CIBC 15th Annual Health Care ConferenceNovember 9, 2004The Plaza, New York City
PacifiCare Health SystemsPacifiCare Health SystemsBrad BowlusBrad BowlusPresident and CEO, President and CEO, Health Plans DivisionHealth Plans Division
The statements made during this presentation that are not The statements made during this presentation that are not historical facts are forward-looking statements within the historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Factors that could cause number of risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, but actual results to differ materially from expectations include, but are not limited to, the risks discussed in the company's most are not limited to, the risks discussed in the company's most recent filings with the SEC, including the Form 10Q filed as of recent filings with the SEC, including the Form 10Q filed as of September 30, 2004, and the Form10K filed as of December September 30, 2004, and the Form10K filed as of December 31, 2003. 31, 2003.
Cautionary StatementCautionary Statement
Largest purchaser of health care Largest purchaser of health care services in the western United Statesservices in the western United States
Fortune 200 company w/ 2004 Goals of:• $12 billion in revenue• 2.3 million commercial lives• 704 thousand senior lives• 11.8 million specialty lives
Medical & Specialty Companies
Continued Market Expansion
2004 Markets
Planned Specialty Expansion
Specialty Companies Only
Earnings Growth
Net Income
$243
$139
$19
$0
$100
$200
$300
$400
2001 2002* 2003 2004 est. 2005 est.^
* Excluding effect of the adoption of FAS 142 relating to the amortization of goodwill* Excluding effect of the adoption of FAS 142 relating to the amortization of goodwill
^ Includes proposed acquisition of American Medical Security Group ^ Includes proposed acquisition of American Medical Security Group
$301-$306$301-$306
$360-$375$360-$375
Excess Statutory Capital
$218$276
$609
$375
$743$723
$50
$250
$450
$650
$850
2000 2001 2002 2003 6/30/04 9/30/04 est.
mill
ion
s
Average of 400% RBC in core HMO statesAverage of 400% RBC in core HMO states
2004 Trends- YTD through September 30th
• Net income up 30% from ‘03, excluding ‘03 favorable prior period development
• Commercial business, year-over-year • Membership up 84K or 4.6%• CA membership up 7% • MLR down 20 basis points • Aggregate gross margin up 14.3%
• Medicare Advantage business, year-over-year• Membership up 1% • MA MLR up 150 basis points, at low end of revised 2004 guidance
• SG&A down 20 basis points Year-over-Year
• Commercial premiums up 9.2% PMPM, over health care cost PMPM of 8.3%, excluding ’03 favorable prior period development
• ‘04 premium increase guidance 8.5% - 9%
Planned evolution from a traditional health maintenance organization into a leading consumer health organization
HMODIVERSIFIED INSURANCE COMPANY
CONSUMER HEALTH
ORGANIZATION
PacifiCare Vision
2000 2001-2002 2003-2004
HMO FocusDeployed Product
Leadership Strategy Solidified Total Solution
Approach
Source: KFF/HRET Survey of Employer-Sponsored Health Benefits: 1999-2004; KPMG Survey of Employer-Sponsored Health Benefits: 1993,1996; HIAA: 1988-1990; Bureau of Labor Statistics, CPI (US City Avg of Annual Inflation) 1988-2004; Bureau of Labor Statistics; Seasonally Adjusted: 1988-2004
Increases in Health Insurance Premiums Compared to Other Indicators, 1988-2004
11.2%
18.0%
0.8%
13.9%12.9%
10.9%
8.2%
5.3%
8.5%
12.0%
14.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1988 1990 1992 1994 1996 1998 2000 2002 2004
Health Insurance PremiumsWorkers EarningsOverall Inflation
2.3%
2.2%
Unhappy about costs
Imposed legislative/ regulatory actions to restrict aggressive intervention and mandate benefits
Angry about• Economics• Hassles• Professional
autonomy
Worried about
• Ability to access care when needed
• Hassles
Employers GovernmentPhysicians Consumers
PacifiCare’s Value Propositions
