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UBS Annual Global Health Care Services Conference February 15, 2005 The Plaza, New York City. PacifiCare Health Systems Gregory W. Scott Executive Vice President and Chief Executive Officer. Cautionary Statement.

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Presentation Transcript
slide1

UBS Annual Global Health Care Services Conference

February 15, 2005

The Plaza, New York City

PacifiCare Health Systems

Gregory W. Scott

Executive Vice President and

Chief Executive Officer

slide2

Cautionary Statement

The statements made during this presentation that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the risks discussed in the company's most recent filings with the SEC, including the Form 10Q filed as of September 30, 2004, and the Form10K filed as of December 31, 2003.

slide3

2004 Markets – Pre-AMS Acquisition

PHS Only Markets

Strategy of a growth company

PHS 8 health plan markets before acquisitions

  • A Fortune 200 company with:
  • $12 billion in revenue
  • 2.6 million commercial lives
  • 704K Medicare Advantage
  • lives
  • 11.8 million specialty lives
slide4

Completed 12/04

2005 Markets – Post-AMS Acquisition

PHS Only Markets

AMS Only Markets

PHS & AMS Overlaps

Expansion through recent acquisitions

28 Additional medical states after AMS acquisition

slide5

1Q ‘05 Close Target

2005 Markets - Post Acquisitions

PHS Only Markets

AMS Only Markets

PHS/AMS/Pac Life Overlaps

Expansion through recent acquisitions

Significant additional overlap with Pacific Life acquisition

slide6

ISG Market Segment Acquisitions

American Medical Security Group (AMS)

  • Adds ~314K ISG PPO lives- 13% commercial member increase
  • Lower cost PPO 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 & cross sell synergies
slide7

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
  • 55% member overlap w/ PHS; 95% overlap w/ combined PHS/AMS = network synergies
2005 guidance excluding pacific life

= 19%-24% Net Income Growth

2005 Guidance- Excluding Pacific Life

Includes effect of FAS 123R on equity based compensation

slide9

Earnings growth

$360-$375

$303

* Excluding effect of the adoption of FAS 142 relating to the amortization of goodwill

^ Includes acquisition of American Medical Security Group & proposed acquisition of Pacific Life’s group health insurance business

slide10

DIVERSIFIED INSURANCE COMPANY

CONSUMER HEALTH ORGANIZATION

HMO

PacifiCare Vision

the rise of hsas cdhps
The rise of HSAs & CDHPs
  • Continued cost shifting to employees, but without a value proposition
  • 5% HSA penetration rate by 12/31/06
  • HSAs appeal to healthy/wealthy
  • HSAs likely to replace traditional PPO vs. HMO
  • Hewitt survey finds:
      • 61% of employers likely to offer HSAs in near future
      • 93% of employees willing to take more responsibility for health care decisions
  • Not total replacement, but additional option
slide12

SignatureValue

Traditional

Plan

SignatureValue

Select Hospital

Plan

SignatureOptions

Advantage

SignatureOptions

Traditional

Plan

HMO/EPO

SignatureValue

Advantage

PPO

Signature Freedom

Signature Independence

HSA/SDHP

Indemnity

Low Cost

High Cost

  • Front End
  • Decision Support
  • Quality Index Profiles
  • Benefit Selection Pricer
  • Health Risk Assessment
  • Worksite/Web Based Tools
  • On-Line Enrollment
  • 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

PacifiCare offers a total solution

slide13

Self Directed Account

$1,000

  • Covered Services (apply to deductible):
  • Physician Office Visits
  • Wellness & Preventive Care
  • Office-based Diagnostic Tests

AnnualDeductible$2,000

Employee Responsibility

$1,000 to $2,000

$

In-Network

70%

Out-of-Network

50%

PPO

Benefit

Plan

100% After Coinsurance Maximum

SignatureFreedom Plan Design

Rx

$10

generic$35

brand

Employee Responsibility

$1,000 to $2,000

Out-of-Network

50%

In-Network

70%

slide14

SignatureFreedom Growth

82,172 Members

  • Approximately 10% from groups that did not previously offer insurance
  • 75% from Small Group (2 to 50 employees)
  • 90% from customers new to PacifiCare
slide15

Emerging SignatureFreedom Utilization Results

  • Participants are using appropriate levels of preventive services

PacifiCare data is normalized (age/sex) incurred claims from 8/03 to 7/04 paid through 10/04

slide16

Emerging SignatureFreedom Utilization Results

  • Participants are using appropriate levels of preventive services

PacifiCare data is normalized (age/sex) incurred claims from 8/03 to 7/04 paid through 10/04

specialty company growth
Specialty company growth

Prescription Solutions’ Unaffiliated Membership

specialty company growth1
Specialty company growth

$1,647

* Breakout of internal vs. external revenue is not available prior to CY 2002.

^ Revenue increases related to a change in contracting methodology from the gross method to the net method for retail prescription drug transactions ~$50M in 2004, ~ $860M in 2005 mainly for PHS contract.

slide19

Specialty company growth

25.3%

26.0%

20.6%

20.3%

18.4%

18.7%

medicare opportunities
Medicare opportunities
  • Medicare Advantage HMO/ Private FFS
  • Part D Administration
  • Medicare Supplement
  • Medicare Advantage Regional PPO
local medicare advantage growth timeline
Local Medicare Advantage growth- Timeline
  • All 2006 plan applications due March 23rd
  • ’06 Benchmark HMO rates issued April 4th (Parts A/B)
  • Health plan bids for Parts A, B & D due June 6th
  • National average monthly Part D bid announced August 3rd
  • CMS benefit plan approval September 14th
  • CMS website launches comparative plan data October 13th
medicare opportunities1
Medicare opportunities
  • Medicare Advantage HMO
  • MLR rises from ~86% in ’04, to 87.5%-88.5% in ’05
  • Focus on increasing membership vs. margins
  • 2006 growth depends on flexibility with benefit structure
  • Growth initiatives:
      • Preferred provider relationships
      • Broker distribution
      • Geographic expansion
      • Value Plans
      • Community & faith-based organization marketing
      • Small acquisitions
medicare opportunities2
Medicare opportunities
  • Medicare Advantage Private FFS
  • Entering as many as 16 states by the end of 2005
  • Nearly identical to MA HMO program, but no contracted provider network
  • Health Plans pay providers at Medicare FFS rates
medicare opportunities3
Medicare opportunities
  • Part D Administration- Potential market
  • Approximately 42 million Medicare eligibles in the U.S.
  • MA penetration ~12% = 5 million
  • Eligible for FFS Part D ~ 37 million
      • Includes ~6 million dual eligibles to be auto-enrolled
      • Penalty for not enrolling = 1% per month
  • In terms of drug spend, 42 million seniors equivalent of 150 commercial lives
medicare opportunities4
Medicare opportunities
  • Part D Administration- PHS capabilities
  • Captive PBM w/ external focus
  • Broad distribution capabilities
      • State-of-the-art mail facility
      • National pharmacy network
  • Risk-based business model
  • 10 years of senior prescription drug data
  • Managed care tools to control costs, improve outcomes
  • Additional marketing channels
      • Direct TV/radio advertising
      • Direct mail
      • Recent acquisitions
      • Broker distribution
medicare opportunities5

Total ~$50 million

Medicare opportunities
  • Part D Administration- Short term considerations
  • Costs for:
  • Building up infrastructure
      • IT, software, processing
      • Local MA and Part D Administration
  • Building up customer service platform
  • Marketing expenses

Fixed

Variable

Not included in ’05 guidance