1. IT Planning & Budgeting In Healthcare July 10, 2013 1 John Jarvis Director, IT Finance Molina Healthcare, Inc.

2. Discussion Introduction Healthcare 101 Business of Nickels Healthcare Budgeting Challenges The Problem Thinking Different 2

3. John Jarvis BA Psychology; Research Design & Statistical Analysis 20 Years Healthcare Experience 15 Years IT Experience Healthcare Business Analytics, Process Development, Programming (SQL), Capacity and Cost Efficiency, IT Portfolio Management, IT Finance Management 11 Years with Molina Healthcare 3

4. Healthcare Financial Concepts Government Programs Medical Cost Ratio (MCR) Per Member Per Month (PMPM) 4

5. Government Programs Medicaid – is the program for families and individuals with low income and is jointly funded by the state and federal governments. Medicaid is managed by the states. 2013 poverty guideline for a family of four is $23,550. Medicare – guarantees access to health insurance for Americans ages 65 and older and younger people with disabilities as well as people with end stage renal disease. Children’s Health Insurance Program (CHIP) – is administered by the U.S. Department of Health and Human Services. It provides matching funds to states for health insurance to support families with children and with incomes that are modest but too high to qualify for Medicaid.

6. Medical Cost Ratio (MCR)* - Defined *Medical Loss Ratio (MLR) is alternative term MCR = Medical Costs / Premiums 85% or lower (Industry Standard) Drivers: Population Type (e.g., ABD), preventive care, access to care, quality of care, etc. 6

7. Per Member Per Month (PMPM) - Defined Monthly Cost / # Members (Monthly) Premium is received monthly for each member MCR can be determined on a PMPM basis PMPM used to compare costs across a similar population More Members + Good MCR = Increased Profit 7

8. 8 How Does Molina Work? Revenue Direct Medical Costs Medical Margin Administration Premium Taxes Pre-Tax Profit Taxes Profit CLAIMS For the average Molina Member each month, per member per month (pmpm) CLAIMS Not actual results – for illustrative purposes only

9. Healthcare Budgeting & Planning Predicting the Unknown -- Accurately Regulations change constantly, immediately, and have an unknown long term cost impact Fixed Revenue PMPM decreasing Membership Increasing Medical Costs Rising (Technology impacts) 9

10. Healthcare Budgeting & Planning Typical planning patterns in Healthcare Estimate Membership Growth Set MCR and PMPM goals Predict future regulation impact Understand financial impact of future acquisitions and mergers Estimate and understand business demand Look at Revenue Provide targets based on percentage of membership and revenue growth 10

11. Healthcare Budgeting & Planning So what’s the problem with making some assumptions on IT spend based on the previous slides? 11

12. Healthcare Budgeting & Planning So what’s the problem with making some assumptions on IT spend based on the previous slides? This is a standard for Healthcare …But … Consumption and demand continue to rise higher than what was budgeted! 12

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14. Healthcare Budgeting & Planning So what’s the problem with making some assumptions on IT spend based on the previous slides? FTE Technical costs are missing in the formula! 14

15. IT Spend has a huge impact on administrative costs!! If FTE Technology Cost drives a large portion of IT Spend, then: Use FTE costs to predict a portion of future cost Understand FTE cost details to increase accuracy Baseline FTE costs so you know where you started Drive FTE costs down by driving change to the FTE cost drivers 15

16. Understand FTE Technology Costs Salary, Benefits, Bonus Desktop Computer, Laptop, Telephone, Mobile Standard Software (Enterprise Agreement) Non-Standard Software (Named Licenses?) Personal Storage Data / Bandwidth Shared Storage, Collaboration Sites, E-mail Increased compute demand for core applications Support costs? (Help Desk) 16

17. Understand FTE Technology Costs As Employees increase, IT Costs increase exponentially! HR (Recruiting) Time = Money Facilities More locations, more cables, bandwidth, network equipment Storage doesn’t grow at a steady rate. Hard to predict Expensive Impacted by FTE’s (Retention Policies? Archiving) Appropriate Tiers 17

18. Start Now! Identify how employees drive your organization’s technical cost Identify with as much detail as possible the cost of technology per employee Identify what drives your FTE growth in your organization Use FTE technical cost information as a factor in predicting future IT Spend Identify ways to stabilize or reduce technical or policy driven administrative costs to drive down IT cost per employee 18

19. Questions? 19

20. Thank You! John P. Jarvis | Director, IT Finance Molina Healthcare, Inc. 562-951-8357 office 562-644-5560 cell john.jarvis@molinahealthcare.com www.linkedin.com/in/jpjarvis 20