Brad Bowlus

1
.a health and consumer services company making
peoples lives better
Contracting Strategies
Brad Bowlus President, CEO PacifiCare Health
Plans James Frey President PacifiCare of
California
2
Contracting Overview

• Risk Of Conversion Under Control
• Supporting Claims, Medical Management, Disease
  Management And Contracting Infrastructure In
  Place
• Solid Financial Performance Occurring In Both
  Capitated And Directly Contracted Models
• Delegated Model Oversight Enhanced

3
Delivery System- Commercial Segment / All
Products
PHS Physician Risk
PHS Hospital Risk
4
Can We Manage Risk?

• Market Leaders In Both States

At - Risk Membership As Of 3/31/02
5
Improving Clinical, Service Cost Outcomes

• Integrated Contracting And Medical Management
  Approach
• Leverage All Products Into Single Negotiation
  Concentrated Contract Leverage
• Target Performance Based Compensation
• Timely and Accurate Claims Payment In Exchange
  For Lowest Possible Unit Cost
• Implement Limited Transplant Network January,
  2003
• Unique Quality Measurement System
• Narrow Networks And Tiered Networks Concentrate
  Penetration Into High Performing Providers

6
Environmental Scan- Delivery System

• Significant Delivery System Variation Still
  Exists Around Cost, Quality, And Service
• Current Products Are Priced To The Average
• The Average Is Configured Around 200
  Variation In Cost
• Major Unit Cost Variation
• Enormous Utilization Variation
• Major Pharmacy Variation
• Empower Consumers With Information On Cost,
  Quality, And Service

2001 Hospital Cost Variation California
Median
Source PHS Internal Data
7
PacifiCare Of California Philosophy Toward Risk

• PacifiCare Of California Is Both Willing And
  Prepared To Reimburse Providers With A Full Range
  Of Capitated And FFS Arrangements
• Currently 325 Groups Operating Under Delegated
  Arrangements
• Amount Of Risk A Group Bears Differs
  Significantly From One Group To Another Based On
  Their Financial Capabilities

8
PacifiCare Of California Capitation Overview

• Kaiser Effect
• Utilization And Unit Cost Data For Delegated
  Providers Available To Price Manage Risk
• DMHC Approach Is To Stabilize
• Groups Have Strong Commitment To Capitation

9
PacifiCare Of California Delegated Oversight

• Rigorous Review Processes In Place To Identify
  Manage Delegated Risk
• Process Overview
• Step 1 Calculate Liquidity Position For All
  (Working Capital Vs. Risk)
• Step 2 Some Providers Go To Level 2
  Oversight
• Review Financial Statements And Cash Flow
  Forecasts
• Review IBNR Methodology
• Step 3 Some Providers Go To Level 3
  Oversight
• Site Visit For Potentially Unstable Providers
• Step 4 Based On Reviews, Establish
  Security And/Or Solvency Reserves Or
  Move To FFS If Necessary