Strategic Outlook on Healthcare Market : A Medical Group Perspective

1. Strategic Outlook on Healthcare Market :A Medical Group Perspective Don Crane President and CEO 2008 Health Care Forecast Feb 22, 2009

2. Overview • Introduction • Environmental Assessment • Challenges for Groups • Medical Group Responses • Q and A

3. California Association of Physician Groups

4. Overview • Introduction • Environmental Assessment • Challenges for Groups • Medical Group Responses • Q and A

5. Underlying Premium Pressures 8+% More than double rate of inflation! Hospital Unit Cost Benefit Mandates New Technologies Uninsurance Pharmacy Gov’t Cost Shift Source: CHCF/Health System Change (HSC) California Employer Health Benefits Survey, 2006

6. EMPLOYER REACTION

7. Annual Growth in Private Health Insurance Premiums Percentage Growth Year Source: KFF/HRET Survey of Employer- Sponsored Health Benefits 2007

8. Premium Trend

9. Premiums: HMO vs. PPO

10. Premium Increases

11. HMO Premiums

12. Premium Trend by Product

13. Enrollment by Plan Type

14. High Deductible Penetration

15. Employer Coverage Trend

16. Concentration of HMO Enrollment - California 2.0% 4.0% 82% 73% Source: Cattaneo & Stroud, Inc.

17. Commercial HMO Concentration - California 3.0% 2.0% 5.0% 91% 80% Source: Cattaneo & Stroud, Inc.

18. Concentration of Medicare HMO Enrollment - California • 2.0% 4.0% - 4.0% - 2.0% - 89% • 5.0% • 2.0% 87% Source: Cattaneo & Stroud, Inc.

19. Overview • Introduction • Environmental Assessment • Challenges for Groups • Medical Group Responses • Concluding Remarks; Q and A

20. Challenges Declining Commercial HMO • erosion of revenue • tipping point

21. Challenges Medicare Advantage funding flush…at the moment ….funding cuts possible

22. Challenges Powerful Competitors: Kaiser • market share • competition in physician recruitment

23. Challenges HMO vs PPO • Hospital utilization? • Price differential shrinking? • Influence of P4P? • Uneven Playing field

24. Challenges Influx of high deductible products coupled with inability to administer deductibles • Risk segmentation death spiral • Can’t participate

25. Challenges • Time of Uncertainty; • Healthplan commitment to Model

26. Overview • Introduction • Environmental Assessment • Challenges for Groups • Medical Group Responses • Q and A

27. Medical Group Responses • Get Better • Get Bigger • Collaborate • Lobby

28. Medical Group Responses 1. Get better • IT • Pay for Performance • QI Programs • CAPG Standards of Excellence

29. Medical Group Responses CAPG Standards of Excellence • What: A recognition program that rewards members exhibiting established attributes of excellence. • Goals: • Stimulate all groups to improve • Branding

30. Medical Group Responses CAPG Standards of Excellence -- Three Domains: • Care Management Processes • Health Information Technology • Accountability and Transparency

31. Medical Group Response 2. Get Bigger • Mergers and Acquisitions • Knox Keene Licensure • Global Risk Contracting • Go into healthplan business?

32. Medical Group Responses 3. Collaborate • With Plans • With Hospitals • With Employers • With Government

33. Medical Group Responses Data Sharing Code of Conduct WHO?: CAPG and top 6 Plans WHAT?: • Reciprocal Sharing of new data sets • Coordination of Disease management programs STATUS: Being adopted and implemented.

34. Medical Group Responses 4. Lobby, lobby, lobby Wither Universal Coverage? Medicare Advantage Misc

35. Medical Group Responses

36. Overview • Introduction • Environmental Assessment • Challenges for Groups • Medical Group Responses • Q and A

37. Strategic Outlook on Healthcare Market :A Medical Group Perspective Don Crane President and CEO 2008 Health Care Forecast Feb 22, 2009