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Managed Care Consolidation Since the mid-1990’s, the managed care industry has seen significant consolidation Managed Care Companies (as a Percentage of Total Market Capitalization) United US Healthcare United 2% Aetna 2% 6% 3% Cigna 4% 2% 19% 9% Aetna 3% Humana 3% WellPoint Anthem 3% 12% 3% Healthsource 47% Cigna 15% Oxford 8% Foundation Humana Mid Atlantic 12% 9% Takecare Centene 13% 11% Health Systems 13% Other FHP International Other 1995 – Total $40.6 billion 2017 – Total $428.6 billion Top 5 = 67% of total Top 5 = 93% of total ____________________ Source: CapitalIQ and industry research. 2017 as of 11/1/17. 1 Recent Stock Performance of Publicly Traded Health Plans Over the past year, in spite of legislative uncertainty, the managed care plans have seen a large increase in market value, well exceeding the rise in the S&P 500. They are trading at close to 52-week highs 2017 Stock Performance 90% 80% 76.8% 70% 59.6% 59.5% 60% 56.8% 50% 48.7% 43.6% 39.7% 40% 33.7% 30% 21.2% 20% 10% 0% S&P 500 ____________________ Note: Percentage change from 11/7/16 – 11/10/17 Source: CapitalIQ and industry research. 2 Managed Care Capital Deployment The earnings are deployed primarily for share repurchases and M&A, though capital expenditures (Cap Ex) are significant Capital Deployment: 2007-2016 2016 & 2017 YTD Cap Ex for Leading Managed Care Firms ($ in millions) (1) (1) Company 2016 Capex (%) 2017 Q3 YTD Capex (%) $270 (0.4%) $301 (0.7%) Dividend s 9% $584 (0.7%) $516 (0.8%) $306 (0.8%) $301 (0.8%) Repurch M&A ases $461 (1.2%) $340 (1.1%) 38% 53% (2) $527 (1.0%) $233 (0.9%) $61 (1.3%) $43 (1.0%) $176 (1.0%) $85 (0.6%) $1,705 (0.9%) $1,391 (0.9%) Represents ~$150bn of total capital deployed $105 (0.7%) $93 (0.7%) ____________________ Source: Deutsche Bank, 2016 SEC Filings (1) Represents CapEx as a percentage of revenue (2) Humana reports 2016 and 2017 Q2 YTD 3 Cain Brothers’ Views on the Managed Care Markets From the beginnings of ACA through the uncertainty of Repeal/Replace/Reform, the managed care sector has been impacted more than any other sector in healthcare. We believe it will continue to strengthen regardless of what actions come out of Congress Key Themes Government programs are the Activity expected around avenue to growth capabilities more than sales/mergers Scale and diversification will drive Provider/payer collaboration consolidation and M&A Activity will accelerate Disruptive innovation on the horizon? 4 MCO Penetration in Medicaid by Program Type The high acuity Medicaid populations offer a significant opportunity for growth for the Medicaid MCOs Managed Care Expansion Opportunities Managed Care # of Lives Penetration Medicaid 60mm >70% Aged, Blind & Disabled (ABD) 15mm <25% Total MME 9mm <15% Market Long Term Care 3mm <15% ____________________ Source: Barclays 5 Selected Provider/Payer Partnerships ____________________ Source: Company website 6 New York has a robust not-for-profit and independent health plan presence Though New York is not alone in this regard (e.g., WI, MA, NM) it is an important, and we believe ongoing, feature of the landscape, in spite of recent transactions 7 New York Medicaid Consolidation History Since the late-1990’s, the New York Medicaid industry has seen significant consolidation New York mainstream Medicaid Managed Care has consolidated from 60 to 19 plans between 1997 and 2017 while significantly increasing enrollment. Expectation is that MLTC and similar programs will continue to experience the same consolidation. Medicaid Managed Care Consolidation Other (10 Plans with HIP of Greater New <2.3% Market Share) York 8.2% 3.4% Other (51 Plans with <4.2% Market MVP Health Plan Share) HIP/99 3.7% 40.4% 9.4% Better Health Plan Excellus Fidelis Care 8.7% 3.8% [VALUE] HealthFirst Affinity [VALUE] 5.1% HealthPlus Oxford 8.0% 7.1% MetroPlus HealthFirst 8.6% 20.9% HIP of Greater United HealthCare New York 10.8% U.S. Healthcare 9.1% 4.4% Bronx Managed 4.6% Fidelis Care Healthcare 5.3% Systems 5.3% 1997 – 662,672 Enrollees 2017 – ~4.4 million Enrollees Managed Care Plans = 60 Managed Care Plans = 19 ____________________ Source: New York State Medicaid Enrollment Report Note: Includes mainstream Medicaid members only 8 New York Medicaid MLTC History With mandatory enrollment, the MLTC market has grown, as has the number of participants In spite of this, numerous plans have exited in recent years, and we expect that trend to continue no matter what the status of/successor to FIDA Medicaid MLTC Managed Care [CATEGORY NAME](5 plans with <2.5% Market Share) [VALUE] [CATEGORY NAME] (16 plans with <2.5% Market Share) HHH [VALUE] 3.1% CCM 4.5% [CATEGORY Senior Health NAME] 5.6% [VALUE] GuildNet WellCare Centers Plan 30.9% 3.1% 9.9% VNA 2.8% Independent Elderplan 6.2% North Shore 6.6% 