2 016 ANNUAL REPORT

Lenda Townsend-Williams, MBA Chief Operating Officer

Steve Yedlin, MD Chief Medical Officer

Shareholder’s Meeting April 25, 2017

To Our Shareholders,

As your Independent Practice Association (IPA), we are proud of the continued quality services provided to your members and your availability to accomodate their needs.

We remain committed to supporting the future of independent physicians, who provide members with outstanding care. We are researching options to assist with sustaining your practice.

In this report, you will read about some of the accomplishments made possible by outstanding employees of Children First Medical Group, Inc. We value our physician shareholders who continue to serve as a choice for pediatric well care and specialty care services in the local community, and surrounding counties and states.

Thank you for all you do to contribute to the overall success of your IPA.

Arnold Blustein, MDBoard President

2016 Annual Report

Lenda Townsend-Williams, MBA Chief Operating Officer

Steve Yedlin, MD Chief Medical Officer

Table of Contents

2016 Highlights..........................................1

Financial Review.........................................2

Independent Auditor’s Report...................3

Administrative Services..............................5

Medical Management................................9

Board of Directors & Committees.............11

Children First Medical Group, Inc.

2016 Highlights

1

Seventy-four (74) new physicians joined our network.

Primary Care Physicians expressed high satisfaction with CFMG’s prior authorization process.

Successfully met and exceeded financial solvency requirements for the Department of Managed Care.

We received excellent results on the following audits:

1) Claims

2) Credentialing

3) Utilization Management

Excellent Member Satisfaction results with the primary care practices rating of 95%.

Successfully met National Committee for Quality Assurance and Department of Health Care Services requirements for all delegated activities.

The Provider Relations Department received 2,850 calls on the customer service line compared to 3,359 calls in 2015, a 15% decrease.

The Medical Management Department processed 6,680 authorizations compared to 7,091 in 2015, a 6.1% decrease.

We hosted three (3) Provider Education & Training Workshops.

We maintained credentialing delegation authority with 19 payors.

The Claims Department processed 204,544 paper and EDI claims.

The Claims Error Ratio was <1% compared to the industry standard of 5%.

2017 Strategic Focus 1) Develop strategies to retain physician practices

2) Continued financial stability

3) Upgrade operating systems and advance technology

2016 Annual Report to Shareholders

In 2016, Children First Medical Group, Inc. continued its course of stable financial growth. Our total revenue increased 4.5%. Our operating expenses remain at approximately 12%, a ratio well within industry standard. Our physician membership increased by 74 physicians. We continue to add UCSF faculty who have partnered with our physicians to provide clinic and ED coverage at UCSF Benioff Children’s Hospital Oakland. As most know, we also have primary care and specialty physician members who are associated with Stanford Health Care and Lucile Packard Children’s Hospital Stanford. We continue to provide administrative support services to UCSF Benioff Children’s Physicians to which many of our physicians belong.

For the calendar year 2016, our surplus was a new high of six million dollars. About $1.6 million was distributed in September. The remainder was distributed in March.

The distribution was determined first by providing a participation bonus to both primary care physicians and specialists open to providing services to our Medi-Cal members. A member-month bonus was distributed to our PCPs. Most of the remaining funds were distributed based on services provided by all participating physicians.

We again provided funding to the Children’s Specialty Care Coalition (CSCC), a statewide group of California Children Services (CCS) providers that works to ensure continued support for our most at risk patients. The State is moving toward a Whole Child Model. This will result in CCS being rolled into managed care, which hasn’t been clearly defined. The goal is to have the individual child’s care to be fully integrated into a single responsible entity to ensure appropriate care coordination. CSCC is providing insight to the state on the best options for care being provided at the specialty level to prevent disruptions and to ensure access.

The healthcare industry continues to consolidate with further concentration of facilities and physicians into larger and larger networks. We have encouraged UCSF Benioff Children’s Hospital to reform the Physician Hospital Organization (PHO). This is the first step toward a Pediatric Medi-Cal Managed Care Accountable Care Organization. We were involved in a PHO from 1995 to 2007. A PHO would again allow us to do coordinated capitated contracting to benefit our medical group and the hospital. We could work with Canopy Health, the commercial ACO being developed by UCSF, to bring the power of data analytics to serve our members. It would also allow us to be the pediatric arm of a commercial ACO.

