Transcript From Continuing Operations ($ in millions) - Corporate-ir

Sierra Health Services, Inc.
A Managed Care Company
Updated 08/25/06
Cautionary Statement
Statements in this presentation and verbal statements made by representatives of Sierra that
are not historical facts are forward-looking and based on management’s projections,
assumptions and estimates; actual results may vary materially. Forward-looking statements are
subject to certain risks and uncertainties, which include but are not limited to:
1) potential adverse changes in government regulations, contracts and programs, including the
Medicare Advantage program, the Medicare Prescription Drug Plan and any potential
reconciliation issues, Medicaid and legislative proposals to eliminate or reduce ERISA preemption of state laws that would increase potential managed care litigation exposure;
2) competitive forces that may affect pricing, enrollment, renewals and benefit levels;
3) unpredictable medical costs, malpractice exposure, reinsurance costs and inflation;
4) impact of economic conditions;
5) changes in healthcare reserves; and
6) the amount of actual proceeds to be realized from the note receivable related to the sale of
the workers’ compensation insurance operation.
Further factors concerning financial risks and results may be found in documents filed with the
Securities and Exchange Commission and which are incorporated herein by reference.
Consequently, all of the forward-looking statements made in this presentation or verbally by
representatives of Sierra are qualified by these cautionary statements, and there can be no
assurance that the actual results or developments anticipated by Sierra will be realized or, even
if substantially realized, that they will have the expected consequences to, or effects on, Sierra
or its business or operations. Sierra assumes no obligation to update publicly any such forwardlooking statements, whether as a result of new information, future events or otherwise.
Disclosure Statement
This presentation includes a non-Generally
Accepted Accounting Principle (GAAP) measure
–medical care ratio excluding PDP which under
SEC Regulation G we are required to reconcile
with GAAP. Reconciliation of this medical care
ratio to GAAP is included in our earnings press
release, which is available on
www.sierrahealth.com.
Nevada Health Insurance
Demographics
Uninsured
19%
Military
5%
Medicare
12%
Other Private
(includes selfinsured and
PPO) (1)
40%
(1)
(1)
(1)
Medicaid
6%
(1)
HMO (2)
18%
(1) U.S. Census Bureau (2004) -Total Nevada Population = 2,390,000
(2) Nevada State Health Division, HMO Industry Profile 3/31/06
HMO Membership
(in thousands)
9.9% CAGR
400
365
350
300
250
200
330
272
37
48
292
39
51
51
187
202
12/31/02
12/31/03
56
56
57
53
150
100
55
379
226
254
266
12/31/05
6/30/06
50
0
Commercial
12/31/04
Medicare
Medicaid
Commercial HMO Sales Growth
June 30, 2006
Commercial HMO Members: 265,600
2006 Las Vegas Membership Growth: 10,700
 Expect 6-9% Net Commercial Growth in 2006
 Over 5% YTD through July
 +66% HMO Market Share in Nevada(1)
 78% HMO Market Share in Las Vegas(1)
 Only 18% HMO Penetration Statewide(1)
 Increasing Competition from PPO Offerings
(1) Nevada State Health Division, HMO Industry Profile 3/31/06
Health Plan of Nevada
Membership Characteristics(1)
June 30, 2006
Commercial Employer Group Size
51-500
(mid-size)
31%
1-50
(small)
6%
Commercial Employer Type Mix
Gaming
20%
All Others
38%
501+ (large)
63%
Unions
11%
(1) Based on number of subscribers in each category
School
Districts
10%
Government
National 11%
Accounts
10%
Nevada
Commercial Market Share (HMO)(1)
Q1-04
Health Plan of Nevada
Statewide
Q1-05
Q1-06
Clark County
Q1-04
Q1-05
Q1-06
65.6%
66.2%
66.5%
77.8%
78.9%
78.3%
PacifiCare (United)
8.0%
10.0%
11.7%
9.8%
12.2%
14.3%
Health First
9.0%
8.2%
7.1%
-
-
-
Hometown Health Plan
6.4%
5.9%
6.0%
-
-
-
NevadaCare
6.1%
3.8%
3.3%
7.3%
4.6%
4.0%
Aetna
3.9%
2.9%
2.5%
4.6%
3.4%
2.9%
HMO Nevada (WellPoint)
1.0%
3.0%
2.9%
0.5%
0.9%
0.5%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
HMO Market Penetration
17.5%
17.3%
18.1%
20.5%
19.5%
20.4%
(1) Nevada State Health Division, HMO Industry Profile March 31, 2004, 2005 and 2006
Commercial Costs
 2006 Projected Cost Trends
 Hospital
6 - 8%
 Physician
 Pharmacy
4 - 5%
6 - 8%
 Overall
6 - 7%
Commercial Pricing
 2006 Projected Rate Increases
 HMO
 POS
 PPO
4 – 6%
6 – 8%
6 – 8%
 Overall(1)
5 – 7%
(1) Excludes benefit reductions (buydowns) which will increase the
expected yield by approximately 1%-2%
Medicare Sales Growth
Medicare HMO Members: 56,900
(6/30/06)
 Expect 4% or Better Net Medicare Growth
for 2006
 Approximately 7% yield increase for 2006
 + 64% Medicare Market Share Statewide
(1)
and Las Vegas
 Only 32% Medicare HMO Penetration Statewide
(1) Nevada State Health Division, HMO Industry Profile 3/31/06
(1)
Nevada
Medicare Market Share (HMO)(1)
Q1-04
Statewide
Q1-05
Q1-06
Clark County
Q1-06
Q1-05
Q1-04
Health Plan of Nevada
62.8%
63.7%
64.7%
62.8%
63.3%
64.3%
PacifiCare (United)
30.8%
30.4%
29.8%
37.2%
36.7%
35.7%
6.4%
5.9%
5.5%
-
-
-
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Market Penetration
38.3%
32.0%
31.7%
47.3%
38.4%
37.7%
Hometown Health Plan
(1) Nevada State Health Division, HMO Industry Profile March 31, 2004, 2005 and 2006
Medicare Costs
 2006 Projected Cost Trends
 Hospital
4 - 6%
 Physician
 Pharmacy
 Overall
4 - 5%
14 - 16%
6 - 7%
Prescription Drug Plan – Part D
 Stand-alone Prescription Drug Plan (PDP)
- Sierra Health and Life
-10 states (8 regions)
-NV, CA, AZ, UT, ID, OR, WA, CO, NM, TX
-Auto-enrollment provider in all 8 regions
Prescription Drug Plan – Part D