3.0% ElderServe Integra 6.0% HomeFirst 3.8% 13.1% Senior Independence Health 3.5% 7.4% Village Care VNS VNS 4.6% 6.7% 30.5% Agewell 4.6% Senior Whole GuildNet 4.8% 5.1% 2008 – 21,523 Enrollees 2017 – 189,071 Enrollees Managed Care Plans = 13 Managed Care Plans = 31 ____________________ Source: New York State Medicaid Enrollment Report Note: Includes mainstream Medicaid members only 9 What does this mean for smaller, regional health plans? As the industry continues to consolidate, smaller players will be able to stay competitive by strengthening client relationships, engaging in partnerships, and potentially merging with other organizations Competition will become more intense Scale and capitalization will allow national players to acquire capabilities, Constraints on smaller plans’ (especially Potential for disruptive innovation diversify and lower administrative costs, non-for-profit) ability to raise (e.g. Aetna-CVS, Walmart) making it harder for smaller players to capital will make expansion more difficult and not just traditional competitors compete on price and retain customers How will these plans compete? ` • Advantage of local market presence and reputation Relationships • Quality, customer service, and flexibility • Finding a sustainable niche to serve • Back office joint-ventures, network sharing arrangements, best of breeds contracting Partnerships • Essential provider partnerships • Acquiring capabilities to create an integrated offering • Robust valuations Merger/Sale • High capitalization gives bigger players an appetite for acquiring smaller companies 10 Major Themes in Healthcare Moving More Care Into The Community Setting Aggregation Of Physicians Payer-Provider Vertical Integration Capital Allocated to Post-Acute Coordination Healthcare Population Health Management Technology-Enabled Healthcare 11 Current Credit Markets Snapshot There is a robust financing market for health care services companies, with representative lenders shown below. In general, lenders are looking for stability of revenue and EBITDA, organic and de novo growth opportunities, and $10 million+ of EBITDA visibility in the current market environment. Representative Lenders Senior Lenders and Unitranche ( ( Subordinated Debt 12 Welsh, Carson, Anderson & Stowe (WCAS) Healthcare Investment History WCAS is one example of how active private equity has been across the spectrum of health care services ____________________ Source: Norton Rose Fulbright Conference 13 Managed Care The managed care risk businesses are not at the epicenter of private equity investment. However, there is increasing interest in the space, especially in governmental programs and specialty services Cardinal Partners, FLAG Capital, HLM Venture CapitalG, Founders Fund, General Catalyst, Partners, Kleiner Perkins, New Capital Khosla Ventures, Lakestar, Ping An Ventures, 2016 Partners, Trident Capital, QuestMark, Thrive Capital Greenspring Associates, Waveland Ventures 2014 Athyrium Capital, First Round Capital, Sequoia Kinderhook Industries Capital 2016 2009 Bain Capital, Diamond Castle Holdings 2014 Leonard Green, GIC, Hellman & Friedman 2016 Blackstone, Credit Suisse and Goldman Sachs Stonehenge Growth Capital Partners 2005 2009 Centerbridge Partners Juggernaut Capital 2016 2016 Goldman Sachs, Pamplona Capital Management 2014 ____________________ Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates 14 Acute Care Hospitals The vast majority of hospital beds are owned by not-for-profit or governmental sponsors, and this has not changed for decades. However, private equity is still involved, both directly and via partnerships For-Profit Joint Ventures / Investments Risk Sharing Aetna & Banner Health Agreement LifePoint Health Apollo Global Tenet Management Billings Clinic & The Carlyle Group & TPG RegionalCare Capital Medical Properties TPG Capital Trust Leonard Green & Partners Ventas 15 Home Health and Hospice Home health and hospice, both relatively fragmented markets, have seen tremendous interest by the private equity community Private Equity Investments Altaris Capital Partners Fulcrum Equity Partners Palladium Equity Gemini Investors / Audax Group Patriarch Partners Plenary Partners Bain Private Equity Generation Growth PNC Riverarch Capital Capital / J.H. Whitney Capital Bell Health Investment Pouschine Cook Capital Graham Holdings Partners Management Blue Wolf Capital H.I.G. Capital Psilos Group Investors Management Boyne Capital Riverside Company Corporation Levine Leichtman Capital Tenex Capital Capricorn Healthcare Partners Management The Carlyle Group Linsalata Capital Partners Valor Equity Capital Wellspring Capital Evolve Capital Oak Hill Capital Partners Management Welsh, Carson, Anderson Formation Capital One Equity Partners

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