Direct Health Networks, Inc.

1. Direct Health Networks, Inc. Direct Contracting Health Benefit Strategies For The Next Evolution Of Managed Care Max Jack, President & CEO Fall 2002 / Winter 2003 Direct Health Networks

2. Overview • Employer Challenge • Aggregate Plan Cost Inflation • Inflation by Type of Plan • Employer Response • Trends for Insured and Self-Funded • Impact on Employee Out-of-Pocket Costs • Insider’s Perspective and Vision • Direct Contracting Value Proposition • Value Proposition • Stakeholders • New Partnership in Health • Direct Contracting Program Strategies • Correcting Flaws of Managed Care • Collaborative Partnership • Active Disease State Management • Implementation

3. Overview • Employer Challenge • Aggregate Plan Cost Inflation • Inflation by Type of Plan • Employer Response • Trends for Insured and Self-Funded • Impact on Employee Out-of-Pocket Costs • Insider’s Perspective and Vision • Direct Contracting Value Proposition • Value Proposition • Stakeholders • New Partnership in Health • Direct Contracting Program Strategies • Correcting Flaws of Managed Care • Collaborative Partnership • Active Disease State Management • Implementation

4. Why are employers challenged by premium cost? Employers Needed Help In 1999 % Cumulative Costs Source: William M. Mercer Inc., Medical Economics/April 10, 2000 & pmpm Consulting Group

5. Premium Cost by Plan Type Health Care Premiums Are Rising Much Faster Than Cost of Living

6. Discount Medicine is a Flawed Model Expected Claims Cost Traditional Discount Medicine Model Direct Health Care Management Model Educate and offer incentives to consumers to be healthier Pharmacy 18-22% 40-45% 20-25% 18-22% Hospital/ Ancillary Cost Physician Cost Physicians influence 80% of savings achievable from appropriate care management Physician discounts represent less than 6% of total premium costs Fixed Cost

7. Overview • Employer Challenge • Aggregate Plan Cost Inflation • Inflation by Type of Plan • Employer Response • Trends for Insured and Self-Funded • Impact on Employee Out-of-Pocket Costs • Insider’s Perspective and Vision • Direct Contracting Value Proposition • Value Proposition • Stakeholders • New Partnership in Health • Direct Contracting Program Strategies • Correcting Flaws of Managed Care • Collaborative Partnership • Active Disease State Management • Implementation

8. Responses to premium increases? • If currently insured: • Retain provider networks, but modify plan designs to achieve less cost increase by: • increasing employee contributions to premium; • increasing co-pay levels; and / or • increasing annual deductibles. • Change to lower cost plans often accompanied by • increased employee contributions to premium; • increased employee co-pays; and /or • necessity of provider changes. • If currently self-funded: • Change TPA or broker or both; and • Change to lower cost provider network. But what are the prospects for long term cost containment? Without change in health and disease management how will cost be contained?

9. Movement Back to Self-Funding Trend Back To Self- Funding Shift From Self-Insured To HMO % Annual Plan Cost Increase Managed Care-HMO Source: William M. Mercer Inc., Medical Economics/April 10, 2000 & pmpm Consulting Group Estimates

10. What’s Wrong With Traditional Health Plans Today? • Health plan costs pose serious financial challenges for many employers. • Benefit design offerings are increasingly limited. • Relationships between insurance companies and providers are strained. • Health plans are taking back responsibility for demand (utilization) management and interceding in patient-physician relationships. • Care management models continue to focus on prior authorization controls. • Little focus on realizing opportunities to improve health status (reducing risk factors / need for services). • Employers and enrollees need help accessing health care information and co-managing their care.

11. Overview • Employer Challenge • Aggregate Plan Cost Inflation • Inflation by Type of Plan • Employer Response • Trends for Insured and Self-Funded • Impact on Employee Out-of-Pocket Costs • Insider’s Perspective and Vision • Direct Contracting Value Proposition • Value Proposition • Stakeholders • New Partnership in Health • Direct Contracting Program Strategies • Correcting Flaws of Managed Care • Collaborative Partnership • Active Disease State Management • Implementation

12. Direct Health NetworksValue Proposition Direct Health Networks is the integrator of the technology, programs and services that: • Diversify the Broker’s product line. • Enable a provider organization to sponsor new health care programs and contract directly with local employers through local brokers. • Develop or enhance employer / community health coalitions. • Reduce employer health program cost and risk. • Improve health status and reduce claims cost through health promotion and active disease state management.

13. Vision for the Next Evolution of Employee Benefit Plan • Incentives for being a good health care consumer are developed and managed collaboratively among Employer, Local Health Network representatives, and Broker. • Enrollees get help accessing appropriate health care information and managing their care from their local providers. • Employers and employees monitor plan costs and design to assure the long term health plan effectiveness. • Local health system partners are active stakeholders in the success of the employer’s benefit plan and the health of enrollees. • Artificial restrictions on health access are removed.

14. The Real Stakeholders: Long Term Players Concerned About Improving Health Status

15. Partnership in Benefits DesignExample 1: Obstetrics • Health condition: pregnancy • Employee wants: healthy baby • Employer wants: healthy baby • Employee responsibility: see MD in first trimester and follow prenatal care plan • Employer responsibility: facilitate employee ability to follow prenatal care plan • Benefit design: employer pays 100% for delivery when employee sees physician in the first trimester • Employee pays $500 co-payment if doesn’t start care in first trimester.

