2012 Deloitte Case Challenge at Carnegie Mellon University Case Presentation Packet

Agenda
Friday, April 6 th
5:00pm 6:30pm 6:30pm 7:00am Case Introduction Case Solution Development Simon Auditorium Break-out Rooms

Saturday, April 7 th
7:00am 7:45am 8:30am 8:30am 9:05am 9:05am 9:40am 9:40am 10:15am 10:15am 10:50am 10:50am 11:25am 11:25am 12:00pm 12:00pm 1:00pm 12:30pm 2:00pm 2:00pm 2:20pm 2:20pm 2:40pm 2:40pm 3:00pm 3:00pm 3:15pm 3:15pm 3:45pm 3:45pm 4:30pm Presentation Due! Breakfast Group A Presentations Group B Presentations Group C Presentations Group D Presentations Group E Presentations Judge Consensus Meeting Lunch/Finalists Announced Finalist Preparation Room 1 Finalist Presentation Room 2 Finalist Presentation Room 3 Finalist Presentation Judge Deliberation Winner Presentation Networking Session Send to rkabra@deloitte.com, alhanna@deloitte.com, cwheelahan@deloitte.com Simon/Cooper Auditoriums Presentation Rooms Presentation Rooms Presentation Rooms Presentation Rooms Presentation Rooms TBD (presentation room 3) Simon Auditorium Break-out Rooms Simon Auditorium Simon Auditorium Simon Auditorium Simon Auditorium Simon Auditorium Simon Auditorium

Team Room Assignments

Team Team 1 Team 2 Team 3 Team 4 Team 5 Team 6 Team 7 Team 8 Team 9 Team 10 Team 11 Team 12 Team 13 Team 14 Team 15 Presentation Room Simon Auditorium Cooper Auditorium MM 103 Simon Auditorium Cooper Auditorium MM 103 Simon Auditorium Cooper Auditorium MM 103 Simon Auditorium Cooper Auditorium MM 103 Simon Auditorium Cooper Auditorium MM 103 Breakout Room Posner Hall 151 Posner Hall 152 Baker Hall 237B Porter Hall A18A Porter Hall A18B Porter Hall A19 Porter Hall A19A Porter Hall A20 Porter Hall A21 Porter Hall A19C Porter Hall A19D Porter Hall A20A Baker Hall 235A Baker Hall 255A Porter Hall 226B

Competition Rules
Participants may use any and all outside resources when developing a solution Teams may NOT communicate with each other regarding case related details prior to presenting Teams must create a final presentation of their solution using Microsoft PowerPoint Teams must submit Presentation decks by 7:00am, otherwise they will be disqualified Dress code for Saturday is Business Formal First round presentations must not exceed 20 minutes in length. Finalists will have 10 minutes o Two warnings will be given to each team at 5 minutes remaining and 2 minutes remaining. o There will be 5-10 minutes of question and answer as a part of each round Teams will be judged on equally on solution development and overall presentation skills o Remember, your process and effective communication are more important than the answer All members of a team must actively participate during the presentation All members of a team must be present 15 minutes prior to their scheduled presentation time.

Table of Contents
Table of Contents....................................................................................................................... 1 Introduction ................................................................................................................................ 4 Company ................................................................................................................................... 4 Capabilities ............................................................................................................................. 4 Culture.................................................................................................................................... 9 Current Systems Overview ....................................................................................................11 Options ..................................................................................................................................11 Summary of Key Challenges for Ecclestone Plans ................................................................12 Additional Industry Information ..................................................................................................13 Health Care Industry Overview ..............................................................................................13 Health Plan Capabilities Spending Forecast ..........................................................................14 Mid-Market Plans ..................................................................................................................15 Challenge..................................................................................................................................15 Directive ....................................................................................................................................16 Ground Rules ............................................................................................................................17 Supplemental Information .........................................................................................................18 Ecclestone of Montana Mission Statement ............................................................................18 Email Exchange 1 .................................................................................................................19 Email Exchange 2 .................................................................................................................25 Relevant Market Data ............................................................................................................30 Glossary of Terms.....................................................................................................................33

Introduction
Ecclestone Health of Montana (EoM) is a health insurance plan based in Helena, Montana. The Ecclestone Association is a federation of 34 different health insurance organizations. They are all licensees of the same Ecclestone brand and while legally they are different entities they are tied together by the same brand and very similar corporate cultures and missions. In the case of Montana, Ecclestone is lagging behind many of the larger competitors in the market. They are falling flat with their Core Administrative Processing system (or Core Admin system) and are thus lagging in customer service, claims processing and other core business areas. With the advent of new industry requirements, Ecclestone of Montana is positioned in a way where changes are a necessity. Whether the motivation is EoMs own internal mandates or the upcoming ICD-10 standards, EoM is in need of a revitalization of their Core Administrative Processing Model to adhere to the new standards and conditions. EoM has engaged Deloitte to begin assessing the various strategies to best align them with the strategic objectives and goals of EoM in order to better position them in the marketplace from a capabilities standpoint, while adhering to the new mandates being imposed on them.