and Consumer Aligned Health Care
All Key Stakeholders Looking for Solutions
SUPERIOR HEALTH CARE
COST MGMT
DATA DRIVEN OUTCOMES
CONSUMER DRIVEN TOTAL
SOLUTION
DELIGHTING THE CUSTOMER
C O N S U M E R
C
E
M
U
S
N
O
R
Delivering Consumer Aligned Value Propositions
Maximizing Cost & Quality OutcomesDelight
the Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
Outcomes
CONCENTRATED PURCHASING POWER
INTEGRATED DISEASE MANAGEMENT PROGRAMS
BEST IN CLASS NETWORKS
DEMAND SIDE INTERVENTIONS
TIERED & NARROW NETWORKS
PROVEN MEDICAL MANAGEMENT CAPABILITY
$3.5
$70.4M $15.6M $2.6M
$22.7M
$3.9M
CHF COPD CADCancer NICU ESRD
Cumulative DM Savings
from 12/00 Program Inception$295M
Cumulative DM Savings
from 12/00 Program Inception$295M
DM Outcome Report September 2004
$3.5M
Rolling 12 Months Savings = $120 Million
$3.6M
Delight the
Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
OutcomesIntegrated Disease Management Programs
PAAXPAAX
-Member Centric
-Integrated Data Sources
- Episode Grouping
- Risk Adjustment
- Predictive Modeling
-Benchmarking
- Multiple Units of Analysis
- Demographic Info - Medical Claims- Pharmacy Claims- Clinical Encounters- Health Risk Assessment- Disease Management- Direct Lab Feeds- Satisfaction Survey
- Demographic Info - Medical Claims- Pharmacy Claims- Clinical Encounters- Health Risk Assessment- Disease Management- Direct Lab Feeds- Satisfaction Survey
Health Services Reports
Marketing & Sales Reports
Actuary & Underwriting Reports
Provider & Network Reports
PAAX – PacifiCare AdvancedAnalytixSM Delight
the Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
Outcomes
Quality Index® Profile of HospitalsDelight
the Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
Outcomes
68.1%
78.9%
82.0%
61.0%
66.0%
71.0%
76.0%
81.0%
86.0%
2002 2003 2004
Source: MSBR / CSA Satisfaction Details
Highly Satisfied Commercial Members Delight the
Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
Outcomes
On-Going Support -Care Management
•Disease Mgmt/ Web Admin•Health Credits
•Women’s Health•Flexible Spending Account•Ethnic Diversity Programs
Specialty Offerings•Pharmacy
•Dental & Vision•Behavioral
•Life/STD/LTD•Caregiver
•PAN
Front End Decision Support
•Quality Index Profiles•Benefit Selection Pricer•Health Risk Assessment
•Worksite/Web Based Tools•On-Line Enrollment
Low Cost High Cost
Signature Freedom
Signature Independence
SignatureValueSelect Hospital
PlanSignatureValue
Advantage
SignatureOptionsAdvantage
SignatureValueTraditional
PlanSignatureOptions
TraditionalPlan
SDHP
HMO/EPOPPO
Indemnity
Consumer Driven Total SolutionDelight
the Customer
Superior HCC Mgmt
Consumer Total
Solution
Data Driven
Outcomes
• SignatureFreedom engages members to:
Become better consumers of healthcare
Be accountable for their decisions
Manage their own health and adopt healthy lifestyles
Consumer Aligned Product Leadership
Employee Responsibility$1,000 to $2,000
In-Network70%
Out-of-Network50%
Self Directed Account$1,000
Covered Services (apply to deductible):• Physician Office Visits
• Wellness & Preventive Care• Office-based Diagnostic Tests
AnnualDeductible
$2,000
In-Network70%
PPOBenefit
Plan
100% After Coinsurance Maximum
$$ Employee Responsibility$1,000 to $2,000
Out-of-Network50%
Rx$10
generic$35
brand
SignatureFreedom Plan Design
• Approximately 10% from groups that did not previously offer insurance
• > 70% from Small Group (2 to 50 employees)
• 90% from customers new to PacifiCare
SignatureFreedom Growth
0
10000
20000
30000
40000
50000
60000
70000
80000
Me
mb
ers
hip
Jul-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Individual
NV/WA/OR
TX/OK/AZ
CO
CA
PHS
70,300 Members70,300 Members
Key Features
Model HSA – Health Savings Account
Eligibility
Contributor
Account Carryover
Ability to Withdraw for Non-Health Care
No
Yes Yes or No Yes
Yes No
Employees enrolled in HDHP
Ability to Earn Investment
NoYes No
HRA – Health Reimbursement
Account
Signature Freedom(SDHP)
