Bear Stearns
2005 London Health Care Conference
May 10, 2005
The Four Seasons, London
PacifiCare Health Systems
Gregory W. Scott
Executive Vice President and CFO
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 Form10K filed as of
December 31, 2004.
Strategy of a growth company
PHS 8 health plan markets before acquisitions
2004 Markets – Pre-AMS Acquisition
PHS Only Markets
A Fortune 200 company with:
• $12 billion in revenue
• 2.6 million commercial lives
• 715K Medicare Advantage
lives
• 10 million specialty lives
Expansion through recent acquisitions
28 Additional medical states after American
Medical Security Group acquisition
2005 Markets – Post-AMS Acquisition
PHS Only Markets
AMS Only Markets
PHS & AMS Overlaps
A Fortune 200 company with
2005 goals of:
• $14.1 billion in revenue
• 2.7 million commercial lives
• 743K Medicare Advantage
lives
• 11.8 million specialty lives
Expansion through recent acquisitions
Significant additional overlap with Pacific Life
acquisition
1Q ‘05 Close
Target
2005 Markets - Post Acquisitions
PHS Only Markets
AMS Only Markets
PHS/AMS/Pac Life Overlaps
Benefits of AMS and Pacific Life acquisitions
•
Adds a total of more than 370K ISG PPO lives =
15% commercial member increase
•
Focus on important ISG market segment
•
Expanded network of independent agents
increases distribution for PHS
products/services
•
Commercial growth/diversification balances
Medicare Advantage business
•
Geographic expansion diversifies outside of CA
Earnings growth
Net Income
$370-$385
$400
$303
$300
$243
$200
$139
$100
$19
$0
2001
2002*
2003
2004
* 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
2005 est.^
2005 Guidance
Includes effect of FAS 123R on equity based compensation
•
•
•
•
•
Commercial mbrshp. growth: 5.0%-6.0%
Medicare Advantage ending mbrs: 743K
Revenue increase:17.5%-18.5%
MLRs
• Consolidated = 84%-85%
• Private Commercial = 81%-82%
• Private Senior = 73%-74%
• Government Senior = 87.5%-88.5%
Gross Margins
• Commercial = 18%-19%
• Senior = 11.5%-12.5%
• Specialty & Other = 38%-39%
•
•
•
•
•
•
•
•
•
•
EBITDA: $750-$775 million
CFFO:$500-$525 million
Free Cash Flow: $320-$335 million
SG&A ratio: 12.75%-13.25%
Depreciation/Amortization: $89 million
Capital expenditures: $130-$135 million
Net Income: $365-$380 million
Average outstanding shares: 98.8 million
EPS: $3.70-$3.85
• Q2 = $0.92-$0.97
Tax rate: 38.8%
= 20%-25%
Net Income Growth
PacifiCare Vision
Planned evolution from a traditional health maintenance organization into a
leading consumer health organization
HMO
DIVERSIFIED
INSURANCE
COMPANY
CONSUMER
HEALTH
ORGANIZATION
PacifiCare offers a total solution
SignatureValue
Select Hospital
Plan
SignatureValue
Traditional
Plan
SignatureOptions
Advantage
SignatureValue
Advantage
Signature
Freedom
Signature
Independence
HSA/SDHP
Front End
Decision Support
•Quality Index Profiles
•Benefit Selection Pricer
•Health Risk Assessment
•Worksite/Web Based Tools
•On-Line Enrollment
SignatureOptions
Traditional
Plan
Indemnity
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
Specialty company growth- Pharmacy Benefit
Management Company (PBM)
Prescription Solutions’ Unaffiliated Membership
4,000
3,500
Millions
3,000
2,560
2,070
2,000
1,640
1,130
1,000
630
0
2000
2001
2002
2003
2004
2005E
Specialty company growth
Prescription Solutions' Revenue
$ Millions
2000
$1,647
1500
1000
500
$704
$340
$394
$403
2000A*
2001A*
2002A
$472
0
Internal
2003A
External
* 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, ~ $890M in 2005 mainly for
PHS contract.
2004A^
2005E^
Specialty company growth
Mail Service Revenue & Mail Order Penetration
700
$602
600
$537
$ Millions
500
400
$296
$341
$387
$328
25.3%
300
200
26.0%
18.7%
20.6%
20.3%
18.4%
2001
2002
100
0
2000
2003
2004
2005E
Specialty company growth- Recent PBM recognition
 Among MCOs: Top rated PBM on 5 of 8 evaluation factors
- Recent
Flashpohler Research survey
 Of 2nd tier PBMs, mentioned more than any other PBM
- CSFB report,
10/04
 Outperforms the industry in pharmacy management; and doing an
excellent job regarding its primary functions: rebates, network
management, mail service and generic fill rates - CapGemini
Benchmarking study, 2004
 #2 among all PBMs in mail order satisfaction –
PCMA 2004
 Rx Benefit Innovation Award- The Pharmacy Benefit Management Institute
Medicare opportunities
 Medicare Advantage HMO/ Private Fee for
Service
 Part D Administration- Prescription Drug Plan
(PDP)
 Medicare Supplement
 Medicare Advantage Regional PPO
Medicare opportunities

Medicare Advantage HMO
•
Goals of Medicare Modernization Act
•
•
Stabilize membership through increased benefits and
provider payments
•
Nationwide ’04 MA Risk member increase = 98,500
•
PHS had 3 of 4 fastest growing plans in U.S.
•
PHS had 22K net adds in ’04; target growth in ’05 = 39K
Position MA for growth in 2006
•
Broker distribution
•
Geographic expansion
•
Preferred provider relationships = Value Plans
•
Community & faith-based organization marketing
•
Small acquisitions
•
CMS demonstration project
Medicare opportunities

Part D Administration- Potential market
National Market
(Millions)
Dual
Eligibles
6.0
Low
Income
11.8
35.7 million
Group
Retiree
All Other
8.1
9.8
PHS Assumed 2006 National Enrollment
(Millions)
7.4
17 million
3.6
6.0
+
Group
Retiree
= ??M
Medicare opportunities

Part D Administration- Model of potential market share
•
PHS to offer benefits nationally, in all 34 PDP regions
•
Assume 10 national/large PDPs + 3 regional PDPs in each region
•
Assume equal distribution of 17 million assumed ’06 membership
Example:
Pro Rata
Market Share
6-8%
Annualized 1st Year
Revenue Opportunity
$1.3-$2.2 billion with PBM mail order revenue
• Potential revenue excludes additional subsidies for low
income, institutionalization, etc.
• PHS will issue specific guidance late 2005
Medicare opportunities

Part D Administration- PHS capabilities
•
Captive PBM w/ external focus (new mail order facility in planning)
•
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