UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
Current
Report pursuant
to
Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of
report (Date of earliest event reported): June 27, 2008
METROPOLITAN
HEALTH NETWORKS, INC.
(Exact
name of registrant as specified in its charter)
Florida
(State
or
other jurisdiction of incorporation)
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0-28456
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65-0635748
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(Commission
file number)
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(I.R.S.
Employer Identification No.)
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250
Australian Avenue South, Suite 400
West
Palm
Beach, FL 33401
(Address
of principal executive offices, including zip code)
(561)
805-8500
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act
(17
CFR 240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
Item
1.01. Entry
into a Material Definitive Agreement
On
June
27, 2008, Metropolitan Health Networks, Inc. (the “Company”) agreed to sell to
Humana Medical Plans, Inc. (“Humana”) all of the stock of Metcare Health Plans,
Inc., the Company’s wholly-owned subsidiary which operates a 7,300 member health
maintenance organization (the “HMO”). Upon the proposed sale of the HMO, which
is targeted to occur within 90 days, the Company’s provider service network (the
“PSN”) will be retained by Humana pursuant to a five year independent practice
association agreement (the “IPA Agreement”) to provide or coordinate the
provision of healthcare services to the HMO’s members on a fixed fee per patient
basis.
The
transaction and IPA Agreement have been designed to allow the Company and Humana
to expand their relationship, with each party focusing on its core competencies.
Upon the consummation of the proposed sale, the Company’s business efforts will
be exclusively concentrated on managing a provider service network, which is
projected to grow its number of revenue generating patients served by about
30%
upon the sale of the HMO. The acquisition of the HMO is also expected to expand
the number of members in Humana’s Medicare Advantage Plans in Florida to over
330,000. The Company believes the HMO sale and IPA Agreement offer the Company
an opportunity to improve upon its ability to operate cost efficiently and
profitably. For
instance, the
Company anticipates that, as a result of Humana’s existing contracts with
various service providers, the IPA Agreement will assist the PSN reduce the
cost
of providing certain services to the HMO’s members.
HMO
Stock Purchase Agreement
Pursuant
to the Stock Purchase Agreement between the Company and Humana (the “Purchase
Agreement”), Humana has agreed to purchase all of the stock of the HMO for cash
equal to the sum of (i) $14.0 million and (ii) the amount, if any, by which
the
HMO’s estimated closing net equity (the “Estimated Closing Net Equity”) exceeds
$4.5 million. Ten percent of such amount will be deposited in escrow for 24
months to secure the Company’s payment of any post-closing adjustments
and
indemnification obligations, described below.
The
purchase price is subject to positive or negative post-closing adjustment based
upon the difference between the Estimated Closing Net Equity and the HMO’s
actual net equity as of the closing of the transactions contemplated by the
Agreement (the “Closing”) as determined six months following the Closing (the
“Closing Net Equity”). In addition to the purchase price adjustment discussed
above, the Purchase Agreement requires that Humana reconcile any changes in
CMS
Part D payments and Medicare payments received by the HMO after the Closing
for
services provided prior to the Closing Date to the amounts recorded for such
items as part of the Closing Net Equity determination. The net amount of such
reconciliations will be paid to the Company or Humana, as
applicable.
The
Closing is subject to the approval of CMS and Florida insurance regulators,
the
consent of various third parties, the non-occurrence of any event which has
a
material adverse effect on the HMO and various usual and customary conditions.
The Purchase Agreement also contains customary representations, warranties,
covenants (including negative covenants), and indemnification provisions, as
well as a five year non-competition and non-solicitation covenant of the
Company. The non-competition covenant, which expressly does not apply to the
Company’s operation of the PSN business, precludes the Company from competing
with the HMO and its affiliates throughout the State of Florida during the
five-year restricted period. Either party may terminate the Purchase Agreement
in the event the conditions to Closing have not been satisfied or waived prior
to October 31, 2008 or if satisfaction of any the conditions to Closing become
impossible.
The
HMO,
which served approximately 7,300 members as of June 1, 2008, had a segment
loss
before
allocated overhead and income taxes of approximately $10.5 million for the
year
ended December 31, 2007 and approximately $2.7 million for the first quarter
of
2008.
IPA
Agreement
The
IPA
Agreement, which pertains to 13 counties in central Florida and the Treasure
and
Gulf Coasts of Florida where the HMO currently operates, provides that the
PSN
will provide and arrange for the provision
of covered medical services to each member of Humana’s Medicare Advantage Plans
who selects one of the PSN’s Physicians as his or her primary care physician (a
“Humana Participating Customer”).
