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PMSI’s WORKER COMPENSATION COST CONTAINMENT PROGRAM

Executive Summary

PMSI's WORKER COMPENSATION COST CONTAINMENT PROGRAM manages the purchase and use of drugs, medical supplies, durable equipment and electro-medical therapy products by claimants with long-term work-related injuries. Tampa-based Pharmacy Management Services, Inc. (PMSI) has as its clients approximately 2,900 payors represented by over 30,000 claims representatives nationwide. For the year ended July 31, sales jumped 86% to $34 mil. and have grown more than 1,000% since FY 1986, when sales were $3 mil., PMSI disclosed in a red herring filing dated Feb. 26. In FY 1989, PMSI cleared over $1 mil. in net income. The filing outlines a preliminary stock offering, underwritten by Robertson, Stephens and Alex. Brown & Sons, for 1.8 mil. shares of common stock, with 300,000 of those being sold by current shareholders and thus not providing proceeds to the company. The proposed per share price is $9 to $11, with a potential for gross proceeds of $13.5-$16.5 mil. PMSI is predicting net proceeds of $13.7 mil., based on a price of $10 per share. A large part of the proceeds will be used to repay debt, which stood at $10.5 mil. as of Jan. 31. Much of the debt is the result of the company's rapid expansion in recent years, including a move to a larger facility. PMSI was established in 1972 by President, CEO and majority stockholder Cecil Harrell, 55. Heightened state efforts to increase the premiums employers pay to cover rising health care costs for work-related injuries have spurred the company's growth. PMSI estimates that worker compensation claimants' medical products and services will cost approximately $16 bil. in 1990, based on 1987 industry statistics which place total work-injury related costs (including lost wages, legal fees, etc.) at $38 bil. The company's strategy, outlined in the prospectus, is "to reduce the medical costs of long-term, high-cost, work-related injuries" through a "comprehensive integrated program" that "controls the utilization of products by claimants, provides information to payors regarding the usage of products by claimants and documents the savings resulting from the company's services." To do this, PMSI operates a pharmacy and warehouse through which it dispenses 4,800 types of prescriptions and stocks over 11,500 medical supply and equipment products. The company also offers electro-medical therapy products, including transcutaneous electrical nerve stimulators ("TENS") and neuromuscular electrical stimulators ("NMS") and related supplies and accessories, such as electrodes. PMSI has approximately 580 employees, of which 161 are pharmacists, nurses and medical technicians. PMSI offers next-day delivery of drugs and medical supplies to injured workers via a toll-free order number that eliminates the need for out-of-pocket payments by claimants and individual claim forms. The payor gets a detailed invoice at the end of the month which reduces processing costs and can be used to estimate future costs. By tracking claimant usage patterns, PMSI says it can control "unauthorized or excessive use of supplies and drugs while offering competitively priced products." PMSI competes with local pharmacies and medical equipment suppliers and local branches of national medical equipment supply companies but does not have any direct competitor that offers the full ranges of PMSI's services. New ventures for Pharmacy Management Services, Inc. include the Technical Medicine Division, which was established in June 1989 to market electro-medical therapy and other products to physical therapists and rehab clinics. David Kahn is VP of the new division. He was formerly a regional sales manager for Empi, which distributes TENS and NMS products.
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