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EXHIBIT 99
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" (1) by creating a safe harbor to protect companies from securities
law liability in connection with forward-looking statements. Medaphis
Corporation ("Medaphis" or the "Company") intends to qualify both its written
and oral forward-looking statements for protection under the Reform Act and any
other similar safe harbor provisions.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Medaphis. In
addition, Medaphis undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
Medaphis provides the following risk factor disclosure in connection with
its continuing effort to qualify its written and oral forward-looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to management that could
cause actual results to differ materially from those in forward-looking
statements include the following:
Future Operating Results. Although Medaphis has for the past five years
expanded its operations through acquisitions and internal growth, there can be
no assurance that Medaphis will be able to achieve or sustain profitability or
revenue growth on an annual or quarterly basis in the future, that fluctuations
in quarter-to-quarter or year-to-year operating results will not occur or that
any such quarter-to-quarter or year-to-year fluctuations will not be material.
Future operating results of Medaphis will be dependent upon, among other things,
(i) successful integration of recently acquired businesses, (ii) successful
reorganization and integration of certain of the Company's
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(1) Forward-looking statements"can be identified by use of words such as
"forecast," "anticipate," "expect," "plan" and similar expressions.
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client/server information technology operations, (iii) improvements in
operations of the Company's physician billing business, (iv) effectiveness of
the Company's reengineering program, (v) successful implementation of various
management initiatives designed to reduce costs and overhead within the
Company's various divisions and (vi) successful growth in sales of the Company's
healthcare information technology ("HIT") products.
During the past twelve months, the Company has consummated a number of
acquisitions, including, but not limited to, the acquisition of Medical
Management Sciences, Inc., Rapid Systems Solutions, Inc., BSG Corporation
("BSG") and Health Data Sciences Corporation (the "Significant Acquisitions").
There can be no assurance that the Company will be able to successfully
integrate any of the Significant Acquisitions, that Medaphis will be able to
continue to operate the Significant Acquisitions in a profitable manner or that
any of the Significant Acquisitions will not have an adverse effect upon
Medaphis' results of operations, particularly while such acquisitions are being
integrated into the Company.
As of September 30, 1996, management is in the process of reorganizing
the business of Imonics Corporation ("Imonics") and integrating its operations
with and into BSG. This reorganization has included, among other things, a
significant downsizing of Imonics' employee workforce, other cost-reduction
initiatives and restructuring and renegotiation of Imonics' significant client
contracts. The Company's results of operations for the three months ended
September 30, 1996 included a charge against revenue of $16.8 million and a
restructuring charge of $24.3 million relating primarily to the reorganization
of Imonics and its integration into BSG. There can be no assurance (i) that
such reorganization and integration will be successful, (ii) that such
initiatives will not have a material adverse effect upon the Company's
reputation and standing in the client/server information technology
marketplace, (iii) that BSG has the management expertise and capacity to manage
such reorganization and integration while at the same time running the business
and operations of BSG and the other client/server information technology
operations of the Company or (iv) that such reorganization will not have an
adverse effect upon the software development and technology projects being
pursued in connection with the Company's reengineering program. See
"Reengineering Program."
The Company's expansion strategy in the past has involved both acquisitions
and internal growth. The Company intends to focus its efforts primarily on
refining and growing its various businesses in the near term and does not
anticipate significant acquisitions during such period. There can be no
assurance that such shift in focus will not have an adverse effect upon the
rate of growth in the Company's revenue and operations.
The Company is experiencing margin pressure in the billing and accounts
receivable management services operations of Medaphis Physician Services
Corporation ("MPSC"). MPSC did not significantly contribute to the Company's
overall results of operations during the second half of 1995 or the nine-month
period ended September 30, 1996. Management does not expect this trend to
improve significantly until further progress is made with, among other things,
on-going management initiatives designed to reduce costs and improve
operational efficiencies and the Company's reengineering program. See
"Reengineering Program."
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During the nine months ending September 30, 1996, management has implemented
various initiatives within the Company's Services Division (which includes
MPSC) designed to reduce costs and improve operational efficiency. These
initiatives have included, among other things, downsizing of management
ranks and improvements in operational processes. There can be no assurance
that such management initiatives will be successful, that MPSC's margins will
improve or that MPSC will contribute meaningfully to the Company's overall
results of operations in future periods.
