Merrill Lynch Annual Health Care Conference December 1, 2004 The Waldorf Astoria, New York City...
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Transcript of Merrill Lynch Annual Health Care Conference December 1, 2004 The Waldorf Astoria, New York City...
Merrill Lynch Annual Health Care ConferenceDecember 1, 2004The Waldorf Astoria, New York City
PacifiCare Health SystemsPacifiCare Health SystemsGregory W. ScottGregory W. ScottExecutive Vice President andExecutive Vice President andChief Financial OfficerChief Financial Officer
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
• 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• 704K Medicare Advantage 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
$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 acquisitions of American Medical Security Group & Pacific Life’s ^ Includes proposed acquisitions of American Medical Security Group & Pacific Life’s group health insurance business group health insurance business
$301-$306$301-$306
$360-$375$360-$375
Excess Statutory Capital
$218$276
$609
$375
$737
$50
$250
$450
$650
$850
2000 2001 2002 2003 09/30/04
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
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
CUSTOMERSATISFACTION
C O N S U M E R
C
E
M
U
S
N
O
R
Delivering Consumer Aligned Value Propositions
Maximizing Cost & Quality Outcomes
CONCENTRATED PURCHASING POWER
INTEGRATED DISEASE MANAGEMENT PROGRAMS
BEST IN CLASS NETWORKS
DEMAND SIDE INTERVENTIONS
TIERED & NARROW NETWORKS
PROVEN MEDICAL MANAGEMENT CAPABILITY
SUPERIOR HEALTH CARE
COST MGMT
$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
Integrated Disease Management Programs
SUPERIOR HEALTH CARE
COST MGMT
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
DATA DRIVEN OUTCOMES
Quality Index® Profile of Hospitals 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 CUSTOMERSATISFACTION
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 Solution CONSUMER DRIVEN TOTAL
SOLUTION
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
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
Increase specialty company external membership
• Prescription Solutions- Medicare Part D
• Behavioral health
• Dental & Vision
Strategy for Profit Growth
• 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
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
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
American Medical Security Group (AMS)
• Adds ~314K ISG PPO lives- 13% commercial member increase
• Lower cost operations on scalable ISG platform
• Network of 32,000 independent agents increases distribution for PHS products/services
• $100 million in excess statutory capital
• Commercial growth/diversification balances Medicare Advantage business
• Geographic expansion diversifies away from CA
• Potential network & PBM synergies
ISG Market Segment Acquisitions
Pacific Life’s Group Health Business
• Leverages AMS acquisition
• Adds ~140K small/large group PPO lives- 6% commercial member increase
• Network of 30,000 agents increases distribution for PHS products/services
• Commercial growth/diversification balances Medicare Advantage business
• Geographic expansion diversifies away from CA
• 90% member overlap w/ combined PHS/AMS = network synergies
ISG Market Segment Acquisitions
2004 Markets
AMS Markets
AMS Highlights• $700 million in revenue • 1,400 employees• 315,000 medical members• 218,000 dental, 130,000 life• Key markets (TX, IL, FL)• Independent Broker Network of 32,000 Agents
2004 Markets
AMS Markets
AMS Highlights• $700 million in revenue • 1,400 employees• 315,000 medical members• 218,000 dental, 130,000 life• Key markets (TX, IL, FL)• Independent Broker Network of 32,000 Agents
Geographic expansion/Increased distribution
PHS current 8 health plan marketsPHS current 8 health plan markets
PHS Only Markets
2004 Markets - Pre Acquisition
Geographic expansion/Increased distribution
28 Additional medical states after AMS acquisition28 Additional medical states after AMS acquisition
PHS Only Markets
2005 Markets - Post AMS Acquisition
AMS Only MarketsPHS & AMS Overlaps
Geographic expansion/Increased distribution
Significant additional overlap w/ Pacific Life Significant additional overlap w/ Pacific Life acquisitionacquisition
PHS Only Markets
2005 Markets - Post Acquisitions
AMS Only MarketsPHS/AMS/Pac Life Overlaps
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: Nov - Dec ’04PPO and PDP regions defined: Nov - 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 1/1/06 New prescription drug benefit starts 1/1/06
Medicare Advantage Part DMedicare Advantage Part D Stand alone Part D administrationStand alone Part D administration
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: Nov - Dec ’04PPO and PDP regions defined: Nov - 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 1/1/06 New prescription drug benefit starts 1/1/06
Medicare Advantage Part DMedicare Advantage Part D Stand alone Part D administrationStand alone Part D administration
(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
Prescription Solutions Unaffiliated Membership
630
1,129
1,635
2,071
2,528
0
500
1,000
1,500
2,000
2,500
3,000
2000 2001 2002 2003 9/30/04
Mill
ion
s
(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
Merrill Lynch Annual Health Care Conference
Thank You