All Employees All Employees
Employee or employer or combination
Employer Only PacifiCare
Spending Account Model Comparison
• Grow commercial business through consumer-aligned products and ISG segment expansion
• Build Senior Solutions products/distribution
• Medicare Advantage growth
• Specialty company external member growth
• Prescription Solutions
• Behavioral health
• Dental & Vision
Strategy for Profit Growth
Growth of Commercial Business
Diversification through new Individual/Small Group salesDiversification through new Individual/Small Group sales
2131 31
4047
42 40
01020304050
Q103 Q203 Q303 Q403 Q104 Q204 Q304
20032003 20042004
American Medical Security (AMS) Overview
Individual and Small Group Health Insurer Individual and Small Group Health Insurer Headquartered in Green Bay, WisconsinHeadquartered in Green Bay, Wisconsin
2004 Markets
AMS MarketsAMS Highlights• $700 million in revenue • 315,000 medical members• 218,000 dental, 130,000 life
Acquisition of American Medical Security (AMS)
28 Additional medical states after AMS acquisition28 Additional medical states after AMS acquisition
PHS Only Markets
2005 Markets - Post Acquisition
AMS Only MarketsPHS & AMS Combined Markets
Transaction SummaryTransaction Summary
• Price: $32.75 cash per AMS share; ~$502M total
• Expected Close: Early 2005
• Financing: $400M new term loan + ~$160M internal cash
• Accretion: Net Income guidance increased by $10-$15M to $360-$375M
• Required Approvals: AMS shareholders
Hart Scott Rodino
WI & GA DOIs
Acquisition of American Medical Security Group
Acquisition of American Medical Security Group, Inc.
Key Considerations/Value DriversKey Considerations/Value Drivers
• Diversifies PHS by product, geography & customerDiversifies PHS by product, geography & customer
• M+C reduced from 37% to 33% of total gross marginM+C reduced from 37% to 33% of total gross margin
• CA enrollment declines from 62% to 56% of totalCA enrollment declines from 62% to 56% of total
• Commercial membership (ISG) up 13%Commercial membership (ISG) up 13%
• Expansion of PPO into 29 states + D.C.Expansion of PPO into 29 states + D.C.
• Enhances broker distribution & facilitates cross- sellEnhances broker distribution & facilitates cross- sell
• 32,000 independent brokers32,000 independent brokers
• Cross sell opportunity for M+C, Med Supp, Cross sell opportunity for M+C, Med Supp, SignatureFreedomSignatureFreedom
Acquisition of American Medical Security Group, Inc.
Key Considerations/Value DriversKey Considerations/Value Drivers
• Acquire additional AMS product/functional expertiseAcquire additional AMS product/functional expertise• ISG underwritingISG underwriting
• HSA, Group Life, Disability & Dental productsHSA, Group Life, Disability & Dental products
• Provides low cost, scalable platform to further Provides low cost, scalable platform to further expand ISG businessexpand ISG business
Medicare Advantage Timeline
• Health Plan ACRs for 2005 submitted 9/13/04
• PPO and PDP regions defined: Nov - Dec ’04
• Benchmark rates issued first Monday in April ’05
• Health Plan RFPs due first Monday in June ’05 • New prescription drug benefit starts 1/1/06
(in
mi l
lio
ns )
* Breakout of internal vs. external revenue is not available prior to CY 2002
Internal Revenue External Revenue
$340
$394 $403
$472
$661
$172$239
$322
$231 $232$339
0
100
200
300
400
500
600
700
2000A* 2001A* 2002A 2003A 2004E
Prescription Solutions Revenue Growth
(in
mil
lio
ns)
$296$341 $328
$387
$543
24.8%
$0
$100
$200
$300
$400
$500
$600
2000A 2001A 2002A 2003A 2004E
18.7% 20.3% 20.6%
25.0%
18.4%
Mail Service Revenue & Mail Order Penetration
Room for P/E Multiple Expansion
0.0
4.0
8.0
12.0
16.0
20.0
UNH SIE WC AET WLP ATH HNT HUM PHS CVH CI
2004
2005
2004 Average2004 Average
2005 Average2005 AverageComparison as of 10/27/04Comparison as of 10/27/04
CIBC 15CIBC 15thth Annual Health Care Conference Annual Health Care Conference
Thank You
Top Related