The Company's future operations are dependent upon, among other things,
continued growth in sales of its HIT products, including, but not limited to,
sales of its clinical information management system in both domestic and
international markets. The markets for these products are characterized by
rapidly changing technology, evolving industry standards and frequent new
products and product enhancements. The Company's success in its HIT business
will depend upon its continued ability (i) to enhance its existing products,
(ii) to effect conversions of existing products into foreign languages, (iii)
to introduce new products on a timely and cost effective basis to meet evolving
customer requirements, (iv) to achieve market acceptance for new product
offerings and (v) to respond to emerging industry standards and other
technological changes. As of September 30, 1996, the Company is experiencing
slower than expected sales of certain of its enterprise-wide scheduling
products. There can be no assurance that sales of such enterprise-wide
scheduling products will improve, that Medaphis will be able to effectively
enhance existing products, create new products or respond to technological
changes or new industry standards. Moreover, there can be no assurance that
competitors of Medaphis will not develop competitive products, or that any such
competitive products will not have an adverse effect upon Medaphis' operating
results.
Reengineering Program. The Company initiated a reengineering program
focused upon its billing and accounts receivable management operations in early
1995. The reengineering program involves office consolidation, workflow,
process and operational improvements and new technology development. The
overall goals of the reengineering program are to increase the operating
efficiency and enhance the quality and productivity of the Company's billing
and accounts receivable management services operations. To date, the Company
has spent approximately $62.0 million on the development of software
applications and technology and approximately $42.0 million on hardware and
equipment for the reengineering program. The Company has encountered
difficulties with the program. These difficulties have included, among others,
delays in achieving the targeted consolidation of offices, delays in the
development and implementation of software applications and technology which
achieve efficiencies and enhance productivity in a scaled operating environment
and delays in the implementation of improved operational processes. As a
result, management has commenced a comprehensive assessment of the
reengineering program designed to ensure that the individual projects making
up the program are properly aligned with the overall goals and objectives of
the program. It is anticipated that this assessment will include review of the
total number, size and geographic location of the Company's information
processing centers ("IPCs") and a comprehensive assessment of the various
software development and technology projects forming a part of the program.
While this assessment is underway, management has significantly reduced the
level of expenditures on the reengineering program. As part of this
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assessment, the Company has adopted a plan to downsize certain of its existing
IPCs and to charge the exit costs incurred in future periods in connection with
such downsizing against the restructuring reserve established by the Company
in the first quarter of 1995. In terms of the on-going assessment of the
software development and technology projects, management anticipates that such
assessment may result in reaffirmation and continuation of certain projects,
revisions to certain projects to better align such projects with the overall
goals of the program and/or abandonment of certain projects. To the extent a
software development or technology project is abandoned in the future, the
Company would incur a charge relating to the abandonment and disposition of
such project. To the extent the Company incurs such a charge, there can be no
assurance that such charge will not be material. Although management of the
Company remains committed to moving forward to reengineer its billing and
accounts receivable management operations and believes that such reengineering
is important to the long-term success of such operations, there can be no
assurance that the Company's on-going assessment of its reengineering program
will be completed on or prior to December 31, 1996, that the funds expended to
date on such program will produce results in future periods or that the
reengineering program will be successful or achieve any cost or labor
efficiencies or will not have a material adverse effect upon Medaphis'
operations.
Cash Flow From Operations; Senior Credit Facility. During the nine months
ended September 30, 1996, the Company used approximately $7.5 million in cash
for operating activities. At September 30, 1996, approximately $224 million in
borrowings were outstanding under the Company's $250 million Senior Credit
Facility which expires on March 17, 1998. Although management has implemented
various initiatives designed to reduce headcount and cut costs, there can be no
assurance that cash flow from operations will be sufficient to fund anticipated
operating and capital expenditures and that the Company will not be required in
future periods to seek additional borrowings under its Senior Credit Facility,
equipment lease lines or seek alternative sources of borrowing capacity.
Management is engaged in discussions with the Company's senior lenders. These
discussions have focused on modifications to the Company's Senior Credit
Facility to address, among other things, certain charges taken by Medaphis in
the quarter ended September 30, 1996 and to expand the size of the credit
facility. There can be no assurance that the Company will be able to secure
such modification or an expanded facility, that the Company will be able to
refinance borrowings under its existing Senior Credit Facility in March 1998 or
that any such refinancing can be obtained on terms and conditions satisfactory
to the Company.