Marketing/Enrollment
 Low premiums, $1 generic co-pay and $250 brand
name deductible
 Enrollment ended May 15, 2006 for PDP
 Beneficiaries “locked in” until next enrollment period
for 2007
 180,300 members June 2006
 Continue to expect a pre-tax margin +4% on
revenues of approximately $200 million for 2006
 Year to date pre-tax income of approximately $1
million through June 30, 2006
 Expect pre-tax income of +$7 million for the
remaining two quarters of 2006
Medicaid
Medicaid Members: 56,700 (6/30/06)



+50% Medicaid HMO Market Share in Nevada
Expect 4-6% Net Medicaid Growth for 2006
2006 Rates




0.9% rate decrease January 1, 2006
2.6% rate increase July 1, 2006
Mandatory 2 Plan Market in Nevada
Currently Serving CHiPS, TANF, CHAP
(1) Nevada State Health Division, HMO Industry Profile 3/31/06
(1)
Nevada
Medicaid Market Share (HMO)(1)
Q1-04
Statewide
Q1-05
Q1-06
Clark County
Q1-06
Q1-05
Q1-04
Health Plan of Nevada
44.3%
46.0%
51.2%
42.9%
44.3%
50.0%
Nevada Care
55.7%
54.0%
48.8%
57.1%
55.7%
50.0%
Total
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Market Penetration
50.5%
47.2%
48.1%
60.0%
55.9%
57.1%
(1) Nevada State Health Division, HMO Industry Profile March 31, 2004, 2005 and 2006
Medicaid