Company
With pressure coming from the ICD-10 deadline of October 1, 2013 as well as internal Ecclestone mandates, enhancement of EoMs Core Admin Processing Model is a necessary step. With much of their Capital Expenditures budget going towards improvements to adhere to new standards, not much is left for capabilities improvements. The Ecclestone Association has mandated that all of its associated plans operate within 80 percent parity of their leading companies, that is, for each of eight capabilities the Association has determined gauging metrics and any Ecclestone company operating below 80 percent of the top-performing company in any category will be audited by the Association and forced to comply.

Capabilities
National players have acquired leading capabilities due to their significant investments. Some Ecclestone plans do not have these capabilities.

Figure 1: Large National Health Plan Capabilities

Overall, EoMs current operating position is behind national competitors. Some of the capabilities above have been split into two rows in the table below to provide more specificity as to where EoM is leading and lagging.
EoM Relative Position Against National Competitors and Other Ecclestone Plans

Capability Area(s)

Functional Area

Rationale/National Capabilities

Sales

Sales Force and Broker Distribution Channel

Leading

New relationships with potential customers EoM possess a strong internal sales force and broker distribution channel throughout Montana; national competitors would require significant time to develop a competitive network in the region EoM has a larger broker program for regional sales EoMs internal sales force is decentralized across the regions allowing for a local presence among employer groups that has built good relationships

Sales

Sales, Marketing & Underwriting Operations

Y/R

Trailing

Product Product

Parity

Enrollment & Billing Enrollment & Billing

Lacking web-based broker services, including ability to check leads, review status, and obtain reports Lacking automated lead generation and tracking systems and processes, including automated renewal triggers Lacking automated end-to-end quote to case installation process with straight through, no-touch processing Limited Sales support tools to compare products (i.e. basic shop and buy) Lacking automated commission calculation functionality National health plans bring new products to market within 3-6 months EoM has limited High Deductible integration and does not yet offer consumer directed healthcare options (National plans have direct linkages between medical benefits and savings/reimbursement accounts) Most national plans have tabledriven systems, externalized business rules (end-user configuration) System limitations do not allow for effective market segmentation at product-line levels Currently cannot support Member level benefits Lacking automated error-free enrollment and case installation with straight through, no-touch processing Lacking on-line bill viewing, reconciliation, and payment for employer groups and individuals Lacking advanced web-based enrollment tools National health plans are currently deploying point of service capabilities and swipe cards. EoM utilizes sophisticated skillsbased routing and workflow management applications for claims Montanas core system contains significant hard coded logic and would require significant modifications to scale to larger volumes Lacking real-time adjudication

Lagging

Claims Processing

Claims Processing

Lagging

Customer & Provider Service

Customer & Provider Service

Lagging

Network Management

Provider Network

Leading

Network Management

Network Administration

Lagging

Lacking automated integrated sales and service processes National plans deploy a One and done service model with intelligent call routing or skillsbased routing Customer and provider segmentation with personalized service experience or service tiers Intelligent scripting (cross-selling, product description) Targeted health content on specific conditions or wellness options available on-line and via mailings Option for on-line member health chats with health advisors or coaches EoM possesses a strong provider network in Montana which would take time for a national health plan to develop EoM has leveraged its market share to develop strong relationships and allegiance with its providers. It would be difficult for national health plans to develop similar relationships EoM has access to a national provider network through StoneCard which can compete with the national network offered by national health plans EoM does not have wide-range networks including nested/tiered networks and high performing networks National health plans utilize provider data management systems to consolidate and maintain demographic and contract data National health plans utilize cost and quality data to create high performance networks and Centers of Excellence (COE) System and processes do not allow for multiple and industry leading reimbursement methodologies without significant manual intervention National health plans integrate pharmacy and medical claims data real-time and analyze to identify future utilization trends or trigger events; EoM has improved access to pharmacy data, but does not integrate dental or other products National health plans offer more

Information Technology

Ancillary Products

Y/R

Trailing

Medical Management

Medical Benefits Management

Parity

Information Technology

Information Technology

Lagging

Figure 2: EoM Current Capabilities

advanced web-based capabilities (education, product information, health assessments) for all ancillary products EoM is lagging behind other regional plays with niche markets in Medical management but is on par with nationals. National plans are partnering with third parties which will rapidly increase their capabilities, including: Integrated medical management desktop with intelligent call routing, workflow, scripting, and access to clinical protocols Integrated care management data that care managers can access on a real-time basis Self-service options for member enrollment into care programs Real-time interventions enabled by real-time triggers (predictive modeling) Two-way web monitoring of health status and behavioral indicators EoM has made significant enhancements for client reporting, but process is still highly manual and not scalable Nationals see differentiation of data and information vs. knowledge, insight, and foresight to utilize data and information Real-time data warehousing architecture Adverse event monitoring Data mining/OLAP tools to identify trends and patterns Population stratification using multiple types of data (lab, medical claims, Rx claims, demographic, case/UM data) Automated re-stratification on a real-time basis

The information in the above table is not news to the Board of Directors at Ecclestone of Montana. In their meetings, they have discussed these as well as the Ecclestone Association mandates and have developed the timeline below.

