1. .…a health and consumer services company making people’s lives better From Infomediary to Market Maker... Sam Ho, M.D. Senior Vice President, Chief Medical Officer

2. .…a health and consumer services company making people’s lives better swh:2 Current Environment Environment Ripe for Change Highest cost trends in 10 years Recession Rising unemployment / softer labor market Consumerism requires information & choice Science of performance measurement is improving Discount pricing possible & managed solutions  Cost sensitivity Benefit reduction & cost- sharing Consumer Healthcare Organization (CHO) QUALITY INDEX® profile

3. .…a health and consumer services company making people’s lives better swh:3 PHS Quality Pedigree Quality & Accountability hailed by purchasers, regulators, consumers, providers, CMS, NCQA, IOM, AHRQ NCQA – 21 Consecutive Excellent or Commendable MCO/MBHO Awards. 6 States with Excellent; PCCA = only statewide MCO @ Excellent Only MCO to Receive Paul Ellwood Award From FACCT for Efforts in Developing a Consumer-Driven Healthcare System. HEDIS - Exceeded Industry Average in 18 Quality-of-Care Measures Compared to California Health Plan Competitors Ranked #1 for Patient Satisfaction Among Network Model HMO’s in California - leading consumer magazine, October 2001 AAHP’s 2001 National Exemplary Practice Award for Congestive Heart Failure Program (CHF) - Colorado

4. .…a health and consumer services company making people’s lives better swh:4 2000 California HMO Performance Assessment Survey PacifiCare = Ranked Best by 198 Physician Organizations –200% Better Than 2nd Ranked HMO PacifiCare = Ranked Best by 367 Hospitals –31% Better Than 2nd Ranked HMO PHS Quality Pedigree Quality & Accountability

5. .…a health and consumer services company making people’s lives better swh:5 Foundation for Change 2002 Measures 28 Commercial Indicators & 29 M+C Indicators –Staying Healthy –Appropriate Care –Patient Safety –Service & Satisfaction –Affordability

6. .…a health and consumer services company making people’s lives better swh:6 Effective consumer information tool Effective provider management tool Platform for product innovation –Tiered benefits –Tiered compensation Expanded metrics for 2001 to 2002: staying healthy, appropriate care, patient safety, affordability, service & satisfaction 2001 - QUALITY INDEX® profile for Women & enhanced core QUALITY INDEX® Profile 2002 - Introduce QUALITY INDEX® profiles of Hospitals & Physicians “Leapfrogging” Leapfrog & others– expanded measures, report cards, incentives, benefit plan design

7. .…a health and consumer services company making people’s lives better swh:7 Hospital - Leading the Industry 87 measures –Medical, surgical, OB, peds –Risk-adjusted outcomes Leapfrog measures (9) Appropriate care Patient Safety Patient Satisfaction (Calif) Affordability 100 Top Hospitals - Solucient Aggregated score Other report cards = 4, 9, or 30 measures

8. .…a health and consumer services company making people’s lives better swh:8 as Platform for New Products Value network based on costs and quality Lower premium vs. standard HMO or PPO Broad network still offered Incentives to choose better & cost-effective vs. just cheaper Educate consumers on cost + quality variation Tiered compensation and market share rewards best performing providers

9. .…a health and consumer services company making people’s lives better swh:9 2003 “Value” Product - Quality and Cost as Drivers, w/Costs = Primary Tiered/Narrow HMO Hospitals Quality Cost Preferred Non-Preferred Tiered/Narrow HMO Physicians Quality Cost Preferred Non-Preferred F Coupled with QUALITY INDEX ® Profile information to empower consumers

10. .…a health and consumer services company making people’s lives better swh:10 PacifiCare Value vs. Kaiser Current CaliforniaMDsPMGsHospitalsMembers PacifiCare Value Plan12,000119~12550% Kaiser6,0003030100% “Narrow” Network = 2-4x Kaiser’s Network Value Network + Benefit Changes = 10-20% Premium Savings

11. .…a health and consumer services company making people’s lives better swh:11 10 measures (QIX subset) Preventive health Chronic diseases Satisfaction Total system cost –PMG + Hospital + Rx 6 measures (starter set) Leapfrog group measures Satisfaction PMG Quality + Hospital Quality Costs + 2003Integrated Value Equation

12. .…a health and consumer services company making people’s lives better swh:12 QUALITY INDEX ® Consumer info Core Hospitals Physician Web link with directory Patent pending CQI Improved clinical outcomes Improved service outcomes NCQA HEDIS Provider Profile Market maker Tiered hospitals –HMO & PPO –Quality –Affordability –Choice Tiered MG’s –HMO –Quality –Affordability –Satisfaction –Choice Tiered MD’s –HMO & PPO –Quality –Affordability –Choice +  AccountabilityQualityProduct Leadership “Caring is good… doing something is better