4th Annual Investor Conference May 16, 2001 HEALTH PLANS DIVISION Panel Discussion: Contributing Value to Cost of Care

4th Annual Investor Conference May 16, 2001 HEALTH PLANS DIVISION Medical Management Strategies & Capabilities Tim Moore, M.D. Senior Vice President & Chief Medical Officer

3 How Health Net Provides Value in Medical Management  Improve Outcomes  Assist Members in Self-care  Help Providers Give Best Care  Avoid Being Unduly Intrusive  Contain Costs by Promoting Quality  Measure and Improve Whatever We Do  Link Activities to Product Design

4 Population Health Management Complex Case Management Chronic Diseases Stable Minimize disease progression Coordinate care Secondary prevention Disease Management Well & Acute Care Access to information Preventive care guidelines Tools for self-care How to access care Demand Management Very sick Specialists Case Mgmt. Intense % of Population 3 - 4% % 85% % of Resource Consumption 33-1/3%

5 Predictor Model Challenges 2001 Top 3% Utilizers %  What % of this year’s top 3% were in last year’s top 3%?

6 Predictor Model Challenges: Regression of Top 3% Utilizers 80% 20% %  80% of this year’s top 3% were NOT in the top 3% last year

7 Profiling Examples # Patients: 181 # Services: 728 Total Cost: $28,482 # Challenges: 53 Challenge Cost: $1,844 Challenge Rate: 7.3% PHYSICIANS, PEDIATRICS 6/30/99 -7/1/00 EXAMPLE

8 Profiling Examples # Challenges: 727 Challenge Cost: $23,510 Challenge Rate: 63.2% # Patients: 50 # Services: 1,150 Total Cost: $45,639 PHYSICIANS, PEDIATRICS 6/30/99 -7/1/00 EXAMPLE

4th Annual Investor Conference May 16, 2001 HEALTH PLANS DIVISION National Pharmacy Strategies & Trends Neil Higashida, Pharm.D. Vice President, Strategy & Integration, Health Net Pharmaceutical Services

10 Pharmacy Cost Management  Continued Success in Pharmacy Cost Management Well Below Industry Trends  Three-Tier Prescription Drug Benefits Becoming the Standard Plan Design  Successful Pharmacy Utilization and Unit Cost Management Strategies  Excellent Rebate Performance

11 Pharmacy Cost Trends  1999 to 2000 Trend = 9%  Q v. Q = 9%  Expected 2001 Trend = 11% to 13%

12 Prescription Drug Benefit Designs Current Penetration of the Three-Tier Benefit Design:  West (CA, AZ, OR)60%  Northeast (CT, NJ, NY, PA)47%  Health Plans Division57%

13 Pharmacy Cost Management Strategy  Continue Penetration With Cost-Savings Plan Design Such as the Three-Tier Plan Benefit  Develop and Administer New Plan Designs  Implement Cost Management “Best Practices” Enterprise-Wide –Utilization Management of Target High Cost Medications –Market Share Management of High Cost Medications –Electronic Prescribing Tools –Physician Prescribing Profiles

4th Annual Investor Conference May 16, 2001 HEALTH PLANS DIVISION Managing the Risk Shift in California Jenni Vargas Senior Vice President & General Manager, Northern California

15 Well-Managed Provider Groups Continue to Receive Capitation  95% of HMO Members Are in Groups With Capitated Physicians  41% of HMO Members Are in Groups With Capitated Physicians and Hospitals  Increased Scrutiny and Technical Support of Providers Receiving Capitation

16 Risk Shift  Focused Enhanced Medical Management Hospital  On-Site Concurrent Review  20 Medical Directors and 42 Nursing Staff Overseeing Length of Stay and Discharge Planning  Specialty Review

17 Risk Shift  Focused Enhanced Medical Management Physician  Outpatient Referral Management  Physician Profiling and Visits by Medical Director and Pharmacist  Fee Schedule and Claims Management

18 Large Delegated Groups Have Turned the Corner Financially  Improving Relationships Leading to Joint Innovation and Better Definition of Risk Services  Product Development to Feature High Quality, Delegated Groups  Driving “Code of Conduct” for Health Plan and Provider Relations

4th Annual Investor Conference May 16, 2001 HEALTH PLANS DIVISION National Health Plan Structure Judi Irving President, Health Net of Arizona

20 National Health Plan Structure Creates Synergies  Operations Aligned Across Health Plans –Common Goals –Aligned Incentives –Opportunities to Share and Develop Staff –Identification of Best Practices  Centralized Network Contracting –Leverage Volume –Rx, Lab, Disease Management

21 National Health Plan Structure Creates Synergies (Cont.)  Operational Efficiencies –Centralize Front-end Claims Processing –Out-of-Network Fee Negotiation Unit –National PPO Contracting  National Practice Sales Leaders –National Accounts –Labor & Trust

22 National Health Plan Structure Creates Synergies (Cont.)  Product Development  Medical Management Strategy  Branding and Advertising Materials Meet Local Market Needs With National Focus