Figure 3: Timeline for implementation mandates

Culture
Ecclestone of Montana has a long history as a successful insurance plan. They are seen as a great place to work in Helena and have consistently maintained a strong financial position. While the industry has experienced significant change over the last 5 years, EoM has experienced positive growth, and employees demonstrate a fierce pride and confidence based on their past success. However, there is an inherent internal resistance to change resulting from the organizations ability to be successful in a dynamic industry without having to undergo any significant, transformative change over their entire history. Critical decisions are typically made at higher levels within the organization and tenure is emphasized over other criteria when considering employees for promotion. This emphasis on tenure has created a noticeable entitlement mentality amongst many employees, particularly those who have been at EoM for a number of years. And, despite transitioning to a new matrix organization model 5 years ago, many employees still reflect the pre-2007, siloed business mentality. The current observations do not support the existence of a culture ready for change. Though a number of key leaders and managers understand the sense of urgency, the broader employee population does not demonstrate an internalization of the change imperative. Additionally, several previous attempts to change were not followed through to completion. This has resulted in employees feeling that transformation strategies have become flavor of the week at EoM and it is becoming increasingly difficult to gain buy-in from the stakeholders. Some final concerns with the organizational culture revolve around the leadership. One aspect is that overall; the organization is very non-confrontational, reflecting the leadership approach. If someone disagrees with a point made in a meeting, rather than express their concerns real-time, they remain silent but then gossip with their coworkers after the meeting about the quality of the ideas. This behavior contributes to a complete inability for people to align on opinions. A second concern with the leadership/organizational culture is that teams do not drive to alignment and decisions during their meetings, resulting in uncertainty and lack of direction. Additionally, the leadership team has a tendency to agree that transformation is needed but never gets together on a time frame, resource or priority basis. When competing priorities emerge, it usually results in significant risk and distraction. Finally, there is a strong 9

reinforcing culture from the top, down. New persons joining the company are quickly integrated into the existing culture, preventing new ideas and innovation from emerging. Employee Perspective EoM is a market share leader in state health care Very positive leadership messaging Number of regional competitors decreasing Business growing Strong financials Growing number of staff Strong understanding of own area Assumption that other areas are holding up their responsibilities Critical Drivers of Change Significant number of retirements will occur in next 5 years at all levels Marketplace dynamics require a change in how we operate and go-to-market Customer needs are changing significantly Current infrastructure no longer can support and adapt to marketplace needs

1 2 3 4 5 6 7 8 9 100

Figure 4: Deloittes Assessment of EoMs Culture Methodology Components

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Current Systems Overview

Drivers Currently, the existing EoM system lacks capabilities and faces struggles with software malfunctioning and an increasing brittleness, which makes future enhancements more difficult. With the emergence of ICD-10, EoM has identified that they need to shift spending from these mandates to new capabilities, for which they do not have the Capital Expenditure budget. Completed Decisions/Activities To date, EoM has evaluated various options and taken steps to identify the most plausible course of action within each option. They have selected a potential third-party Commercial Off-the-shelf (COTS) vendor - MetaStat - they have explored the opportunity of operating in outsourced environment as well as visited various other health plans. EoM feels like they have collected the necessary data to make an informed decision but has asked Deloitte to assist in providing guidance, given our eminence in the marketplace and our strong relationship with them.

Options
Four key options exist for regional Ecclestone plans to bridge the gap in capabilities.

1. Remediate Current Systems

2. Implement Package

3. Functional Outsourcing

4. Affiliation or Merger

Continue to operate on a stand-alone basis without the support of an outsourcing vendor or strategic partner

Continue to operate on a stand-alone basis leveraging a Commercial-OffThe-Shelf (COTS) package (MetaStat)

Outsource key areas like claims, customer service, medical management, and/or national accounts

Affiliate or convert and merge with a mutual or for-profit health plan

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Remediate Current Systems Remediation of current systems is the current method of choice at Ecclestone of Montana. This method is considered the easiest because it is all done in-house on an asneeded basis. The cost of this option is highly variable based on what mandates come through and how outdated particular parts of the system are but it has the advantage of a high level of control throughout the whole process since all changes would be made by the IT department at EoM. For a complete system remediation, this option could be very costly and time consuming. Implement Package The implementation of a COTS package is an option that is almost always considered. COTS solutions exist for virtually every requirement and can often provide an acutely customizable solution for particular situations. The cost of these is moderate to high in comparison with the other options being considered and the research has been done that establishes MetaStat as a good fit for EoMs requirements. Time to implement is on the order of months rather than years but the implementation of a COTS package often deteriorates the pride and sense of accomplishment of the individuals involved with the effort. Additionally, there are often concerns with companies such as EoM that they would be losing their identity by using a major, national product. Functional Outsourcing Functional outsourcing tends to be the cheapest option available but while maintaining a low cost it also turns control of the functions outsourced out of the hands of EoM. It also has the same local identity issue outlined above when implementing a COTS package. On the positive side, it is a good way to reduce costs and allow EoM to focus attention on other strategies. Affiliation or Merger The option of an affiliation or merger with another organization is one that should not be considered lightly. The advantages and disadvantages are numerous. Firstly, by partnering with another organization, a company does lose their sense of identity. It tends to break down the morale of the company and can be a timely process while integrating the two entities. On the other hand, by partnering one combines the advantages and competencies of both organizations and leverages the potential monetary added value of both.