Pending Federal Investigation; Putative Class Action Lawsuits. The United
States Attorney's Office for the Central District of California is conducting an
investigation (the "Federal Investigation") of Medaphis' billing and collection
practices in its offices located in Calabasas and Cypress, California (the
"Designated Offices"). Medaphis first became aware of the Federal Investigation
when it received search warrants and grand jury subpoenas on June 13, 1995.
Although the precise scope of the Federal Investigation is not known to the
Company at this time, Medaphis believes that the U.S. Attorney's Office is
investigating allegations of billing fraud and that the inquiry is focused upon
Medaphis' billing and collection practices in the Designated Offices. Numerous
federal and state civil and criminal laws govern medical billing and collection
activities.
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In general, these laws provide for various fines, penalties, multiple
damages, assessments and sanctions for violations, including possible exclusion
from Medicare, Medicaid and certain other federal and state healthcare programs.
Although the Designated Offices represent less than 2% of Medaphis' annual
revenue, there can be no assurance that the Federal Investigation will be
resolved promptly, that additional subpoenas or search warrants will not be
received by Medaphis or that the Federal Investigation will not have a material
adverse effect upon the Company. The Company recorded a charge of $12 million
in the third quarter of 1995 solely for the administrative fees, costs and
expenses it anticipates incurring in connection with the Federal Investigation
and the putative class action lawsuits which are based on the Federal
Investigation. The charge is intended to cover only the anticipated
administrative expenses of the Federal Investigation and the related lawsuits
and does not include any provision for fines, penalties, damages, assessments,
judgments or sanctions that may arise out of such matters.
Following the announcement of the Federal Investigation, Medaphis, various
of its then-current officers and directors and the lead underwriters associated
with Medaphis' public offering of common stock in April 1995 were named as
defendants in putative shareholder class action lawsuits filed in the United
Stated District Court for the Northern District of Georgia. In general, these
lawsuits allege violations of the federal securities laws in connection with
Medaphis' public statements and filings under the federal securities acts,
including the registration statement filed in connection with Medaphis' public
offering of common stock in April 1995. On October 13, 1995, the named
plaintiffs in these lawsuits filed a consolidated class action complaint (the
"Consolidated Complaint"). On January 3, 1996, the court denied defendants'
motion to dismiss the Consolidated Complaint, which argued that the complaint
failed to state a claim upon which relief may be granted. On April 11, 1996,
certain of the named plaintiffs to the Consolidated Complaint voluntarily
dismissed with prejudice all of their claims. As a result of these dismissals,
the Consolidated Complaint no longer contains any claims based on the Securities
Act of 1933, and the Company's underwriters and outside directors are no longer
named as defendants. On June 26, 1996, the court denied the plaintiffs' motion
to certify a plaintiffs' class. The Company believes that it has meritorious
defenses to this action. Additionally, on November 5, 1996 Medaphis, Randolph
G. Brown, Michael R. Cote and James S. Douglass were named as defendants in a
putative shareholder class action lawsuit filed in Superior Court of Cobb
County, State of Georgia. This lawsuit alleges violations of federal and
Georgia securities laws based on the same public statements and filings
generally described above. The lawsuit is brought on behalf of a putative class
of purchasers of Medaphis stock during the period March 29, 1995 through June
15, 1995. Plaintiffs seek compensatory damages and costs. The Company believes
that it has meritorious defenses to this action.
Following the Company's August 14, 1996 announcement regarding earnings
expectations and certain charges, Medaphis, and one or more of Randolph G.
Brown, former Chairman, Chief Executive Officer and President and a former
director of Medaphis, Michael R. Cote, Senior Vice President--Finance, Chief
Financial Officer and Assistant Secretary of Medaphis, and James S. Douglass,
former Vice President, Corporate Controller and Chief Accounting Officer of
Medaphis were named as defendants in nineteen putative shareholder class action
lawsuits filed in the United States District Court for the Northern District of
Georgia, Atlanta Division. Generally, these lawsuits allege violations of the
federal securities laws in connection with Medaphis' filings under the federal
securities acts and public disclosures concerning various subjects, including
Medaphis' reengineering project, management and operations of certain Medaphis
subsidiaries, and Medaphis' reported and projected revenues and earnings. The
lawsuits are each brought on behalf of putative classes of persons who acquired
Medaphis common stock, including persons who acquired stock either in the public
market or in connection with three of Medaphis' recent business acquisitions.
Eighteen of the actions have been consolidated, and the Company anticipates that
the nineteenth also will be consolidated. Plaintiffs seek rescissory and
compensatory damages and costs. The Company believes that it has meritorious
defenses to this action.
