Prospect Medical — Investor Presentation (April 2006)
30 slides from Prospect Medical's investor presentation, Apr 19, 2006
Slide 1: Prospect Medical Holdings, Inc. Investor Presentation April 2006
PROSPECT MEDICAL Prospect Medical Moldings, Inc. (AMEX:PZZ) Investor Presentation April 2006
Slide 2: Forward Looking Statements
PROSPECT =— MEDICAL = Eonwara Looking Statements This presentation may contain forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission, or otherwise. Statements contained he
Slide 3: Rising U.S. Healthcare Costs
PROSPECT MEDICAL Rising U.S. Peaiicare Bests 2005 (S in trillions) * 16% of GDP $3 s4s © Federal spending rose $4.0 24.3% to $11.3 billion $3.5 Private insurance premiums $3.0 increased 6.8% $2.5 v Accelerated increase expected in 2007 et 2015 $1.5 * 20% of GDP Sho © $12,320 per person, $0.5 2005 20
Slide 4: Who Is Prospect?
PROSPECT fi MEDICAL ¥. Who Is Prospect? * Managed care management company » manage the medical care of 184,400 HMO enrollees at 12/31/05 © Provide the services of an HMO, except for marketing © Manage the medical care of HMO enrollees who have chosen one of 11 affiliated IPAs ° IPAs y physician-owne
Slide 5: Elements of Delegation
PROSPECT MEDICAL = Eléments of Delegation Services Provided to |PAs * Negotiate contracts || * Recruiting ® Medical Services * Compliance © Credentialing © Quality Control °* Claims © Contracting © Customer Service © Customer Relations | | ° Provider Relations ° Accounting
Slide 6: Industry Valuation
PROSPECT MEDICAL industry Valuation TTM PIE ratio 2s of 4/10/08. Source: Yahoo! Finance
Slide 7: Investment Considerations
PROSPECT fez MEDICAL = Investment Considerations * Health care spending rising significantly ® Regional industry leader © History of achievement ¥ acquired and successfully integrated 11 IPAs v revenues doubled to $133.5 million from FY 2003 - FY 2005 ¥ consistent profitability Acquisition-driven gr
Slide 8: Regional Industry Leader
PROSPECT MEDICAL Régional Industry Leader 1), Industry Position © One of the 10 largest IPA management companies in California ° 11 affiliated IPAs at December 31, 2005 9,000 primary care and specialist physicians Contracts with all major regional HMOs Established infrastructure and reputation
Slide 9: Regional Industry Leader: California Managed Care Market
PROSPECT MEDICAL Regional Industry Leader Z Ca if ria Managed Care Market © Mature market ~ dense population of 36.8 million v 47% are HMO enrollees, down from approximately 50% ® High concentration of physicians and hospitals ® Established physician practice and referral patterns ° Fragmented marke
Slide 10: Business Strategies
PROSPECT fox: MEDICAL = BUSINESS Strategies | © Acquisition of unaffiliated IPAs © Develop internal growth salients focused on senior enrollees v capture medi-medi assignments ¥ control hospital full-risk contracting v allocate resources to capture CMS risk adjustment dollars ® Reevaluation of opera
Slide 11: Acquisition Criteria
PROSPECT MEDICAL Acquisition Criteria © IPAs that have a history of profitability © Opportunities to realize significant synergies by: y leveraging our built out IT and back office infrastructure leading to economies of scale v applying our proven risk (cost) management procedures Proximity to curre
Slide 12: Why Others Failed
PROSPECT fe MEDICAL a= y= Why Others Failed PREDECESSORS PROSPECT MEDICAL HOLDINGS Immediate move to national Exclusive focus on southern consolidation created integration California market difficulties Rapid, undisciplined acquisitions Disciplined and deliberate acquisition strategy Acquired and at
Slide 13: Triple Acquisition Benefit
PROSPECT : MEDICAL z = Wniple Acquisition Benefit Can execute more favorable Increased CONtracts with payors HMO Rates Bargaining power with 2 Improved Contracting Hospitals and Physicians with Providers Operating 1 Leverage of Reduced Administrative Expense % Seton 2B
Slide 14: Acquisition Model Metrics: IPA Management Costs
PROSPECT MEDICAL Acauisition Model Me 4) IPA Management (G&A) Costs Percentage of IPA gross revenue % 28 | Predicted (- - -) ules mm Actual (——) 2 19 i) a _ wv, ff el : 1s ZS ae a | Lt = Se B TES a 4
Slide 15: Acquisition Model Metrics: Blended IPA Medical Costs
PROSPECT MEDICAL 2, Blended| |PA Medical Costs OSE @ Predicted (—--*-). @ Actual (——) Medical Loss Ratio % Costs PI %H a ~ 4 RAN ivan Sa a sa w C : j a O\crerere ete eee : ae a ol © « : c Fy xo ew PH eww ene yw ne Uwe 4.