Summary of Key Challenges for Ecclestone Plans

National players have invested billions in new capabilities These investments have left small to medium sized plans behind in terms of capabilities Mandates and regulatory requirements are forecasted to be 3x current spend in the next 5 to 10 years, challenging independent plans ability to compete with national plans National players are beginning to see efficiency gains from historical investments Many Ecclestone plans are well capitalized today, but: 12

o o

Capital positions are jeopardized as gap-closing investments occur If a dip in the underwriting cycle occurs, the risk could increase dramatically

Additional Industry Information

Health Care Industry Overview
The health care industry is a unique one in the United States. No other industry functions like it and there are very few industries in which almost everyone is forced to participate at some point in their lives.

Figure 5: Health Care Industry Overview

This chart is illustrative only and does not include many of the other players and stakeholders in the health care sphere, though it does give a good indication of how EoM and other insurers fit into the market and interact with other players. Some of the other stakeholders left out of this chart include brokers, vendors, disease management organizations, pharmacies, pharmaceutical companies, medical device manufacturers and others.

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Health Plan Capabilities Spending Forecast

Ecclestone association mandates and new product pressure will only increase the IT complexity and spending within the health plan industry.

Ecclestones

Figure 6: Upcoming Changes to Mandates and Federal Standards

In addition to the new standards and mandates, large national players continue to invest billions of dollars towards new capabilities. Selected national health plans have invested $2.8BN and $1.4BN, in Capital Expenditure for new capabilities from 2003-2007. EoM, a middle-market player, does not have the necessary CapEx budget to compete with the larger health plans and is in danger is falling behind if they cannot improve their capabilities while adhering to new standards and mandates.

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Mid-Market Plans
Mid-Market plans are a crucial segment of Deloittes Health Plan practice. They have characteristics that differentiate them from the large, national plans including lower revenue (typically $1B-$5B) and lower membership (1M 3M members). Additional considerations for mid-market plans: They are typically more sensitive to the size and cost of engagements. These clients may be less experienced in how they work with consultants. They also may not view consultants as partners or understand cyclical use and longterm value of relationships. Boutique consulting firms and Single Shingle consultants abound in this market, acting as staffing augmentation.

Challenge
Ecclestone of Montana is functioning primarily with technology developed in the late 1980s. The technology is outdated and sub-optimal. Further, excessive manual work is required in the system. For example, the claims processing functionality involved workers looking at information from a PDF on one page while manually entering the data on another screen increasing the likelihood of error and wasting valuable time. The system is also expensive and difficult to maintain and update and given all of the legislation regarding ICD-10 is going to require a lot of capital to update. Base functionality of the current Core Administrative System includes claims reimbursement, explanation of benefits, pre-population and printing of predetermination forms, data integration and migration for warehousing, and some limited business intelligence reporting. As you can imagine, their systems are frequently malfunctioning. In addition, Congress has mandated that all HIPAA Covered Entities make the switch to ICD-10 coding by October 1, 2013. This would include adopting EDI standards for interfacing with hospitals and the Federal government. In addition to the mandated changes above, Ecclestone has outlined some strategic goals for their future. One of their goals is to shift spending away from mandates and towards new capabilities. For the last several decades of Ecclestones existence, most of the transformative changes made to their technology and strategic planning have been mandated by various state or federal rules. The board of directors of the organization has outlined a desire to move more towards innovative change rather than reactive change.

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Directive
You have been asked by the Director of Technology at Ecclestone of Montana to put together a presentation for the organizations leadership on how they might begin to respond to the previously outlined challenges. They have asked you to do the following in your presentation: Identify one (or a combination) of the solution options outlined above to relieve strain on their current systems. Develop a plan for implementing a new Core Administrative System with your chosen strategy. Your team should include details on the technological implementation and organizational change management strategy. Identify key stakeholders and an approach for gaining their buy-in. o Who are the stakeholders? o What are their concerns? o What role will they be required to play under your approach? Identify potential risks to your approach and your proposed risk mitigation strategies.

In your presentations, you should be sure to include details on the following: An explanation of the approach you will be using Transformation strategy best practices Any assumptions your team has made Change management and communication how to involve employees and other stakeholders in a manner that promotes success Details on training employees on whatever new system you choose to implement moving forward. An implementation strategy and timeline for the change. Finally, your presentation should be in PowerPoint or a similar presentation format.

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Ground Rules
The first thing to remember is that there are no correct or incorrect solutions. Your solutions will be considered on their merit and feasibility in the context of the situation that has been presented. Additionally, the materials contained in this presentation, in addition to the reference materials provided by the facilitators of the case should provide the information necessary to develop your solutions. Outside research is not expressly prohibited, but it should be done only when strictly necessary to developing your solution. In other words, dont waste your time researching frivolous information. Teams will be judged on the following criteria: Soundness of the analysis and related recommendations Quality of the presentation Responses to the judges questions

Your allotted time for the presentation is 30 minutes. The expectation is that you will have 20 minutes to present your recommendation and an additional 5-10 minutes to field any questions. The 15 teams will be divided into three panels. The top team from each panel will move on to the finals round. The format of the finals round will not be disclosed until after first round presentations are over.