16. Partnership in Benefits DesignExample 2: Wellness • Health condition: wellness evaluation and screening • Enrollee wants: prevention and early detection • Employer wants: healthy enrollee • Employee responsibility: follow guidelines for immunization, physical, well-baby care, screening tests • Employer responsibility: facilitate and reward employee completion of wellness recommendations • Benefit design: employer pays 100% for wellness plus incentives (prizes, bonus, discount coupons, day off) • Employee at risk for higher out of pocket costs if ill.

17. Partnership in Benefits DesignExample 3: Chronic Disease • Health condition: diabetes, heart disease, asthma • Enrollee wants: information about disease management / reversal, family educational support, competent clinical treatment • Employer wants: healthy employee, cost-effective care • Employee responsibility: actively participate in disease management program; comply with health maintenance guidelines • Employer responsibility: organize and offer disease management programs matching conditions of enrollees • Benefit design: Employer pays 100% for disease management program; lower employee co-pay if enrollee compliant with clinical guidelines identified in pre-employment screening (for probationary and post-probationary periods) and during health screening programs.

18. How would an actuary look at the claims risk pool? • 60% of employer enrollees will incur less than $250 in claims per year. • 90% of employer enrollees will incur less than $2,000 in claims per year • Only 5% will have major medical expenses • Premiums pay for the risk that more than 5% of employees will have major illnesses and that others will not be good health care consumers

19. Overview • Employer Challenge • Aggregate Plan Cost Inflation • Inflation by Type of Plan • Employer Response • Trends for Insured and Self-Funded • Impact on Employee Out-of-Pocket Costs • Insider’s Perspective and Vision • Direct Contracting Value Proposition • DHN’s Value Proposition • Stakeholders • New Partnership in Health • Direct Contracting Program Strategies • Correcting Flaws of Managed Care • Collaborative Partnership • Active Disease State Management • Implementation

20. Providers are divorced from working with employers Denial of access is key cost containment strategy Uneven playing field Paperwork Hostility-punishment Primary care gate-keeper Risk/cost/discount shifting Providers work directly with employers Focus on appropriate access and disease management Even playing field Streamline paperwork Collaboration-partnership Consultation Aligned incentives Correcting the Flaws in Traditional Programs Current HMO, PPO, Self-Funded ModelsDirect Health

21. Direct Health Networks’Self-Funded Program TARGET: Medium to Large Employers • Direct Health Plan • employers with over 125 employees • self-funded ERISA-qualified program • facilitated partnership of employer and local health system • active disease state management • continuous monitoring of plan performance

22. Direct Contract Self-Funded Model Employer Enrollees • Private label • Internet connectivity • Medical management • Disease State Management • Patient education • Aligned incentives Provider Organizations Broker / Facilitator

23. Direct Health Self-Funded Program DHN & Local Network Partnership Model Achieving Integration, Economies, & Effective Care Management Employers Employers Employers Local Broker Reinsurance Qualified TPA Care Managed Locally National Brand & Economy For Sales and Administration Local Network Partner (Primary Network) Pharmacy Management QM Direct Health Networks Plug-in Disease State Management Secondary Commercial Medical Network

24. Direct Health Self-Funded ProgramActive Disease State Management(via American Health Holdings)

25. Injuries • Neonatology/Perinatal • Osteoporosis • Otitis Media • Pain Management • Peptic Ulcer Disease • Pregnancy • Pressure Ulcers • Sickle Cell Disease • Substance Abuse/Alcohol • Urinary Tract Infection • Arthritis • Asthma • Cancer • Cardiac Arrhythmia • Cerebrovascular Accident (CVA) • Chronic Obstructive Pulmonary Disease (COPD) • Dementia • Depression/Anxiety • Diabetes Mellitus • Epilepsy • Heart Failure (HF) • Hypertension Health Solutions Condition Management Supports patients with chronic conditions and encourages partnership in managing their own health. American Health’s Health Solutions Condition Management program provides education and support to participants with one or more conditions. The program is structured around symptom management and medication compliance. Stratification by risk level ensures that interventions are appropriate to each participant’s needs. The objectives of the Health Solutions program are: The Health Solutions program covers more than 20 conditions, including: • To slow the rate of condition progression and prolong periods of health through symptom management and medication compliance; • To promote treatment plan compliance by providing education, counseling and support; • To reduce emergency room visits and hospital admissions.

26. Direct Health Self-Funded ProgramHealth Plan Management • A partnership between employer, broker, local health system and DHN • State-of-the-art administrative and disease state management systems • Custom patient educational program • Monthly criteria-based monitoring of economic and clinical performance • Quarterly consultative reviews

27. Vision for Next Evolution of Health Benefit Program • Large employers will go back to self-funding to create plan flexibility, enhanced health status and predictable costs. • Employees will receive improvements in benefit packages while employers reduce cost and risk. • Employers and employees will form more constructive partnerships. • Provider organizations will begin to play an active role in local employer / community health partnerships.

28. The Next Evolution of Self Funding Direct Contracting The Next Evolution Traditional Models Employer Employer Insurer/ Administrator DHN /Provider Organizations Network Rental Administration Vendors Broker / TPA

29. Steps in Exploring Direct Contracting Options • Employer must decide to consider self-funding. • Identify someone to facilitate the process of exploration (DHN / broker / consultant). • DHN establishes partnership with local provider organizations (if not already established), and include them in facilitated program design process. • Establish enrollee census, preferred plan design and claims / premium history information. • Design benefit package. • Secure stop loss insurance quote. • Price proposed program, present and secure client approval. • Implement. • Monitor program performance. • Time Table to Complete: 3 to 6 months