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Published byKelley Holt Modified over 6 years ago
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CIBC World Markets 13th Annual Healthcare Conference
The Plaza Hotel, New York City November 6, 2002 Gregory W. Scott Executive Vice President, Chief Financial Officer Pacificare Health Systems
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Safe Harbor 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 Form 10Q as of June 30, 2002, and Form 10K as of December 31, 2001.
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Consumer Health Organization
Consumer-Aligned Organization Drug Discount Program Debit Card Women’s Health Initiative Stand Alone Rx Plan Tight Network Operations Quality Measurement Extended Service Hours Customer Welcome Calls Consumer Health Organization (CHO) Top-Level Strategy MCO Product/Segment Extensions PPO Med Supp ASO Defined Contribution 3rd Party Specialty Business Full Service MCO Fix the Core Operational Control Profit Margin HMO
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PacifiCare- largest purchaser of health care services in the western U
PacifiCare- largest purchaser of health care services in the western U.S. 2002 Markets A Fortune 200 company with $11 billion in revenue 2.4 million commercial lives 800 thousand Medicare+Choice lives 9 million specialty lives
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2003 Market Expansion Medicare Supplement Pharmacy Benefit Management
Behavioral Health
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3rd 2002 Quarter Results Reported EPS = $1.20 vs. consensus of $0.84 EPS up 29% year-over-year on FAS 142 adjusted basis Operating income, excluding net investment income, up 66% y-o-y Cash flow from operations = $189 million, up 136% y-o-y
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3rd 2002 Quarter Results EBITDA up 23% vs. prior quarter
Consolidated medical loss ratio = 85.8%, down 340 basis points y-o-y EBITDA = $109.3 million, up 22% y-o-y EBITDA up 23% vs. prior quarter SG&A ratio = 13%, up 250 basis points y-o-y Full year 2002 EPS guidance raised from $3.37-$3.47 to $3.90
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Earnings Improvement *Reported EPS
NOTE: 2001 EPS figure adjusted to FAS 142 comparable basis; Q202 adjustment relates to investment impairments
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Operating Profit Improvement
Investment Income: (52)% Operating Profit: 74% Investment Income: (19)% Operating Profit: 66% *Adjusted for SFAS 142 change in accounting for goodwill as if adopted January 1, 2001 and excludes impairment, disposition, restructuring, OPM and other charges/credits
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Drivers of 2002 Operating Profit Improvement
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Growth in Specialty Company Unaffiliated Membership
Up 30% Up 9%
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Improved Free Cash Flow
Free cash flow is defined as net income plus depreciation & amortization less capital expenditures * Excluding non-recurring items
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Increase in Excess Statutory Capital
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Lower Debt to EBITDA Ratio
2.4x 1.66x NOTE: Debt to EBITDA ratios based on annualized current quarter EBITDA; Q202 & Q302 debt total excludes FHP bonds due to cash collateral account
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SG&A 3rd quarter SG&A ratio = 13%, up 250 basis points y-o-y
~ $40 million in 3rd quarter costs are non-recurring litigation-related accruals incentive compensation accrual 4th quarter SG&A will include: Seasonal open enrollment costs Marketing costs 2003 Continued investment in future state & new products
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Debt Restructured High Yield Notes FHP bonds
Bank Credit Facility January ‘03 maturity date extended 2 years $461 million reduction of outstanding balance YTD ‘02 High Yield Notes $200 million offer increased to $500 million 10 ¾% coupons, priced to yield 10 7/8%; mature June ’07 maturity FHP bonds $43 million remaining balance covered by cash collateral account
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Recent Events Keystone Health Plan partners with PacifiCare Behavioral Health Effective 11/1/02 Covers > 200,000 Keystone enrollees in PA Reader’s Digest agreement with Senior Solutions Exclusive endorsement of Secure Horizons’ Medicare Supplement products Access to customer database with > 100 million households Working with Reader’s Digest to offer additional products
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Recent Events WebMD agreement with Prescription Solutions
Agreement is with WebMD sub, MedE America, which has 4 million lives Prescription Solutions to provide mail order prescriptions & OTC medications 300K members initially; additional mbrs. over next year International Brotherhood of Teamsters agreement Prescription Solutions endorsed as preferred PBM Covers >250 Taft-Hartley trusts with > 1.4 million lives
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Recent Events Significant new commercial case wins
65,000 new Large Group & National Accounts members effective January 1, 2003 Includes Wells Fargo, IBM, Verizon Communications, LAUSD, County of Riverside and Fidelity National 17,000 new members from County of San Diego effective October 2002 Commercial HMO membership YTD is 85,000 > plan
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New Products Value Network Self Directed Health Plan
Designed to lower premiums 6-16% Smaller network than standard HMO, but up to 4 times larger than Kaiser in CA Self Directed Health Plan Access to PPO Combines employer funded medical spending account + catastrophic coverage Stand Alone Rx Plan No deductible; no annual max Covers ~400 medications, mostly generic Discounts of 15-30% on other drugs M+C PPO Demonstration Project Active in 2 counties in AZ and NV Only participating plan in CA Medicare Disease Management Demonstration Project Targets up to 15,000 CHF patients
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Changes to Medicare+Choice
Goal is to maximize cash flow
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2003 Guidance Higher commercial membership, excluding loss of CalPERS
Lower Commercial MLR Commercial premium PMPM increase equal to or slightly higher than 2002 Medicare+Choice MLR higher Continued investments in IT, new products Continued rapid growth in unaffiliated specialty company membership
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Thank You
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