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Supplemental Information
Ecclestone of Montana Mission Statement
Ecclestone of Montana strives to provide health benefit services of great value to its members across Montana. We commit to offer a broad array of quality insurance plans, conduct business responsibly to ensure the plans long-term viability, and foster health systems integration and health care cost containment to benefit the people of Montana.

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Email Exchange 1

From: Romana, Elizabeth Sent: Friday, March 16, 2012 8:44 AM To: Taylor, Jim Subject: RE: New Product Opportunity

Jim: No worries about the quick succession of email. 200 emails a day is nothing! Let me address your points in order:

1. Idaho does have a strong sense of identity, which may make it difficult to partner, even with another Ecclestone entity. From a tech perspective, they would love to, but Gabriele called me last night and informed me that after running it by her CEO, she got a little bit of pushback on that front. Something she feels that with the right training and communications, they can quell. Being pretty new here, my knowledge of our expertise in those areas is lacking a bit. Maybe you can speak to that a little more? 2. In regards to the functional outsourcing, it definitely has its pros and cons. You are spot on with the cost v. quality factor, but Ive also heard some very positive reviews, especially from a firm called Technoglobe. They were just nominated for some big award in InformationWeek magazine. Lets not rule it out right away, thats for sure. If cost is what they are going for, this is it Dinner this weekend with the kids? Jamie has been dying to check out the new Chuck-E-Cheese and Im sure she would love to play with Larry (did he just have his 6 th birthday?). Remind me to bring his card, its on my island at home. Liz From: Taylor, Jim Sent: Thursday, March 15, 2012 7:31 PM To: Romana, Elizabeth Subject: RE: New Product Opportunity

Liz Sorry that I didnt give you much time to respond, but another option we might consider: functional outsourcing. There have been some results around the field that are very encouraging, but my own research into this does not have me jumping for joy. The costs are very low, respective to our other options, but so is the quality... Give it some thought. My initial feelings are that if the board is most concerned about money, then this is a good option. But I know how important quality is, especially at this point in the game as we try to maintain our customers and build our capabilities. Not to mention the CMMI Level 3 milestone we are trying to reach this year!!

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Here is what I was thinking: we could take a handful of our core admin processes (billing, customer service, etc) and outsource those functions and others, and take the savings to build up our infrastructure, which is currently lagging quite a bit. It will take a few years to get back to where we need to be if we want to be competitive from a tech standpoint, but maybe a good step in the process to get us rolling, while running some of our functions in-house. Jim

From: Taylor, Jim Sent: Wednesday, March 14, 2012 1:31 PM To: Romana, Elizabeth Subject: RE: New Product Opportunity

Liz I wanted to touch base with you regarding my recent conversations with Chris and Brian. Weve been looking a few different ideas and the thoughts around an acquisition dont seem very positive. One reason for this is the companys strong sense of pride. Im honestly not sure how a partnership would play into that. While we are still maintaining our identity as Ecclestone, we are bringing new players into the team. I know you have experience with these folks in Idaho. Can you, maybe, share your thoughts on their culture? Not really my forte, but I can definitely relay back to Chris about this. Jim

From: Romana, Elizabeth Sent: Tuesday, March 13, 2012 3:21 PM To: Taylor, Jim Subject: RE: New Product Opportunity

Jim, More than happy to help. If youd like me to contribute to any discussions you may have related to MetaStat, Id be happy to advocate. By my reckoning, it truly is the best option we have available. Please just reach out and Ill make time. Thanks, LR

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From: Taylor, Jim Sent: Tuesday, March 13, 2012 3:31 PM To: Romana, Elizabeth Subject: RE: New Product Opportunity

Liz Great minds think alike! It looks like Gabrieles concerns are directly on point with my own. Let me take these ideas back to Chris and see what he and Brian have to say on the matter. I am actually very excited about the idea of a partnership. Something Ecclestone has been pushing over the past few years is Best Practices. This would be a great opportunity to share knowledge. We have had some success in the past with training efforts for new implementations, and maybe that is an area that we can offer our expertise to Idaho to sweeten the pot. Thanks again for looking more into this and be sure to thank Gabriele for me. If the board decides to go the route of a partnership, we can have that discussion with Gabriele. JT

From: Romana, Elizabeth Sent: Tuesday, March 13, 2012 3:21 PM To: Taylor, Jim Subject: RE: New Product Opportunity

Jim, See Gabrieles email below. Those are all questions well have to discuss with ID in more detail but he seems open to the idea of a partnership. Upon further consideration I strongly recommend that we go with the COTS solution. It has all of the functionality that we need and we will not be beholden to or dependent on anyone else if things were to go south as I understand they have in the past. Just my two cents -LR

From: Rossi, Gabriele Sent: Monday, March 12, 2012 9:19 PM To: Romana, Elizabeth Subject: Partnership Liz, Good to hear from you again. Were missing you here. Its an interesting idea. We both certainly have the same problem right now regarding the system and it makes sense for us to work together rather than re-inventing the wheel. Im just concerned about (and I apologize if Im being blunt about this) whats in it for Idaho. Perhaps we

