Banc of America Securities’ 34th Annual Investment Conference September 22, 2004 The Ritz Carlton,...
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Transcript of Banc of America Securities’ 34th Annual Investment Conference September 22, 2004 The Ritz Carlton,...
Banc of America Securities’ 34th Annual Investment ConferenceSeptember 22, 2004The Ritz Carlton, San Francisco
PacifiCare Health SystemsPacifiCare Health SystemsHoward G. PhanstielHoward G. PhanstielChairman & CEOChairman & CEO
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 June 30, 2004, and the Form10K filed as of December 31, June 30, 2004, and the Form10K filed as of December 31, 2003. 2003.
Cautionary StatementCautionary Statement
• Medicare Supplement• PBM• Behavioral Health
2004 Market Expansion
Continued Market Expansion
2003 Health Plan + Specialty Companies
2003 Specialty Companies only
2004 Planned Specialty Company Expansion
A Fortune 200 company with 2004 goals of:
• $12 billion in revenue• 2.3 million commercial lives• 717K Medicare+Choice HMO lives• 11.8 million specialty lives
Largest purchaser of health care services in the Western U.S.Largest purchaser of health care services in the Western U.S.
Earnings Growth
Net Income
$19
$139
$243
$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
$296-$306$296-$306
$360-$375$360-$375
Excess Statutory Capital
$218$276
$375
$609
$723
$100
$300
$500
$700
2000 2001 2002 2003 6/30/04
mil
lio
ns
Average of 400% RBC in core HMO statesAverage of 400% RBC in core HMO states
2004 Trends- YTD through June 30th
• Net income up 30% from 2003, excluding ‘03 favorable reserve developmentNet income up 30% from 2003, excluding ‘03 favorable reserve development
• Commercial business, year-over-year Commercial business, year-over-year • Membership up 107K (5%)Membership up 107K (5%)• CA membership up 8% CA membership up 8% • MLR down 60 basis points MLR down 60 basis points • Gross margin up 17%Gross margin up 17%
• Medicare+Choice business, year-over-yearMedicare+Choice business, year-over-year• Membership about flat Membership about flat • M+C MLR up 210 bp, at low end of 2004 guidanceM+C MLR up 210 bp, at low end of 2004 guidance
• SG&A down 10 bp year-over-yearSG&A down 10 bp year-over-year • Commercial premiums up 10% PMPM, over health care cost PMPM of 9% Commercial premiums up 10% PMPM, over health care cost PMPM of 9%
Planned evolution from a traditional health maintenance organization into a leading consumer health organization
HMODIVERSIFIED INSURANCE COMPANY
CONSUMER HEALTH
ORGANIZATION
PacifiCare Vision
• 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 Growth
Acquisition of American Medical Security Group, Inc.
AMS Background InformationAMS Background Information
• 2003 Revenue = $712 million2003 Revenue = $712 million
• 314,000 commercial PPO lives; mostly ISG314,000 commercial PPO lives; mostly ISG
• 250,000 specialty lives250,000 specialty lives
• Members in 33 states + District of ColumbiaMembers in 33 states + District of Columbia
• Network of 32,000 brokersNetwork of 32,000 brokers
• Products include HSAs, group life, disabilityProducts include HSAs, group life, disability
• Headquarters in Green Bay, WisconsinHeadquarters in Green Bay, Wisconsin
• Approximately 1,400 employeesApproximately 1,400 employees
Acquisition of American Medical Security Group, Inc.
Transaction SummaryTransaction Summary
• Price:Price: $32.75 cash per AMS share; ~$502M total$32.75 cash per AMS share; ~$502M total
• Expected Close: Expected Close: 11stst quarter 2005 quarter 2005
• Financing: Financing: $400M new term loan + ~$160M internal cash$400M new term loan + ~$160M internal cash
• Accretion: Accretion: Net Income guidance increased by $10-$15M Net Income guidance increased by $10-$15M to $360-$375Mto $360-$375M
• Required Approvals: Required Approvals: AMS shareholdersAMS shareholders
Hart Scott RodinoHart Scott Rodino
WI & GA DOIsWI & GA DOIs
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 9/13/04Health Plan ACRs for 2005 submitted 9/13/04
• PPO and PDP regions defined: Oct-Dec ’04PPO and PDP regions defined: Oct-Dec ’04
• Benchmark rates issued first Monday in April ’05Benchmark rates issued first Monday in April ’05
• Health Plan RFPs due first Monday in June ’05Health Plan RFPs due first Monday in June ’05
• New prescription drug benefit starts 1/1/06New 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
• Best Disease Management Programs as Recognized by the Disease Management Association of America
• NCQA Accreditation: 99% of PacifiCare members are in Excellent-accredited plans
• Health Financing Innovator Award from the Foundation for Accountability
Recent Honors and Recognition
• National Business Group on Health Award for Excellence and Innovation in Value Purchasing
• Innovators Award sponsored by Health Insurance Association of America
Room for P/E Multiple Expansion
0.0
4.0
8.0
12.0
16.0
20.0
UNH SIE CVH AET WLP HNT ATH WC HUM CI PHS
2004
2005
2004 Average2004 Average
2005 Average2005 AverageComparison as of 8/27/04Comparison as of 8/27/04