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GROUP HEALTH ASSOCIATION ANNOUNCES PLANS TO CONVERT TO FOR-PROFIT STOCK COMPANY

 GROUP HEALTH ASSOCIATION ANNOUNCES PLANS
 TO CONVERT TO FOR-PROFIT STOCK COMPANY
 WASHINGTON, March 23 /PRNewswire/ -- Officials of Group Health Association today announced plans to convert the 55-year-old health maintenance organization from a not-for-profit 501 (c) (3) tax-exempt organization to a for-profit stock company. The conversion is intended to raise $12 million to $15 million from outside investors now, a significant amount of additional new capital over the next five years, and will enhance Group Health's ability to continue to compete with national insurance companies that offer health coverage in the Washington area.
 Officials said the conversion will enable Group Health to provide its 147,000 current members with affordable and stable rates, maintain all ongoing quality improvement initiatives, and offer job security for current employees.
 The conversion also will allow Group Health's physicians, management and other staff to make equity contributions and participate in the ownership of the new company. At the same time, the restructuring will ensure that Group Health's current members -- many of whom have had Group Health coverage for many years -- will continue to receive full medical coverage and maintain their relationships with their personal physicians.
 Information about the conversion plans is being mailed this week to Group Health's members, including an estimated 73,500 in Washington; 44,100 in Virginia; and 29,400 in Maryland.
 The conversion, which could take 12-18 months to complete, is subject to approval by state insurance commissioners in Maryland, Virginia and the Superintendent of Insurance in the District of Columbia.
 As a for-profit company, investors in the new Group Health would elect a board of directors to oversee the organization. While specific shareholders in the converted company have yet to be determined, it is likely that they will include outside investors, as well as internal shareholders.
 Officials said the changing of tax status of the organization will not change the quality of care received by Group Health members.
 Dianne Felton, chair of Group Health's board of trustees, said the conversion will mean that, "quality and access to care will be improved, since the added capital will allow Group Health to continue creating excellent medical facilities for our patients, acquiring sophisticated clinical systems, and attracting highly qualified physicians."
 Group Health has engineered a significant financial turnaround in the past two years. The organization posted a surplus of $3.1 million in 1991 and $3.3 million in 1990, after experiencing a loss of $13.3 million in 1989.
 However, in the face of capital needs ranging from $27 million to $50 million over the next five years, the trustees decided Group Health required a significant infusion of capital that could not be readily obtained under the current structure.
 Today's announcement comes after several months of deliberations during which Group Health's board of trustees considered the organization's long-term prospects for success in the increasingly competitive Washington health care market.
 Last October, the board of trustees hired outside financial and legal consultants to help in identifying options for recapitalizing and restructuring the organization. In February, the board voted unanimously to begin the conversion process.
 Conversion to for-profit status was determined to be the best option not only to infuse new capital, but also to provide continuity of benefits for present members. The trustees considered other proposals for Group Health to be sold, merged or remain as a non- profit organization.
 Felton said the alternatives were considered but not pursued for the following reasons:
 -- If sold, Group Health could not guarantee that individual members or all employer groups would be retained by new owners.
 -- Potential merger candidates were either too weak to offer Group Health the necessary financial stability or too strong to be interested in anything less than an outright acquisition.
 -- Remaining as a non-profit organization could create high premium increases, which would result in financial hardships for patients, many of whom live on fixed incomes.
 Felton said that, "Conversion creates a win-win situation for all parties concerned. The organization gains a vehicle to raise additional capital to meet our patients' need now and in the future. Our members retain continuity of coverage and care with their personal physicians. And our medical staff will be able to join us in a long-term partnership."
 Proceeds of the conversion would be placed into a new 501 (c) (3) foundation that would pursue charitable, scientific, or educational endeavors.
 In recent years, several other health maintenance organizations across the country have also converted to for-profit organizations, including Intergroup of Arizona in Phoenix; HIP/Rutgers Community Health Plan in Rutgers, N.J.; Health Net in California; Prime Health in Kansas City, Mo.; and Group Health in St. Louis (no relation to Group Health Association).
 Group Health Association was the first health maintenance organization to be established in an urban setting. Today's milestone announcement comes a day after the 55th anniversary of Group Health Association's first membership meeting, adoption of bylaws, and election of officers.
 -0- 3/23/92
 /CONTACT: Ed Segal for Group Health Association, 202-333-7966/ CO: Group Health Association ST: District of Columbia, Maryland, Virginia IN: HEA SU: RCN


MP -- DC004 -- 0413 03/23/92 09:03 EST
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Date:Mar 23, 1992
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