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can come to an agreement on who will host and support the system. Lets have a discussion with Jim sometime in the future and iron out something. Gabriele

From: Taylor, Jim Sent: Monday, March 12, 2012 9:19 PM To: Romana, Elizabeth Subject: RE: New Product Opportunity

Liz Im liking this option but am concerned with how we will operate in a partnership. From a system perspective, who will own and maintain the system? Where will the system reside? What can we offer Idaho that they will be willing to shell out some cash? It sounds like a win-win for us, Im just not sure about their stance. It sounds like you have a pretty positive relationship with Mr. Rossi. Can you please reach out and get some more details? I would like to set a meeting with the three of us to discuss this further once we understand areas where it can help them. Option 1 still seems feasible. We would have to do it low cost, though. It would take a little to get it set up, initially, but over the long haul, would reduce costs immensely and allow us to focus our budget on capabilities, which is where we need to improve most. Lets plan to have some answers by the end of this week and I will take these options to Chris, if we still think they can work for us. Jim

From: Romana, Elizabeth Sent: Monday, March 12, 2012 9:11 PM To: Taylor, Jim Subject: Re: New Product Opportunity

Jim, I hadn't thought of option 2 but in my time at Ecclestone-ID we came across more revenue than expected and they were in need of a similar revamp. Gabriele Rossi would be the IT director in Idaho. He'll have a better idea of what their capabilities are. Liz

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From: Taylor, Jim Sent: Monday, March 12, 2012 9:11 PM To: Romana, Elizabeth Subject: Re: New Product Opportunity

LR

Still being in the planning stages, we have not explored all options yet. I am interested in discussing outsourcing a little more. It actually sounds like you may be talking about two different things here:

1. Outsourcing pieces of our entire Core Admin Processing Model 2. Partnering with another Ecclestone plan who may have more available capital Before bringing these to Chris, lets hash out some details a little bit. BTW, Chris is receptive and wants to collect some ideas to bring to the board for next months meeting. Set up some time on my calendar and we can discuss in person. Thanks, Jim Taylor

From: Romana, Elizabeth Sent: Monday, March 12, 2012 8:46 PM To: Taylor, Jim Subject: Re: New Product Opportunity

Sounds good Jim. Let me know what you hear from Chris. There are cheaper solutions out there but none of them meet our requirements. If we don't have the financial capacity for MetaStat, we'd be better off with another solution (have we as an organization discussed outsourcing?). Perhaps it would be worth reaching out to another Ecclestone company for information on their solutions. Best, Liz Romana

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From: Taylor, Jim Sent: Monday, March 12, 2012 9:11 PM To: Romana, Elizabeth Subject: Re: New Product Opportunity Liz: Thanks for that information regarding MetaStat. You continue to impress me in your new role as Director of Product Development. Im so happy to have you working for me and I know that whatever choice we go with, you will have explored every opportunity for us. The option of picking up a COTS vendor for some of our functionality is definitely a step in the right direction. They give us the industry experience we are looking for and the stability to build a future around. I am a little concerned around the pricing, as we dont have the available CapEx budget to cover the numbers you quoted, but I am trying to work Chris over a bit to get a little more funding. Lets chat again next week once I have an update from Chris on the funding. Great work! Jim IT Director

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Email Exchange 2

From: Jameson, Chris Sent: Thursday, March 15, 2012 6:23 PM To: Taylor, Jim Subject: Re: We need this

Jim: Some interesting thoughts. I am still interested in a partnership, but I may be more inclined to have those conversions if we had a better picture on what exactly wed look like after the fact. Im wary of partnerships because of the dependencies it builds from a management perspective. We would need to clearly define an organizational structure around who owns what, who pays for what, et al. I trust that you can handle the IT side of things, but Im sure you can understand my concerns as well. And Ive already voiced my opinion on the COTS vendor. A third option, perhaps, could be outsourcing. I attended a conference recently where some of the biggest industry players made enormous strides in capabilities improvements because of the capital saved from outsourcing certain functional components. Talk to Liz about that and get back to me. Another board meeting on Monday and Id like to be prepared to speak about each of these in detail. Chris

From: Taylor, Jim Sent: Thursday, March 15, 2012 2:10 PM To: Jameson, Chris Subject: Re: We need this

Chris Taking Brian off the thread. Liz and I are still conversing about the cost and resources needed for a COTS vendor as well as a partnership. It looks like we may have a good candidate with a partnership in Ecclestone of Idaho, who Liz has personal experience with. While she is still a fan of the COTS vendor, I personally feel that a partnership could give us the latitude to expand our infrastructure in ways we havent seen in decades (since this legacy system was first put in). We have the ability to offer them our services in the training department, something Ive worked very closely with Jermayn Williams on. He has provided some top notch training for some of our largest implementation. And given our recent award as Best-in-Breed IT Training for mid-market companies, Id say that is something that Idaho will be more than happy to accept. My feeling is still that they can help out with the capital and we could provide the training across both companies. That pretty well evens out. Thoughts?