Slide 16: Acquisition Model Metrics: IPA Gross Revenue
PROSPECT MEDICAL Acduisition Model Metrics ( 3, IPA Gross Revenue rm ‘i $120 ™® Predicted (- - -) $110 m™ Actual (——) 16
Slide 17: Acquisition Model Metrics (Illustration)
PROSPECT MEDICAL Acduisition Model Metrics (Illustration) 4, Member Months, IPA Operating Income = Predicted (- - -) = Actual (——) Member Months (000s) » Is . 1a af my , 4 1a a) we ' r wm) yt sm /\. p v Pir 10 ’ My a 4 mu ay
Slide 18: Barriers to Entry
PROSPECT fea MEDICAL Bamlers to Entry © Significant and complex regulatory requirements ® Size of infrastructure / IT investment ¥ Prospect’s IDX system has the capacity to process the data of at least an additional 350,000 HMO enrollees ® HMO reluctance to work with unproven IPAs © Stability of ope
Slide 19: Senior Initiatives: Relatively Higher Senior Profitability
PROSPECT MEDICAL Senior Salients. Rationale; Relatively Higher Senior Profitability aS ST TST MLR = Medical Loss Ratio GM = Gross Margin 2004 2005 MLR GM MLR GM Senior Product 58.68% 41.32% 52.27% 47.73% Blended 76.14% 23.86% 76.06% 23.94% Commercial 83.95% 16.05% 87.97% 12.03% 19
Slide 20: Senior Initiatives: Medi-Medi One Care Program
PROSPECT MEDICAL Senior Salients — 4, Medi-Medi -- One Care” Program ee Se) © In Prospect’s home base of Orange County, the state is moving approximately 50,000 dual-eligibles (‘medi-medis”) into managed care ¥ senior + indigent qualify for Medicare and Medi-Cal ® Prospect (AMVI/Prospect JV) is one
Slide 21: Senior Initiatives: Hospital Contracting
PROSPECT MEDICAL = Senior Salients Z, Hospital Contracting — Brotman Medical Center * JCAHO accredited, 420-bed hospital in Culver City, CA © $1 million investment ® Virtually alone in offering a full-risk Medicare hospital product to large West Los Angeles market © Anticipate increased senior enrol
Slide 22: Senior Initiatives: CMS Risk Adjustment
PROSPECT MEDICAL Senior Salients 3) Reventie Enhancement— CMS Risk Adjustment Pe Se ee eS) © Additional compensation for sicker seniors v Phasing in risk adjustment model ¥ 30% in 2004 y¥ 60% in 2005 ¥ 75% in 2006 ¥ 100% in 2007 ® Prospect received approximately $4 million in additional compensation
Slide 23: Key Initiative: Incentive Revenue
PROSPECT MEDICAL Key, initiative... Incentive Revenue SSS [Risk Poo! Revenue (R) $3,500,000 {1 Incentive/other Revenue (1) $2,500,000 INN
Slide 24: Management Team
PROSPECT fe MEDICAL = Management Team © Dr. Jack Terner, M.D., Chairman and CEO (1996 - ) ’ Formerly Chairman and CEO of Century Medi-Corp from 1984 until 1992 merger with Foundation Health Corporation (NYSE: FH). * Catherine Dickson, President and COO (2003 - ) ¥ Served as VP of Contracting and Cre
Slide 25: Revenues ($ in millions)
PROSPECT MEDICAL ($ in millions) g 3
Slide 26: Earnings Per Share
PROSPECT MEDICAL Earnings Per Share $0.09 $0.06 $0.03 $0.00+ Q4'04 QI'0S Q2'°05 Q3'05 Q4'05 Q1'06 26
Slide 27: Cash Accumulation
PROSPECT MEDICAL Cash) Accumulation (Per Bank) = sio ™ Pre-Genesis (-----) E s9 = Post Genesis ( ) e ss — Psy = 7 ails es ae ‘ome gis a A fe scan $6 8s wo a—a--- at ite - S5 ss mH Bes z i s3 a = 2 Feb Mar. Apr May June July Aug Sept Oct. Nov Dec Jan Feb Mar 05 105 "0S "05 ‘0S "0S "05 "05 05 "0S "05
Slide 28: Shareholders' Equity
PROSPECT MEDICAL Shareholders’ Equity $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 | so |_| a (FYE 9/30 ) 2000 «2001 «2002 «2003S 2004 «= 2005 'Q1'06 (Sin thousands)
Slide 29: Investment Conclusions
PROSPECT fi MEDICAL ¥. Investment Conclusi (e) ns Proven operating model Efficient operator and consolidator Fragmented market with high barriers to entry Increasing revenues, profitable operations Substantial acquisition pipeline and available financing Leveraging key initiatives to increase growth
Slide 30: Searchable text section of graphics shown above
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