On November 7, 1996, Health Systems International, Inc. filed suit in the
Superior Court for the State of California, County of Los Angeles against
Medaphis, Randolph G. Brown, and "Does 1-50," who are alleged to be unnamed
Medaphis directors, officers and employees. Generally, this lawsuit alleges
that the defendants violated federal and California securities laws and common
law by, among other things more fully described in the complaint, making
material misstatements and omissions in public and private disclosures in
connection with the acquisition of Health Data Sciences Corporation. Plaintiff
seeks rescissory, compensatory and punitive damages, injunctive relief and
costs. The Company believes that it has meritorious defenses to this action.
The Company also has received written demands from various stockholders,
including stockholders of recently acquired companies. To date, these
stockholders have not filed lawsuits.
Although the Company believes that it has meritorious defenses to the
actions against and written demands placed upon the Company, there can be no
assurance that additional lawsuits will not be filed against the Company,
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that the lawsuits and the written demands will not have a disruptive effect
upon the operations of the business, that the written demands and the defense
of the lawsuits will not consume the time and attention of the senior
management of the Company or that the lawsuits will not have a material
adverse effect upon the Company.
Healthcare Fraud Initiatives; Healthcare Reform Measures. The federal
government in recent years has placed increased scrutiny on the billing and
collection practices of healthcare providers and related entities. This
scrutiny has been directed at, among other things, fraudulent billing practices.
The Department of Health and Human Services in recent years has increased the
resources of the Office of the Inspector General ("OIG") specifically to
enforce both false claims and fraud and abuse violations of the Medicare
program. This heightened examination has resulted in a number of high profile
investigations, lawsuits and settlements.
Recently, Congress enacted the Health Insurance Portability and Accounting
Act of 1996 (the "Health Insurance Act"), which includes an expansion of certain
fraud and abuse provisions, such as expanding the application of Medicare and
Medicaid fraud penalties to other federal healthcare programs, and creating
additional criminal offenses relating to "healthcare benefit programs," which
are defined to include both public and private payor programs. The Health
Insurance Act also provides for forfeitures and asset freezing orders in
connection with such healthcare offenses. Civil monetary penalties and program
exclusion authority available to the OIG also have been expanded. The Health
Insurance Act contains provisions for instituting greater coordination of
federal, state and local enforcement agency resources and actions through the
OIG. There also have been several recent healthcare reform proposals which have
included an expansion of the anti-kickback laws to include referrals of any
patients regardless of payor source.
In addition, submission of claims for services or procedures that are not
provided as claimed may lead to civil damages, civil monetary penalties,
criminal fines, imprisonment and/or exclusion from participation in Medicare,
Medicaid and other federally funded healthcare programs. Specifically, the
Federal False Claims Act allows a private person to bring suit alleging false
or fraudulent Medicare or Medicaid claims or other violations of the statute
and for such person to share in any amounts paid to the government in damages
and civil penalties. Successful plaintiffs can receive up to 25-30% of the
total recovery from the defendant. Such qui tam actions or "whistleblower
lawsuits" have increased significantly in recent years and have increased the
risk that a company engaged in the healthcare industry such as Medaphis and
many of its customers may become the subject of a federal or state
investigation or may ultimately be required to defend a false claims action,
will be subjected to government investigation and possible criminal fines, will
be sued by private payors, and will be excluded from the Medicare and/or
Medicaid programs as a result of such an action. The government on its own
may also institute a Civil False Claims Act case, either in conjunction with a
criminal prosecution or as a stand alone civil case. Whether instituted by a
qui tam plaintiff or by the government, the government can recover triple its
damages together with civil penalties of $5,000 - $10,000 per false claim.
Under applicable case law, a party successfully sued under the False Claims
Act may be jointly and severally liable for the damages and penalties. Some
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state laws also provide for false claims actions, including actions initiated by
a qui tam plaintiff. There can be no assurance that Medaphis will not be the
subject of false claims or qui tam proceedings relating to its billing and
collection activities or that Medaphis will not be the subject of further
government scrutiny or investigations relating to its billing and accounts
receivable management services operations. See "Pending Federal Investigation;
Putative Class Action Lawsuits." Any such proceeding or investigation could
have a material adverse effect upon the Company.