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Jim From: Jameson, Chris Sent: Monday, March 12, 2012 8:40 PM To: Taylor, Jim; Wooster, Brian Subject: Re: We need this

Jim and Brian, Its good to know we have some ideas percolating on this front already. Its obvious to me now that this is a change that more than just the IT folks have been thinking about so I think we can commit to making a transformative change of some kind. Well have to discuss the options more but here are just some initial thoughts. As far as an M&A situation is concerned, Im hesitant. While it is true that we are in a bit of a pickle in some aspects, Ecclestone of Montana is not really in a place where it needs to be discussing merger yet in my opinion; although maybe the board thinks differently. I dont need to tell you that an M&A situation would be taxing for the entire company and have drastic ramifications through all verticals of our business not just Technology. Perhaps its an option we should consider, but not simply to affect IT transformation it would have to fit into our strategic objectives of the whole company. As you know, Ecclestone has a strong sense of pride. Fielding such a thought as an acquisition would, quite simply, crush the morale of our team. We know they are hesitant to change, given our recent past, and something of that magnitude would derail all of our efforts to maintain pride in our name. With that in mind, COTS concerns me because of the cost, and our failed attempts previously. Im not exactly brimming with confidence after the events of a few years back. Partnership is a possibility, but we would need to discern a partner and really make sure that the relationship is symbiotic, not just one sided. Perhaps another Ecclestone plan would be a better idea than a larger industry player. Lets talk over lunch when I get back from Brazil next week. I look forward to discussing. Chris Jameson

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From: Taylor, Jim Sent: Tuesday, March 13, 2012 4:10 PM To: Wooster, Brian; Jameson, Chris Subject: RE: We need this

Brian Thanks for your thoughts. To answer your question, we will have to have those conversations with our selected COTS vendor as well as our potential partner to gauge exactly how this would be accomplished from an IT perspective. By choosing a COTS vendor, we might be able to reduce the assistance needed from a consulting firm, which might be good given our past experience as you mentioned. The joint venture would likely be the most effective from a cost perspective, but would require more outside resources and would take longer to iron out the details and get implemented.

Thanks again for your thoughts. Chris, do you think we can set up lunch late this week to talk about these options? I will gather more details on potential implementation plans and costs to give you a better picture. Jim

From: Wooster, Brian Sent: Tuesday, March 13, 2012 4:03 PM To: Taylor, Jim; Jameson, Chris Subject: RE: We need this

Chris and Jim, We have strived for years now to grow both our business and culture within. I cant stress enough how a merger or acquisition would devalue our own stake in the market, demoralize our employees, and cause the loss of confidence our investors have given to us in recent years. This might sound dramatic, but the plan for the company has been internal, organic growth with a focus on our employees and the quality of our services. Giving up those decisions to another company will not align with this plan. That being said, obviously we face a serious issue in our outdated administrative system. While I would love to push to make the best product possible I also urge to look at our modest account available for IT expenditures. Maintenance costs of the current system have put us back considerably and we need a solution quick and within our realm. Considering the economy, the increasingly strict standards and lower margins across the board, we simply cannot stretch ourselves thin with this project right now without facing some financial repercussions. That goes for both our cash on hand and resources. So while a

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merger or acquisition might go against the plan, a little help in a joint venture backed with considerable resources and expertise might be our best option. If we can get expertise for cheap this way it would go a long way, I know we all still have a bitter taste from the failed implementation of our billing system a few years back using a COTS product with inexperienced consultants. Jim, of course you know your department, what would it take to get this done in house versus COTS? Could we implement either ourselves or would we need to pay for professional services? Need a bit more information to judge this completely. -Brian, Director or Business Development

From: Taylor, Jim Sent: Tuesday, March 13, 2012 2:49 PM To: Jameson, Chris Cc: Wooster, Brian Subject: RE: We need this

Chris I was speaking to Liz today, and she has identified an excellent COTS product that we may be able to utilize, MetaStat. They have an outstanding track record throughout the industry and would greatly enhance our current functionality. I understand the obligations we have in terms of adhering to our budget, but this is an excellent opportunity to invest in our future. Another option I have been considering, although havent given it much thought, is to talk to a larger, national plan. They can provide the capital to make those infrastructure changes that we need to make, or even provide the services themselves. Being so large, they have already established many of the areas we want to develop. Could we outsource certain modules over to them for a small fee? That way we can capitalize on their capabilities without having to implement new infrastructure to take on those future changes. Maybe we bring in Brian, who I believe you just promoted to Director of Business Development and has handled these types of M&A situations in the past. Brian let us know your thoughts and if there is any way we can leverage a larger plan for this process

Jim From: Jameson, Chris Sent: Monday, March 12, 2012 8:40 PM

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To: Taylor, Jim Subject: Re: We need this

Hi Jim, You've come to me about this before so it's clear you're serious about making this change. We don't have the capacity for an in-house redesign so what are we talking about here? Give me some options to think about and start to think about presenting to the board at next month's meeting. Chris Jameson CEO, Ecclestone Health of Montana.

