1 jerry vaccaro, m.d. svp, specialty health businesses.…a health and consumer services company...

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Jerry Vaccaro, M.D.SVP, Specialty Health

Businesses

.…a health and consumer services company making people’s lives better

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Specialty Companies

• Best in Class Margins

• Best in Class Care and Service

• Steady Growth and Profitability

PacifiCare Behavioral HealthCompany Overview

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Downward Spending Leveling Off

• 1988 - 1998– Behavioral health spending

continuously declined, reaching a total drop of 54.7%

– As a percent of premium, behavioral health dropped from 6.2% to 3.1%

• 1998 - 1999– Behavioral health spending

experienced its lowest drop in a decade of 1.5%

– Declining trend appears to have leveled off

U.S. Annual Behavioral Health Spending per Covered Life

1988 - $154.48

1998 - $69.67

Over Spending

AppropriateSpending

Under Spending

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National Competitive Landscape

MembershipUnited13%

Cigna9%

APS5%

Value Options15%

Magellan47% Comp.

1%

Horizon1%

PBHI3%

MHN6%

RevenueUnited19%

Cigna9%

APS3%

Value Options21%

Magellan35%

Comp.1%

Horizon3%

PBHI4%

MHN5%

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CA Market Share by Revenue

Magellan12%

PBHC30%

USB17% Value

Options5%

Vista1%

Avante0%

MHN24%

Concern1%

Cigna7%

H&HR1%

Holman2%

#1 in CA

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PBH Today

• In operation since 1986

• 4.3 million members in 12 states

• NCQA accredited in Western, NW Regions

– Only fully accredited MBHO in CA

• CA Knox-Keene licensed

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Internal vs. External Membership

Internal56%

External44%

As of June 2002

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PBH DifferentiatorsALERT

Best Care

IT Infrastructure& Reporting

NCQA

Health PlanExpertise

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Product Leadership

• ALERTSM

• Best CareSM

• PBH Spectrum

• PBH Caregiver

• Taking Charge of DepressionSM

• Taking ChargeSM

Health Improvement Series

• LifeStrategies

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ALERTSM

• Groundbreaking Outcomes Management Program

• Decreases medical errors (35%, year one)

• Next generation Provider Report Cards

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Growth Strategy

• Super-Regional Company

– Market Leader in California

– Selective expansion (health plans, Labor/ Trust, other niches)

– Evaluate Acquisition Opportunities

• Take advantage of Federal Parity Legislation

– PBH risk-based experience

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Steady Growth

1996 1997 1998 1999 2000 2001 2002 (est.)

116.8

194.1 200.0

71.452.3

107.6

141.8

5040 57

17.8%

13.6%

16.4%

13.3%

13.4%15.2%13.9%

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

-2%

3%

8%

13%

18%

Total Revenue

Non-PHS Revenue

Profit Margin

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Net Income Analysis(in 000s)

1999 2000 2001

PBH Revenue 116,756$ 141,786$ 194,057$

Net Income 12,267$ 13,660$ 16,129$

Margin 10.5% 9.6% 8.3%

Magellan Revenue 1,465,918$ 1,640,933$ 1,755,512$

Net Income 4,688$ (65,808)$ 24,555$

Margin 0.3 % (4.0)% 1.4 %

PacifiCare Dental & VisionCompany Overview

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Market at a Glance

• Dental penetration: 50-60% purchase dental benefits

• Vision penetration: 20-40% purchase vision benefits

• DHMO growth flat, PPO expanding

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PDV Today

• Largest California DHMO network• PacifiCare Dental penetration 13%• PacifiCare Vision penetration under 5%• Product offerings in all PacifiCare states

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Growth Strategy

• Super-Regional Company• Service Excellence: #1 in Service• Maximize penetration within PacifiCare

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Steady Growth

90.19 96.24 101.88 107.73

15.4%15.0%

9.3%

8.0%

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

1999 2000 2001 2002

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Revenue (in millions)

PBIT % of Revenue

2002 estimate

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Total Commercial Membership & Penetration

9%8%

15%

23%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1999 2000 2001 2002

0%

5%

10%

15%

20%

25%

ExternalInternalTotal Commercial Penetration

2002 estimate