Beacon Health Strategies, LLC Medicaid Behavioral Health Presentation Meeting With January 25, 2008

The commercial health insurance market is contracting… Note: Employment-based insurance includes CDHPs Source: U.S. Census Total commercial insurance enrollment (millions) 2

…with companies less likely to offer health insurance, especially small businesses Source: Urban Institute Changes in Employees’ ESI Coverage by Firm Size (2001 vs. 2005) 3

Low growth and margins have driven consolidation Total Privately Insured Lives (2003-5)Total Number of Health Plans Average Plan Enrollment: 86K165K N=180 million lives 4

Medicaid enrollment has been healthy during the same period Medicaid Enrollment (in millions) 5 CAGR 2.7% 6.1%

With Medicaid managed care growth particularly robust Source: Kaiser Commission on Medicaid and the Uninsured and Urban Institute (2007) Medicaid Plan Type (in millions) 6 CAGR 17.4% (1.6%)

States have embraced managed care for more complex population Source: National Academy for State Health Policy, June 2005 Report States with Managed Care for ABD 7

IP Admits/1,000 8 These more complex populations require active care management

Medicaid growth outstrips CPI and remains a cost concern Overall Average Annual Total Medicaid Spending Growth 9 Source: Kaiser Commission on Medicaid and the Uninsured and Urban Institute (2007)

Employers and governments are pushing MCOs for the next generation of cost containment CPI Average Annual Increase in Medical Costs U.S. Incidence and Cost of Individuals with Chronic Diseases Managing individuals with chronic disease is the focus 10

Co-morbidity is frequent in all of the “high-profile” diseases Adult Members (19+) with a Chronic Disease Diagnosis Pediatric Members (18 or under) with a Chronic Disease Diagnosis 11

The public segment, especially Medicaid, remains highly fragmented Source: CMS, 2006 Medicaid Managed Care EnrollmentMedicare Advantage Enrollment 12

Trends suggest continued Medicaid opportunity Eligibility expansions continue across the states –SCHIP and kids initiatives –Efforts to address the uninsured Outreach to the “eligible but un-enrolled” is improving and becoming more sophisticated Willingness by states to place “high risk” populations in Managed care Traditional limitations in the PCCP, state-run health plan model –IT, up-front investment, staffing, provider capture, role of doctors Management of chronic conditions is imperative CMS policy emphasis on “dollars following the individual” favors managed care 13

MassachusettsRhode IslandNew YorkOhio MMCO ClientsTwo One Commenced Medicaid Members 165,00090,000280,000530,000 Populations Served TANF Disabled SCHIP Commonwealth Care TANF Disabled CSHCN SCHIP Foster Care Dual Eligible TANF Disabled SCHIP Dual Eligible TANF Disabled SCHIP ServicesFull Suite (IPM) Specialty Serving Medicaid members is Beacon’s primary expertise 14

Beacon’s Medicaid health plan clients are the best in the nation Beacon Client since ‘99 Beacon Client since ‘01 Beacon Client since ‘03 15

Beacon’s best results are achieved through our Integrated Partner Model (IPM) Beacon brings its specialized behavioral health expertise into a plan’s organization -Clinical and quality design and protocols -Integrated operational workflows Local management -Account manager responsible for all activities -Clinical manager runs clinical duties -Absorbs some or all local staff if appropriate -Maintain local/regional office structure if appropriate All activities supported by the company’s robust expertise and capabilities -Leading clinical and quality department -Specialized care programs, including case management -FlexCare, a fully integrated care management system designed for Medicaid behavioral health -Tailored analysis and reports -Network administration, members services and claims “Carve-In” not a “Carve Out” 16

Care Management Approach – Member Centric Responsive Physical BehavioralSocial Holistic approach Consumer and family member participation Recovery and resiliency Cultural competency Coordinated care Integration and linkage Consumer rights and responsibilities Safety of consumers 17

Continuum of Care Model Responsive Inpatient care Crisis Stabilization Acute Residential Care Partial Hospitalization FST/CSP Day Treatment Intensive Outpatient Outpatient LowHigh Behavioral Health Risk / Status LowHigh Service Intensity Observation Beds 18

Integrated Partner Model (IPM) Case Study: Neighborhood Health Plan of Massachusetts Neighborhood Health Plan of MA l 170,000 members, 85% Medicaid l Innovative care management approach l Excellent HEDIS and consumer satisfaction results Beacon Integrated Partner Model l On-site utilization management l Integrated case review teams l Aftercare, depression and case management programs l Joint disease management programs l Network, member and claims management Best in class BH Expertise 19

IPM implementation is improving efficiency both in BH and Medical expenditures Behavioral Health PMPM Medical Expenditure PMPM 44% Decrease in BH13% Decrease in Medical Spend Complex Case Management 20

Rapidly Improving Quality – Case Study Improvement in QARR/HEDIS Measures One Year After Beacon Implementation Beacon took over BH operations for a 200,000+ member health plan in Jan ‘06 Absorbed existing health plan staff under Beacon clinical and process management Day Follow-Up after Hospitalization –Moved from bottom quartile ranking to second quartile (21 st to 11 th ) –Equal to statewide average score Day Follow-up after Hospitalization –Moved from bottom quartile ranking to the second quartile (22 nd to 10 th ) –Equal to statewide average score New York City Implementation 21