We maintain strong relationships with our two Medi-Cal Managed Care plans, Anthem Blue Cross and Alameda Alliance for Health. We continue to successfully meet and exceed financial solvency requirements for the Department of Managed Health Care.

Financial Review

2

Independent Auditor’s Report

Children First Medical Group, Inc.3

PPO Contracts

We currently maintain Preferred Provider Organization (PPO) contracts with the following payors:

Aetna Benefit Risk Management CIGNA Healthcare Coventry First Health Care Healthsmart (Interplan) Hometown Health Humana/ChoiceCare Network MultiPlan

Pacific Health Alliance Pacific Foundation for Medical Care Prime Health Services, Inc. Provider Select Sutter Redwoods Medical Foundation Three Rivers Provider Network USA Managed Care Organization

Administrative Services

MembershipCFMG currently serves over 60,000 enrollees who are participants through Alameda Alliance for Health and Anthem Blue Cross.

Provider NetworkOur provider network is comprised of 562 physicians, with 187 Primary Care Physicians (PCPs) and 376 Specialty Care Physicians (SCPs).

Contract ManagementHMO Commercial Contracts

We maintain contracts for Specialty services with the following payors:

Medi-Cal Contracts

We manage contracts with the following state-sponsored plans:

Alameda Alliance for Health

Anthem Blue Cross

Medi-Cal HMO Specialist Contracts

We manage contracts with the following state-sponsored plans:

Contra Costa Health Plan

Community Health Center Network

Health Plan of San Joaquin

Brown & Toland Medical Group CIGNA Healthcare Hill Physicians Medical Group John Muir Physician Network

Meritage Medical Network Palo Alto Medical Foundation Sutter Gould Medical Group Sutter Medical Foundation

5 Children First Medical Group, Inc.

Michael McCartyClaims Manager

Lenda Townsend-Williams, MBA Chief Operating Officer

Children First Medical Group, Inc. Contracts

To view CFMG contracts, please access our website at www.childrenfirstmedicalgroup.com.

Claims Management 2016 2015

Processed Claims 204,544 209,001

Errors Ratio <1% <1%

Quarterly claims review meetings were held to continually educate and train staff.

A Claims Tip Sheet for billing agents and providers is posted on the CFMG website and is updated as needed.

Provider and billing agents in-service trainings as well as claims status/analysis were performed on request for office staff through our Provider Outreach Program.

Extensive claims adjudication and eligibility reports are reviewed to ensure accuracy.

Claims processing timeline continues to be 30 calendar days or less (which is lower than the industry standard of 45 working days).

Our claims processing errors ratio maintained a standard of less than 1%. We continually remain below the industry standard of 5%.

CFMG experienced a successful implementation of the most current version of EZ-Cap and EZ-Net claims and authorizations processing system.

Electronic Data Interchange (EDI)

We processed and adjudicated 196,779 professional claims through the EDI system.

Majority of electronic claims are paid within 10 business days from date of receipt.

Our department remains compliant in meeting claims acknowledgement and timeliness processing standards.

2016 Annual Report to Shareholders 6

CredentialingThe Credentialing Department received 100% on all health plan annual audits.

Our provider network continues to steadily increase, with the addition of seventy-four (74)new physicians.

We maintained delegation authority for credentialing with the following payors:

Aetna Alameda Alliance for Health Anthem Blue Cross Benefit Risk Management Service Brown & Toland Medical Group Humana ChoiceCare Network CIGNA Healthcare Contra Costa Health Plan Coventry First Health Care Health Plan of San Joaquin

Healthsmart (Interplan) Hill Physicians Medical Group Meritage Medical Network Multiplan/Private Health Care Systems Pacific Foundation for Medical Care Provider Select, Inc. Prime Health Services, Inc. Sutter Redwoods Medical Foundation USA Managed Care Organization

Children First Medical Group, Inc.7

Provider Network Credentialing

600

500

0

100

200

300

400

Total CFMG Physicians

New Recredentialed Terminated/Retired

# of PCPs

# of Specialists

# Total Physicians

186

1844

10

376

115

56 43

562

74

159

53

8

Customer Service Calls

Member ServicesWe received 301 calls from Anthem Blue Cross and Alameda Alliance for Health Managed Medi-Cal enrollees.

Provider Relations/Customer ServicesIn 2016, we handled 2,850 customer service calls compared to 3,359 in 2015 and returned all calls within 24 hours. Utilization Management handled 1,842 calls from providers and and returned all calls within 24 hours.

