hereto. In the event PQC shall elect not to make advances sufficient
to satisfy aggregate Practice Expenses for all Pods and Medical Group has not
otherwise satisfied Practice Expenses from its own resources, either party shall
have the right to terminate this Agreement upon thirty (30) days' written
notice.
7. Manner of Payment of Final Reconciliation. Within seventy (70) days
------------------------------------------
after the end of the Fiscal Period, Medical Group and PQC shall make such
payments, if any, to each other as may be required under the provisions of this
Appendix B. Medical Group covenants to distribute any amounts to the Physicians
in a manner that complies with all applicable law.
8. Manner of Payment of PQC Direct Expenses and Compensation to PQC.
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PQC shall arrange for the payment of PQC Direct Expenses and the compensation to
PQC itself in accordance with the terms of this Appendix and is hereby
authorized to make withdrawals from the Medical Group Account for such amounts
at the time or times that the amounts
B-3
become due. Medical Group hereby authorizes PQC to make such withdrawals from
the Medical Group Account for accrued but unpaid PQC Direct Expenses and
compensation owed to PQC under the provisions of this Appendix B after
termination of this Agreement.
B-4
SCHEDULE B-1
I. Name of Physician Physician Draw for Fiscal Period Ending
----------------- ---------------------------------------
December 31, 1996
-----------------
[See Section 6 of Appendix A to the Employment Agreements with the Physician
Members.]
II. Ratio of Baseline Amount to budgeted PQC Direct Expenses
B-5
APPENDIX C
LIST OF PHYSICIANS
Name of Pod Partner Physicians Employed Physicians
----------- ------------------ -------------------
Pod A
Pod B
Pod C
Pod D
Pod E
Pod F
Pod G
Pod H
Pod I
Pod J
Pod K
Pod L
Pod M
Pod N
Pod O
Pod P
Pod Q
C-1
APPENDIX D
----------
[Discretionary Expense Levels]
[See Section 7 of Appendix A to the Employment Agreements with the Physicians
Members.]
D-1
EXHIBIT A
---------
Form of Employment Agreement
-1-