From: Taylor, Jim Sent: Monday, March 12, 2012 8:40 PM To: Jameson, Chris Subject: Re: We need this

Chris As CEO, I know you understand the importance of staying competitive in the marketplace. I am concerned that we are putting too many of our resources into mandates and not enough into improving our own capabilities. If we want to keep competing as a middle market plan, we need to do this. It may cost a little more money for us up front, but this is a necessity if we are to survive this round of mandatory regulation updates. We have been remediating the existing system for some time now, and it does not have flexibility to do what we need to do in terms of capabilities. I know its easier to just update what we have, but I believe it is time to invest in our future, rather than live in the past. Please share your thoughts,

Jim IT Director

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Relevant Market Data

Managed Market Survey National Profile United States (January 2010)

National Population Commercial Enrollment PPO Commercial (Fully Insured) HMO Commerical (Fully Insured) Point of Service (POS) (Fully Insured) Employer Sponsered/Self Insured/ASO Medicaid Beneficiaries(1) MCO Managed Medicaid State Medicaid (Fee for Service / PCCM) Medicare Eligibles(2) Fee for Service (Parts A/B) Medicare Advantage (MA-PDP) Dual Eligible Population Estimated Total With Coverage(3) Uninsured
Table 1: National Plan Data (1) Total Medicaid Medical Beneficiaries including Dual Eligibles (2) Total Medicare Beneficiaries including Dual Eligibles (3) Calculated: Commercial + Medicare + Medicaid - Dual Eligibles

312,643,223 162,707,206 40,300,203 25,200,300 9,353,100 87,853,603 56,233,308 30,230,004 26,003,304 46,990,338 34,988,304 12,002,034 6,203,402 259,727,450 52,915,773

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Figure 1: Nation Population Distribution for Medical Coverage

Company A Company B

Company C Company D Company E

Figure 2: Enrolled Medical Lives Breakdown by Company

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Company Name

Overall Lives

Total Fully Insured

Company A 24,677,216 12,552,548 Company B 22,353,235 11,555,342 Company C 15,324,023 5,220,093 Company D 11,540,033 3,882,340 Company E 10,353,203 2,000,324 Company F 8,328,952 8,223,059 Ecclestone of 601,220 220,250 Montana Ecclestone of Idaho 220,603 120,025 Table 2: Detailed Coverage By Company

Total Fully Insured Market Share 12.2% 10.1% 4.8% 3.3% 1.6% 7.2% 0.2% 0.1%

Commercial Fully Insured

Commercial Fully Insured Market Share 12.2% 13.3% 6.5% 5.2% 2.5% 9.7% 0.3% 0.2%

Commercial Self Insured

Indemnity Products

7,532,515 10,111,329 4,883,204 3,822,203 1,834,234 7,232,212 220,250 123,023

11,634,158 10,123,553 9,234,993 7,999,234 9,232,111 102,123 332,304 0

933,243 2,340,5521 900,223 688,234 243,234 1,002 134 102,203

Note: Names of some companies have been removed for propriety purposes. Companies A-F are considered large, national plans. System/Solution Expenditures (OpEx) Post Implementation Estimated Capital Investment $2,000,000 $10,000,000 $5,000,000 $0 Estimated External Operational Expenditures $0 $0 $5,000,000 $0 Estimated Implementation Timeframe 3-6 months 12-18 months 8-12 months 18-24 months

Current System $30,000,000 (baseline) Remediation $30,000,000 COTS Vendor $27,500,000 Functional $20,000,000 Outsourcing Acquisition $0 Table 3: Annual Financial Metrics (estimated)

Note: Capital Investment for remediating the existing system will occur annually. 2010 Operating Cost $30,000,000 Total Organizational $17,000,000 Capability Investment Table 4: Current System Projected Expenses 2011 $32,000,000 $17,000,000 2012 $34,000,000 $17,000,000 2013 $36,000,000 $17,000,000 2014 $38,000,000 $17,000,000

Note: The above table indicates the projected increase in operating costs if the current system is maintained.

Transaction Operating Cost Covered Lives Company G $45,000,000 1000000 Company H $52,000,000 1300000 Company I $24,000,000 415000 Company J $33,000,000 600000 Table 5: Health Plan valuations based on the acquisition of the listed companies

Transaction Value $144,385,026.74 $131,092,436.97 $68,311,195.45 $78,696,343.40

Note: Names of companies have been removed for propriety purposes.

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Glossary of Terms
CMS - The Centers for Medicare & Medicaid Services. A federal agency responsible for administering the Medicare program and partnering with state governments to administer Medicaid and other state sponsored programs. COTS Commercial off-the-shelf. Any product sold as a non-developmental item, which usually requires some level of customization. EDI Electronic Data Interface EoM Ecclestone of Montana HHS US Department of Health and Human Services. It is the department responsible for protecting the health of Americans by providing the essential human services. HIPAA - The Health Insurance Portability and Accountability Act of 1996. The two main facets are protection of health insurance coverage for workers and their families, as well as the establishment of national standards for electronic health care transactions, particularly related to securing medical records. ICD-10 - The International Statistical Classification of Diseases and Related Health Problems, 10th Revision (known as "ICD-10"). A coding standard designed to bring standardization across the industry, and is maintained by the World Health Organization (WHO).. Provider One who delivers health services (i.e. a doctor).

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