In the 1995 and 1996 sessions of the United States Congress, the focus of
healthcare legislation (in addition to the Health Insurance Act) was on
budgetary and related funding mechanism issues. A number of reports, including
the 1995 Annual Report of the Board of Trustees of the Federal Hospital
Insurance Program (Medicare), have projected that the Medicare "trust fund" is
likely to become insolvent by the year 2002 if the current growth rate in
Medicare expenditures continues. Similarly, federal and state expenditures
under the Medicaid program are projected to increase significantly during the
same period. In response to these projected expenditure increases, and as part
of an effort to balance the federal budget, both the Congress and the Clinton
Administration in 1995 and 1996 made proposals to reduce the rate of increase
in projected Medicare and Medicaid expenditures and to change funding
mechanisms and other aspects of both programs. Congress in late 1995 passed
legislation that would reduce projected expenditure increases substantially and
would make significant changes in the Medicare and the Medicaid programs. The
Clinton Administration proposed alternate measures to reduce, to a lesser
extent, projected increases in Medicare and Medicaid expenditures. Neither
proposal became law prior to Congress' 1996 adjournment.
Medaphis anticipates that both the Clinton Administration and the
Republican majorities in Congress will introduce in 1997 legislation designed to
reduce projected increases in Medicare and Medicaid expenditures and to make
other changes in the Medicare and Medicaid programs. Medaphis anticipates that
such proposed legislation would, if adopted, change aspects of the present
methods of paying physicians under such programs and provide incentives for
Medicare and Medicaid beneficiaries to enroll in health maintenance
organizations and other managed care plans. Medaphis cannot predict the effect
of any such legislation, if adopted, on its operations.
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A number of states in which Medaphis has operations either have adopted or
are considering the adoption of healthcare reform proposals at the state level.
These state reform laws have, in many cases, not been fully implemented.
Medaphis cannot predict the effect of proposed state healthcare reform laws on
its operations. Additionally, certain reforms are occurring in the healthcare
market which may continue regardless of whether comprehensive federal or state
healthcare reform legislation is adopted and implemented. These market reforms
include certain employer initiatives such as creating purchasing cooperatives
and contracting for healthcare services for employees through managed care
companies (including health maintenance organizations), and certain provider
initiatives such as risk-sharing among healthcare providers and managed care
companies through capitated contracts and integration among hospitals and
physicians into comprehensive delivery systems. Consolidation of management and
billing services by integrated delivery systems may result in a decrease in
demand for Medaphis' billing and collection services for particular physician
practices, but this decrease may be offset by an increase in demand for
Medaphis' consulting and comprehensive business management services for the new
provider systems.
Client/Server Information Technology Projects. Medaphis' client/server
information technology business involves, among other things, large scale
projects designed to reengineer significant client operations through the
strategic use of imaging, client/server and other advanced technologies. Failure
to meet expectations with respect to a major project could damage the Company's
reputation and standing in the client/server information technology marketplace,
affect its ability to attract new client/server information technology business,
result in the payment of damages to the client and jeopardize the Company's
ability to collect for services already performed on the project.
Possible Volatility of Stock Price. Medaphis believes factors such as
announcements with respect to the Federal Investigation, the Reengineering
Program, putative class action lawsuits, healthcare reform measures and
quarter-to-quarter and year-to-year variations in financial results could cause
the market price of Medaphis common stock to fluctuate substantially. Any
adverse announcement with respect to the Federal Investigation, the
Reengineering Program, putative class action lawsuits, healthcare reform
measures or any shortfall in revenue or earnings from levels expected by
securities analysts could have an immediate and material adverse effect on the
trading price of Medaphis common stock in any given period. As a result, the
market for Medaphis common stock may experience material adverse price and
volume fluctuations.
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Competition. Medaphis faces intense competition in each of the areas in
which it does business. In providing business management systems and services
to physicians and hospitals, Medaphis competes with certain national information
management systems and transaction processing organizations, certain regional
companies which provide such systems or services and certain physician groups
and hospitals which provide their own business management services. In
providing subrogation and recovery services, Medaphis competes primarily with
the internal recovery operations of potential customers and with certain
regional subrogation recovery vendors. In terms of providing client/server
information technology services, Medaphis competes with national, regional and
local companies specializing in information technology and systems integration
consulting services, national and regional application development companies and
the software development and systems integration units of national computer
equipment manufacturers, large information systems facilities management and
outsourcing organizations, national "Big Six" accounting firms and the
information systems groups of large general management consulting firms. Certain
of Medaphis' competitors have longer operating histories and greater financial,
technical and marketing resources than Medaphis. There can be no assurance that
competition from current or potential competitors will not have a material
adverse effect upon Medaphis.
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