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CARENETWORK SAYS FIRST QUARTER AND YEAR END 1992 RESULTS WILL BE DOWN

 CARENETWORK SAYS FIRST QUARTER AND YEAR END 1992
 RESULTS WILL BE DOWN
 MILWAUKEE, April 10 /PRNewswire/ -- CareNetwork, Inc. (NASDAQ: CRNT) management today announced that the company's first quarter and annual results will be significantly below original expectations due to higher than anticipated health care service expenses in its Wisconsin Health Organization (WHO) HMO subsidiary and to administrative expenses incurred in preparation for geographic expansion outside of Wisconsin.
 WHO's health care services have been higher than anticipated since shifting from a fully capitated hospital reimbursement system to a per diem system for 70 percent of its commercial members during the first quarter of 1991. In particular, the HMO has experienced a shift in the mix of per diem categories to higher paying categories resulting in a composite per diem greater than expected by the actuarial and historical analysis performed prior to implementing the two-year agreements. The frequency of hospital day surgery procedures has also been greater than expected. The impact of these variations is approximately $0.25 per share quarterly, pre-tax.
 CareNetwork's quarterly administrative expenses will also be slightly higher due to the staffing of CareNetwork Medical Management Corporation to support geographic expansion needs and also due to one- time expenses associated with the conversion of the corporation's data processing systems which will not impact future periods. As a result, CareNetwork's administrative expense ratio could equal 10.5 percent for the first quarter which would be $400,000 or $0.08 per share, pre-tax, higher than previous expectations.
 "We are presently redesigning our core WHO business and increasing our staff for anticipated geographic expansion with an HMO joint venture in a new region," said Kipton Kaplan, president and chief executive officer, CareNetwork, Inc. "As we prepare today for tomorrow's expected business, we are experiencing near-term operating expenses in excess of our original estimates," he added.
 Craig R. Kasten, chief operating officer, said, "We have put in place three principal operating controls to achieve profitability for the remainder of the year and into 1993. First, we have multi-year provider contracts with most of our physicians to provide predictable benefit expenses going forward. Second, we are developing capitation contracts for our ancillary services such as outpatient services, durable medical equipment, vision care and home health care. Finally, we now have focused utilization management and expanded systems capability in place to provide increased bottom-line accountability.
 "Together, I believe we have the internal operating controls in place to increase future profitability in our WHO business and to implement our growth strategy," Kasten added.
 Kasten has put forth specific operating goals to increase WHO profitability: a) renew WHO hospital per diem contracts at rates which will result in an 87.5 percent medical loss ratio; b) reduce WHO's administrative expense ratio to 8.5 percent by year-end; c) expand WHO Medicaid enrollment with addition of Sinai-Samaritan physicians to the Medicaid provider network; d) reduce or eliminate WHO's commercial enrollment in Racine, Wis., to produce $1 million pre-tax savings; (e) realize increased pharmacy discounts from average wholesale price to produce $1.2 million pre-tax savings; and f) develop capitation contracts for ancillary services.
 CareNetwork, Inc., is the managed health care parent company for Wisconsin Health Organization Insurance Corp.; Network EPO, Inc.; Geneva Benefits Administration Corp.; and CareNetwork Medical Management Corp.
 -0- 4/10/92
 /CONTACT: Craig R. Kasten, chief operating officer, 414-223-7712, Patrick A. Roberts, vice president-finance, 414-223-7758, or Walter R. Barry III, manager of investor relations, 414-223-0172, all of CareNetwork/
 (CRNT) CO: CareNetwork, Inc. ST: Wisconsin IN: HEA SU: ERP


GK-KD -- NY070 -- 7453 04/10/92 18:56 EDT
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Publication:PR Newswire
Date:Apr 10, 1992
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