Commonwealth Health Plans focuses on the managed care industry. It presents two years of data and discusses benchmarking against primary competitors as well as the industry.

Commonwealth Health Pans in one of Virginia's largest managed care organizations (MCOs). In fact, it is the largest of the state's not-for-profit MCOs. It offers prepaid health coverage to more than 500,000 members in 17 counties, including the following major cities: Richmond, Norfolk, Virginia Beach Arlington, Alexandra, and Roanoke.

Commonwealth's various products include commercial health maintenance organizations (HMOs), (Medicare Advantage plans), preferred provider organizations (PPOs), and point-of-service (POS) plans. These plans are all designed to meet the needs of a wide segment of Virginia's population of approximately 8 million. The revenue breakdown of plan types is as follows:

Plan Type	Percent of Revenue
Commercial HMO	46
Medicare HMO	39
PPO	10
POS	5
	100

Commonwealth was the first managed care organization in Virginia to seek and receive accreditation from the National Committee for Quality Assurance (NCQA),4and each of its component plans has been rated as excellent, the highest accreditation level. The NCQA judges a health plan on it performance in three areas: clinical performance (based on HEDIS [Healthcare Effectiveness Data and Information Set] results), member satisfaction (based on CAHPS [Consumer Assessment of Healthcare Providers and Systems] results), and a review of key for about 40 percent of the assessment for HMOs with performance against structure and process standards accounting for the remaining 60 percent. All three areas are important, and together they give an accurate overall assessment of the quality of a health plan.

A summary of Commonwealth's 2012 and 2013 HMO plan financial data (including both commercial and Medicare) is presented in Exhibit 2.1, While Exhibit 2.2 contains a summary of operating and enrollment data. To help in analyzing Commonwealth's performance, its managers have classified the following four Virginia HMOs as "primary competitors."

		Number of		2013 Total		2013 Total
HMO		Counties Served		Enrollment		Assets (000s)
WellLife		23		516,858		$408,707
Signet Healthcare		15		360,252		178,662
Proxima		15		247,109		144,982
Sparta		28		205,296		103,504

Exhibit 2.1 Commonwealth Health Plans: HMO Plan Financial Data (millions of dollars)

Statements of Operations 2012 2013

Premium revenue $313.70 $357.60

Interest income 2.4 3.5

Total revenues 316.1 361.1

Operating expenses

Medical costs $263.00 $291.80

Selling and administrative 36.8 43.6

Depreciation 4.7 5.0

Total operating expenses $304.50 $340.40

Net income $11.6 $20.70

Balance Sheets

Cash $37.2 $27.2

Marketable Securities 42.7 60.9

Premiums receivables 3.7 7.4

Total current assets $83.6 $95.5

Net fixed assets 30.0 31.7

Total assets $113.6 $127.2

Medical costs payable $44.8 $48.7

Accounts payable/accruals 15.4 17.3

Total current liabilities $60.2 $66.0

Long-term debt 17.1 4.2

Net assets (equity) 36.3 57.0

Total liabilities and net assets $113.6 $127.2

Other Data

Medical loss ratio 83.8% 81.6%

Administrative cost ratio 13.2% 13.6%

Total commercial premium revenue $170.9 $205.6

Total Medicare revenue $142.8 $152.0

Total physician services expense $125.6 $127.1

Total inpatient expense $80.8 $90.1

Total other medical expense $56.6 $74.6

Exhibit 2.2 Commonwealth Health Plans: HMO Plan Operating and Enrollment Data (millions of dollars)

2012 2013

Commercial premium revenue PMPM $127.82 $127.90

Medicare revenue PMPM $449.37 $437.23

Commercial patient days per 1,000 enrollees 302.9 266.4

Medicare patient days per 1,000 enrollees 1,622.4 1418.1

Commercial member-months 1,337,036 1,607,036

Commercial physician encounters 594,381 622,749

Commercial inpatient days 43,661 39,763

Medicare member-months 317,778 347,643

Medicare physician encounters 149,622 185,283

PMPM: per member per month Exhibit 2.3 Selected State HMO Industry Financial and Operating Data (millions of dollars)

2012 2013

Total Margin

WellLife 4.8% 5.8%

Signet Healthcare 3.0 3.2

Proxima 9.1 -0.7 Sparta 10.5 9.1

State average 3.8 -3.9

State median 4.8 4.7

Percent Administrative Expense

WellLife 12.1% 11.5%

Signet Healthcare 12.2 13.4

Proxima 13.6 16.4

Sparta 23.9 26.8

State average 3.8 17.4

State median 4.8 15.7

Percent Inpatient Expense

Well Life 32.2% 30.3%

Signet Healthcare 22.8 22.4

Proxima 21.2 23.0

Sparta 18.2 18.8

State average 25.2 23.3

State median 23.6 24.3

Percent Physician Expense

Well Life 54.1% 56.9

Signet Healthcare 31.3 30.3

Proxima 22.7 24.9

Sparta 12.8 18.6

State average 28.8 31.3

State median 31.1 31.6

Percent Other Medical Expense

Well Life 0.1% 0.1%

Signet Healthcare 8.9 7.8

Proxima 27.5 30.2

Sparta 45.7 35.0

State average 14.6 12.5

State median 10.2 8.9

Commercial Premium Revenue PMPM

Well Life $108.68 $110.19

Signet Healthcare 39.86 27.50

Proxima 120.68 124.27

Sparta 88.41 95.06

State average 101.17 102.53

State median 108.32 108.95

Medicare Revenue PMPM

Well Life $406.57 $421.57

Signet Healthcare N/A N/A

Proxima N/A N/A

Sparta N/A N/A

State average 365.12 376.04

State median 426.18 430.57

Commercial Inpatient Days per 1,000 Enrollees

Well Life 245.4 246.0

Signet Healthcare 258.4 248.8

Proxima 251.8 259.2

Sparta 198.2 248.9

State average 278.0 237.0

State median 279.1 248.8

Medicare Inpatient Days per 1,000 Enrollees

Well Life 1,388.4 1,323.8

Signet Healthcare 1,165.2 1,188.7

Proxima 1,518.8 1,382.2

Sparta 1,623.8 1,566.9

State average 1,432.1 1,375.5

State median 1,380.5 1,350.6

Commercial Physician Encounters per Member

Well Life 2.2 3.6

Signet Healthcare 1.5 1.4

Proxima 2.7 2.6

Sparta 3.5 3.6

State average 3.8 3.8

State median 3.9 3.7

Medicare Physician Encounters per Member

Well Life 9.8 9.6

Signet Healthcare 6.6 6.9

Proxima 10.1 10.0

Sparta 11.2 11.3

State average 9.1 9.1

State median 8.6 8.9

Use the Du Pont equation to obtain a rough feel for Commonwealths financial condition as compared to national averages. What are your conclusions? How did you come to those conclusions? Use the following equity multiplier.

2012-3.13

2013-2.23

Ind. Avg. 3.16