Pursuant
to the IPA Agreement, the PSN will receive a fixed fee with respect to each
Humana Participating Customer, which fee will represent a significant portion
of
the premium that Humana receives from CMS with respect to that member. Under
the
IPA Agreement, the PSN will assume full responsibility for the provision of
all
necessary medical care for each Humana Participating Customer, even for services
it does not provide directly.
The
IPA
agreement has a five-year term and will renew automatically for additional
one-year periods upon the expiration of the initial term and each renewal term
unless terminated upon 90 days notice prior to the end of the applicable term.
Humana may immediately terminate the IPA Agreement and/or any individual
physician credentialed under the IPA Agreement, upon written notice, (i) if
the PSN and/or any of the PSN Physician’s continued participation may adversely
affect the health, safety or welfare of any Humana member or bring Humana into
disrepute; (ii) if the PSN or any of its physicians fail to meet Humana’s
credentialing or re-credentialing criteria; (iii) if the PSN or any of its
physicians is excluded from participation in any federal health care program;
(iv) if the PSN or any of its physicians engages in or acquiesces to any
act of bankruptcy, receivership or reorganization; or (v) if Humana loses
its authority to do business in total or as to any limited segment or business
(but only to that segment). The PSN and Humana may also each terminate the
IPA
Agreement upon 60 days’ prior written notice (with a 30 day opportunity to
cure, if possible) in the event of the other’s material breach of the IPA
Agreement.
In
four
of the counties covered by the IPA Agreement (Martin, St. Lucie, Okeechobee
and
Glades), the PSN will be restricted pursuant to the IPA Agreement from
contracting with any other Medicare Advantage plan through December 31,
2013.
In
addition to the IPA Agreement, upon the proposed sale of the HMO, the PSN’s
provider relationship with CarePlus Health Plans, Inc., one of Humana’s
wholly-owned Medicare Advantage Plans, will be extended to include the 13
counties covered by the IPA Agreement.
In
connection with the proposed sale of the HMO, on June 25, 2008, Morgan Joseph
& Co. Inc., the Company’s unaffiliated financial advisor, delivered a
fairness opinion to the Company’s Board of Directors to the effect that the
consideration to be received by the Company in connection with the proposed
sale
of the HMO is fair, from a financial point of view, to the Company.
The
foregoing summary is qualified by reference to the full text of the Stock
Purchase Agreement, which is attached hereto as
Exhibit 2.1.
Forward
Looking Statements:
Except
for historical matters contained herein, statements made in this press release
are forward-looking and are made pursuant to the safe harbor provisions of
the
Private Securities Litigation Reform Act of 1995. Without limiting the
generality of the foregoing, words such as “may”, “will”, “to”, “plan”,
“expect”, “believe”, “anticipate”, “intend”, “could”, “would”, “estimate”, or
“continue” or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements.
Investors
and others are cautioned that a variety of factors, including certain risks,
may
affect our business and cause actual results to differ materially from those
set
forth in the forward-looking statements. These risk factors include, without
limitation, (i) the
risk that the sale of the HMO to Humana will not be completed for a variety
of
reasons, including, but not limited to, an inability to obtain necessary
governmental approvals and third party consents and the occurrence of an event
which has a material adverse effect on the HMO;
(ii)
our ability to meet our cost projections under the IPA; (iii) our failure to
accurately estimate incurred but not reported medical benefits expense; (iv)
pricing pressures exerted on us by managed care organizations and the level
of
payments we receive under governmental programs or from other payors; (v) future
legislation and changes in governmental regulations; (vi) the impact of Medicare
Risk Adjustments on payments we receive for our managed care operations; (vii)
a
loss of any of our significant contracts or our ability to increase the number
of Medicare eligible patient lives we manage under these contracts;
(viii) our
ability to successfully operate the HMO
prior to the closing of its sale to Humana and, if such sale does not
occur, our
ability to continuously increase enrollment and effectively manage expenses
in
our HMO. The
company is also subject to the risks and uncertainties described in its filings
with the Securities and Exchange Commission, including its Annual Report on
Form
10-K for the year ended December 31, 2007, and its Quarterly Report on Form
10-Q
for the quarter ended March 31, 2008.
Item
9.01 Financial
Statements and Exhibits
(d) Exhibits
10.1 Stock
Purchase Agreement, dated as of June 27, 2008, by and between Humana Medical
Plans, Inc. and Metropolitan Health Networks, Inc.
99.1 Press
Release dated June30, 2008.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
June 30, 2008
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By:
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/s/
Roberto L. Palenzuela
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Roberto
L. Palenzuela
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Secretary
and General Counsel
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