Per Member Per Month PMPM

1. Per Member Per Month (PMPM) Metric Methodologies

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4. What is PMPM/PMPY? The accumulated medical costs associated with enrollees by enrollment site each month Inpatient, Outpatient, Pharmacy, Ancillary Wherever DHP care is received Direct Care, Purchased Care, TRICARE Mail Order Pharmacy Direct Care costs calculated at MTF where care is delivered but assigned to enrollment site Divide total cost by number of enrollees adjusted for age/gender/beneficiary category Reflects differences in underlying demographics Done on a per person basis, not total volume Only reflects cost for enrolled individuals

5. Some Potential Misconceptions PMPM metric is looking from an insurance point of view We both manage enrollee utilization like an insurance company and produce care So we have Enrollee Unit costs, and MTF Production Unit Costs Enrollee cost are based entirely on my MTFs rates Enrollee Direct Care Unit cost is not for your facility alone MTF Production costs are just being applied to enrollees MTF Production Unit costs are based on all care produced, and applied to enrollees based on amount used If I reduce my enrollee utilization my MTF Production Unit costs automatically increase Since MTF Production unit cost is based on all care, unit costs only rise if MTF overall production decreases

6. How PMPM is built Direct Care cost information is based on cost allocation algorithms MTF Production Inpatient Unit Cost Inpatient Cost per RWP MTF Production Outpatient Unit Cost Outpatient Cost per APG Purchased Care based on claims data Pharmacy costs are based on PDTS Enrollee Equivalent Lives are based on DEERS adjusted for Age/Gender/Bencat

7. MTF Production Inpatient Unit Cost(Inpatient Cost per RWP) Cost of producing one weighted unit of care at each MTF RWP is common weighted unit for MHS Based on all care produced at MTF This includes Active Duty, Prime, Standard, Tricare for Life Total RWPs are summed for all categories of care Expense data is from MEPRS Inpatient is based on MEPRS A codes with step downs Depreciation costs are then removed Labor expense is based only on current month All other expenses are based on Rolling 12 month Total Expenses are divided by RWPs to get MTF Production Inpatient Unit Cost

8. MTF Production Outpatient Unit Cost(Outpatient Cost per APG) Cost of producing one weighted unit of care APG is used to associate Ancillary with encounter Based on all care produced at MTF This includes Active Duty, Prime, Standard, Tricare for Life Total APGs are summed for all categories of care Expense data is from MEPRS Inpatient is based on MEPRS B codes with step downs Depreciation costs and pharmacy are then removed Labor expense is based only on current month All other expenses are based on Rolling 12 month Total Expenses are divided by APGs to get MTF Production Outpatient Unit Cost

9. MTF Production Unit Cost

11. DACH Enrollee Inpatient Care

12. Equivalent Lives Developed to adjust for health utilization differences across populations By adjusting enrolled population, comparisons can be made across MTFs and Services Initial adjustment done by DMIS age group, but problems quickly developed for large age groupings Relooked at all care provided and developed Age/Gender/Beneficiary Category adjustors While this is an overall adjustment, it may not be appropriate for just one component of PMPM (i.e. Inpatient/Outpatient/Pharmacy)

13. PMPM Eq Lvs � Other Males

14. Enrollees vs. Equivalent Lives

16. PMPM Calculation Example

17. Drivers of PMPM Utilization of Services Average Cost of Services Enrollee Direct Care Unit Cost Enrollee Purchased Care Unit Cost Direct/Purchased Care Market Share

18. Analysis How much of total increase is driven by each factor Contribution by driver is a function of the increase in driver and contribution toward total PMPM For example, a driver that had a large increase but was only a small percentage of PMPM may not contribute much to overall increase

19. FY04/05 Prime Enrollee PMPY Comparison

20. FY04/05 Prime Enrollee PMPY Cost Increases by Care Categories

21. FY04/05 Prime Enrollee PMPY Cost Increases by Utilization and Average Enrollee Unit Cost

22. MHS Prime Enrollee PMPY Increase Factors

23. Summary Utilization increased for all sectors after adjusting for Age/Gender/Bencat Inpatient/Outpatient/Pharmacy 55% of Total Change Direct Market Share declined 42% to 40% for inpatient 51% to 46% for outpatient 75% to 69% for Pharmacy Drivers significantly different across enrollment service Most likely different by enrollment site

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25. BACKUP SLIDES

26. PMPM Spreadsheet

27. Issue: Ages that didn�t work with DMIS Age Groups Age 0-4 Break into two Groups 0-1 2-4 Female ADFM/Other 13-18 Developed Linear Estimate Other Male 24-38/Female 24-29 Medical disabled Active Duty Developed Linear Estimate All Groups 35-44 Developed Linear Estimate All Groups 45-64 Used Other Category to develop slope Linear Estimate based on value at Age 45 Plus Slope

28. PMPM Eq Lvs - Other Females

29. PMPM Eq Lvs - Other Females

30. PMPM Eq Lvs � Other Males

31. Eq Lives Factors

32. Average Unit Cost Increases Three Factors Direct Care Unit Costs Purchased Care Unit Costs Plus TMOP for Pharmacy Market Share Shifts

33. MHS Prime Enrollee PMPY Increase Factors

34. Prime Enrollment Service Observations Army Significant increased Enrollee Unit Cost for outpatient (42% of Total Change) Shifting of workload to purchased care Navy Increased direct care inpatient Utilization and Enrollee Unit Costs (41% of Total Change) Air Force Shift to purchased care in all areas Most utilization management MCSC Large increase in Outpatient Utilization (36% of Total Change) Less direct care across all areas

35. Service Prime Enrollee PMPY Factors

36. FY04/05 Prime Enrollee PMPY Cost Increases by Utilization and Average Enrollee Unit Cost

37. Prime Enrollment Beneficiary Observations Active Duty Increases in Utilization 53% of Increase Majority focused on Inpatient 26% and Outpatient 23% Direct Care Unit cost 45% of increase Outpatient cost 34% Active Duty Family Outpatient Utilization 31% of Increase Shift to purchased care in all area Retiree and Family Outpatient Utilization 36% and Rx Costs 33% largest drivers Shift to purchased care in all areas Most utilization management

38. Summary Utilization increased for all sectors Inpatient/Outpatient/Pharmacy 49% of Total Change Direct Market Share declined 44% to 41% for inpatient 51% to 46% for outpatient 75% to 69% for Pharmacy Drivers different across beneficiary category Outpatient utilization up across all

39. Inpatient Prime Enrollee Information

40. Outpatient Prime Enrollee Information

41. Pharmacy Prime Enrollee Information

42. FY04/05 Care Utilization and Unit Cost Driving Prime Enrollee PMPY Cost Increases

44. Medical Cost per Prime Equivalent Life Percent of Total by Care Category