Metropolitan Health Networks

MDPA OB Metropolitan Health Networks, Inc. (Metcare), incorporated in 1996, renders care as a provider service network (PSN) to over 27,000 Medicare+Choice patients, 3,000 commercial health maintenance organization (HMO) patients and approximately 15,000 fee-for-service patients aligned with various health plans through its network. The Company has a wholly owned subsidiary, Metcare Rx, Inc. Metropolitan historically operated in three segments: managed care (through PSN), pharmacy (through Metcare Rx) and clinical laboratory (through Metlabs). The managed care division includes the operations of the PSN in south and central Florida. MetcareRx, Inc. began expanding in 2003. The clinical laboratory division was closed in 2002. In November 2003, the Company sold the assets of its Metcare Rx pharmacy business to an affiliate of Healthcare Financial Corporation, LLC.

As a healthcare company, Metcare provides turnkey services to managed care companies on a full-risk basis and pharmacy management on behalf of physicians. The Company has developed an infrastructure of management expertise in the fields of disease management, partners in quality and utilization management. In disease management, Metcare employs a method to manage the costs and care of high-risk patients and produce better patient care. Through partners in quality, the Company performs a review of overall patient care measured against best medical practice patterns. Utilization management involves a daily review of statistical data created by encounters, referrals, hospital admissions and nursing home information.

Managed Care

The Company's agreements with Humana are for one year and renew automatically for additional one-year terms unless terminated for cause or on 180-days prior notice. Under these agreements, the Company is responsible for providing all covered benefits for the patients covered under the contracted Humana plan. Under the agreement, Humana is obligated to pay Metcare for covered services according to an agreed upon payment schedule, based on the amount Humana receives from its payer source. If revenue is insufficient to cover costs, Metcare's operating results could be adversely affected. A new full-risk contract for Volusia and Flagler counties (Daytona market), implemented on January 1, 2000, was amended as of March 1, 2002, and again as of January 1, 2003.

Under HMO agreements, Metcare, through its affiliated providers, is responsible for the provision of all covered benefits. While responsible for all medical expenses for each covered life, the Company has limited its exposure by obtaining reinsurance/stop-loss coverage. In addition, Metcare has capitated high-volume specialties, fixing its cost on a per-member-per-month (PMPM) basis. Low-volume providers remain at a discounted fee-for-service basis. A change in healthcare legislation, inflation, major epidemics, natural disasters and other factors affecting the delivery and cost of healthcare are beyond the control of the Company and may adversely affect its operating results.

For the year ended December 31, 2002, approximately 90% of the Company's revenues were from risk contracts with Humana. In conjunction with its business strategy, Metcare is pursuing opportunities to add additional payer sources while continuing to expand its existing business relationships to provide additional services through the Network.

Under Metcare's model, the physicians maintain their independence but are aligned with a professional staff to assist in providing cost effective quality medicine. Each primary care physician provides direct patient services as a primary care doctor including referrals to specialists, hospital admissions and referrals to diagnostic services and rehab. As part of its network, the Company owns several practices that have been fully integrated into its PSN model.

The Company enhances administrative operations of its physician practices by providing management functions, such as payer contract negotiations, credentialing assistance, financial reporting, risk management services and the operation of integrated billing and collection systems. The Company offers the physicians increased negotiating power associated with managing their practice and fewer administrative burdens, allowing the physician to focus on providing care to patients. Metcare also assists the physicians in obtaining managed care contracts.

Pharmacy

Metcare Rx was strategically focused on servicing healthcare companies with pharmacy risk with a goal of offering cost containment and quality service. The Company's operations served a various at risk MCOs, including medical groups and clinics, managed care health plans, HIV clinics and long-term care facilities. Metcare Rx offered all of these MCOs a one-stop solution that is customized to each client to control drug costs and provide for enhanced outcomes. Metcare provided a continuum of pharmacy care including effective specialty pharmacy services, strategically located ambulatory pharmacies, convenient home delivery, meaningful drug utilization evaluations and complex pharmaceutical managed care.

MDPA tailored its services to meet the specific needs of its clients. The specialty pharmacy service can be offered on a stand-alone basis or be bundled with Metcare's total pharmacy management solution to provide a one-stop, comprehensive approach to managed care pharmacy.

Metcare's influence over the prescription writing process enabled the Company to increase its market share, which, in turn, creates significant buying power with its drug suppliers. This purchasing leverage stems from various Company strategies, including collaborative design of effective drug formulary in consultation with the client MCO's key physicians, Medical Director and Pharmacy and Therapeutic Committee; active education of member physicians about the client's drug formulary decisions and rationale; focus on serving healthcare organizations that are at risk for pharmacy costs; effective Drug Utilization Evaluations (DUEs); increased patient convenience and compliance through physician office dispensing, ambulatory pharmacies and home delivery of medications and automation through software and use of the Internet, and expertise in specialty drug areas such as HIV.

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