We continue to educate and assist physician office staff and billers through our Provider Outreach Program. As new providers join, training sessions are scheduled to ensure the staff are properly trained on billing guidelines and the Messenger Model contracting process.

2016 Annual Report to Shareholders

6000

1000

2000

3000

4000

5000

02014 2015 2016

Utilization Management Calls

Provider Relations Calls

2850

1842

2688

966

2184

1175

Steve Yedlin, MD Chief Medical Officer

Medical Management

The Medical Management Department processed 6,680 authorizations, compared to 7,091 authorizations in 2015.

We underwent an annual health plan audit by Anthem Blue Cross. The Department successfully met National Committee for Quality Assurance and Department of Health Care Services requirements for all delegated activities:

Utilization Management – 96%

Medi-Cal Specific Activities – 100%

Credentialing – 100%

Claims – 100%

Hospital UtilizationOverall, hospital utilization for the Medi-Cal program was higher compared to 2014.

Admits/ 1000 = 15.6 31% lower than 2015

ALOS = 2.21 days 11% lower than 2015

Days/ 1000 = 34.5 38% lower than 2015

UCSF Benioff Children’s Hospital Oakland ER UtilizationOverall, ED utilization for the Medi-Cal program was higher compared to 2015.

ED Visits/ 1000 = 228.5 4% higher than 2015

The UM Committee met quarterly to review utilization data, satisfaction surveys and to approve policies and procedures.

Children First Medical Group, Inc.9

Marie Barrett Director of Utilization

& Quality Management

Medical Management ServicesCFMG conducted the following studies in 2016:

Pediatric Advice Line Utilization and Quality Report

Quality Claims Analysis Claims Input Error Report

•Theclaimserrorratiowas<1%,whichiswellbelowtheindustrystandardof5%.

Provider Satisfaction SurveyCFMG conducted its annual Provider Satisfaction Survey in the winter of 2016. This year’s survey focused on access to care. Primary Care Physicians expressed continued satisfaction with the authorization process.

Member Satisfaction SurveyCFMG conducted its annual Member Satisfaction Survey in the fall. Surveys were distributed in English, Spanish, Vietnamese and Chinese. Once again, members reported a high level of satisfaction with the care provided by CFMG physicians.

The overall member satisfaction rating for 2016 was:

•PrimaryCarePhysicians–95%

2016 Annual Report to Shareholders 10

Board of DirectorsArnold Blustein, MD, President

Robert Watts, MD, Secretary

Richard Ash, MD

Gary Bean, MD

Theodore Chaconas, MD

Jonathan Clarke, MD

Kenneth Ducker, MD

Amit Gupta, MD

Robert Haining, MD

Caroline Hastings, MD

R. Scott Heidersbach, MD

Mika Hiramatsu, MD

Thomas Hui, MD

Lawrence Ng, MD

Miriam Rhew, MD

Lloyd Takao, MD

Michael Usem, MD

Robin Winokur, MD

Steven Yedlin, MD

Credentialing CommitteeSteve Yedlin, MD, Chair

Stephen Daane, MD

R. Scott Heidersbach, MD

David Kittams, MD

Kathleen Newkumet, MD

Robert Nicholson, MD

Miriam Rhew, MD

Elizabeth Salsburg, MD

General CounselDonald J. Bouey Bouey & Black, LLP 1615 Bonanza St., Ste. 305 Walnut Creek, CA 94596

Compensation CommitteeSteve Yedlin, MD, Chair

Arnold Blustein, MD

Jonathan Clarke, MD

Robert Watts, MD

Robin Winokur, MD

Contracting CommitteeSteve Yedlin, MD, Chair

Jonathan Clarke, MD

Robert Watts, MD

Robin Winokur, MD

Nominating CommitteeArnold Blustein, MD

Jonathan Clarke, MD, Chair

Kenneth Ducker, MD

Robert Watts, MD

Utilization Management CommitteeRobert Nicholson, MD, Chair

Mindy Benson, PNP

Theodore Chaconas, MD

Jose Enz, MD

Carol Glann, MD

David Kittams, MD

Gena Lewis, MD

Steve Yedlin, MD

AuditorsMoss Adams, LLP 101 Second St., Ninth Floor San Francisco, CA 94105

Board of Directors & Committees

Children First Medical Group, Inc.11

2016 Annual Report to Shareholders 12

(510) 428-3443 (510) 450-5668 fax www.childrenfirstmedicalgroup.com