Awarded new contract July 2006
Contract award was not appealed
Governor of the State of Nevada has signed the
contract
New contract effective 11/1/06 through 6/30/09
with DHCFP option to extend the contract for an
additional two years
State quality and performance audit scores of
100% - 2004; 98% - 2002 and 2000
HPN Medicaid Revenue Growth
(in millions)
$125.0
24.2% CAGR
$100.0
$88.0
$75.0
$50.0
$98.1
$64.1
$51.2
$25.0
$23.9
$26.6
Q2-05
Q2-06
$0.0
2002
2003
2004
2005
Medical Subsidiaries
Clinical Overview
Medical Subsidiaries
Southwest
Medical Associates
(SMA)
• Multi-specialty
physician group
• 250 Providers
Family Healthcare
Services
(FHS)
Family Home
Hospice
(FHH)
Total Home
Care of Nevada
(THC)
Behavioral
Healthcare Options
(BHO)
• Provides care
services in
patient’s home
• Hospice servicing
terminally ill
patients
• Medicare
certified home
health agency
• Medicare certified
• Home care
products,
infusion therapy
services, and
specialty drugs
• Specialized
mental
health/substance
abuse services.
• DME
• URAC accredited
Las Vegas/Marketplace
Opportunities
 Future Growth Opportunities
 Population increase of 4-5% in 2006, now at 1.9 million
 Census Bureau Estimate +114% Growth In 25 Years
 National average of 1%
 Mid Size Account Growth
 65 new and expanded companies in Nevada in 2005
 Collectively employ nearly 2,000 workers
 Expected 1 year economic impact of $360 Million
 Improving Medical Infrastructure
 New Acute Hospitals
 New Cancer Research Facility
 New Alzheimers Facility
Medical Premium Revenue Trends
($ in millions)
14.4% CAGR
$1,250.0
$1,000.0
$1,291.3
$1,131.2
$962.2
$862.4
$750.0
$500.0
$320.4
$400.7 (1)
$250.0
$0.0
2002
2003
2004
2005
(1) Includes $49.7 million in PDP revenue
Q2-05
Q2-06
Consolidated MCR
80.0%
78.8%
76.1%
75.3%
76.5%
78.3%
2003
2004
2005
YTD
6/06
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2002
Consolidated MCR
Excluding PDP
80.0%
78.8%
76.1%
75.3%
76.5%
2002
2003
2004
2005
76.2%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
YTD
6/06
Consolidated Medical Expenses
Twelve Months Ended 6/30/06
Other
18%
Physician
40%
Pharmacy
19%
Hospital
23%
Consolidated Medical Expenses
Excluding PDP (1)
Twelve Months Ended 6/30/06
Other
19%
Physician
44%
Pharmacy
12%
Hospital
25%
(1) Excludes PDP medical expenses of $95.2 million
Operating Income
Managed Care and Corporate Operations Segment ($ in millions)
$200.0
$175.0
$150.0
40.2% CAGR
$141.9
$119.0
$100.0
$63.5
$50.0
$44.4
$52.5
$0.0
2002
2003
2004
2005
Q2-05
Q2-06
Consolidated Pretax Margin
Managed Care and Corporate Operations Segment
14.0%
12.0%
11.4%
11.4%
2003
2004
12.2%
12.0%
12.1%
10.0%
8.0%
6.8%
6.0%
4.0%
2.0%
0.0%
2002
2005
Q2-05
Q2-06
Cash and Investments
From Continuing Operations ($ in millions)
$432.9
$450.0
$400.0
$350.0
$337.8
$300.0
$231.7
$250.0
$200.0
$382.5
$388.6
$265.2
$299.2
$374.6
$250.0
$190.3
$150.0
$100.0
$50.0
$106.1
$117.3
$59.7
$89.4
$58.3
$0.0
12/31/02
12/31/03
12/31/04
Non-Regulated
12/31/05
Regulated
6/30/06
Return on Average Equity
80.0%
70.0%
69.6%
60.0%
49.4%
50.0%
40.0%
30.0%
40.6%
28.8%
20.0%
10.0%
0.0%
2002
2003
2004
2005
Total External Debt
From Continuing Operations ($ in millions)
$250
$200
$193
$150
$117
$100
$125
$76
$52
$50
$72
$0
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Jun-06
Senior Convertible Debentures






$115 MM original issue on March 15, 2003
2.25% coupon rate
Converted $63.5 million from May 19, 2005
through February 1, 2006
Issued 6.9 million shares upon conversion (1)
Expensed approximately $1.5 million in prepaid interest for
conversion in 2005
Expensed deferred financing costs of $1.2 million in 2005
(1) Adjusted to reflect 2-for-1 stock split effective December 30, 2005
Stock Split







Declared a 2-for-1 stock split on December 7, 2005
In the form of a 100% stock dividend
Distributed and effective December 30, 2005
Authorized shares increased to 120,000,000 with a
$.005 par value
Historical earnings per share results have been
adjusted
Adjusted the conversion rate for outstanding
debentures
Treasury shares were not impacted by this dividend
Managing Dilution(1)
(shares in millions)
-6.2% CAGR
71.1
70.0
60.0
50.0
12.6
4.4
68.2
12.6
62.6
5.6
2.4
0.9
54.1
53.2
56.1
Q2 2004
Q2 2005
Q2 2006
40.0
30.0
20.0
10.0
0.0
Dilutive Impact of Conversion of Sierra Debentures
Dilutive Options and Restrictive Shares Outstanding
Weighted Average Common Shares Outstanding
(1) Adjusted to reflect 2-for-1 stock split effective December 30, 2005
Share Repurchases from 1/1/03



Repurchased 25.2 million shares as of 7/25/06
$20.45 average repurchase cost as of 7/25/06
Current bank agreement allows for unlimited
share repurchases


(1)
Based on meeting the required leverage ratio
$64.4 million available as of 7/25/06
(1) Adjusted to reflect 2-for-1 stock split effective December 30, 2005
2006 Strategic Objectives
 Solidify Regional Strength
 Continue to Gain Market Share
 Continue to Expand Medical Delivery System
 Implement Medicare Advantage Expansion, including
Prescription Drug Program (Part D)
 Achieve Commercial Premium Yields +5 to 7% before
benefit buydowns
 Achieve Commercial Unit Growth +6 to 9%
 Achieve EPS of $2.10 to $2.18
Sierra Health Services, Inc.
A Managed Care Company
Updated 08/25/06