Health Plan Administration Business Plan

With provider services already in place, the launching of sales and marketing strategies and implementation is the next task of Southeast Health Plans. Executions include print media in targeted general business publications, direct mail programs, and sales contact follow-up.

In addition contacts and seminars directed at independent agents and benefit brokerage firms will be launched. Additional sales materials will be produced that are targeted specifically toward these intermediary “customers.”

5.1 Marketing Strategy

Print media utilized will be the weekly Atlanta Business Chronicle. An extensive direct mail lead generation campaign will also be employed, targeted at employers, brokers, and consultants. Both will be followed by direct sales contact by Southeast’s professional sales executives.

5.1.1 Pricing Strategy

Pricing for administrative services provided by Blair Mill is billed on a cost-per-employee basis.

Actual medical costs within self-insured programs will vary as a combination function of negotiated provider service costs coupled with the level of stop-loss (deductible) coverage.

Revenues to Southeast Health Plans, Inc. are determined by sales commission formulas and also by cost advantages for medical services negotiated by Southeast contracted care providers. Thus, if Southeast provides medical service to the plan at a cost below the expected cost for the same service, differential revenue accrues to Southeast.

In both cases there is a time lag to realization of revenue. Sales commissions are paid 30 to 60 days in arrears based upon collection from customers. Service cost revenues are based upon actual services utilized and are also paid 30 to 60 days in arrears. All revenue projections included in this plan are based upon these delayed collection premises while all expenses are treated as cash when incurred (even if paid on 30 day terms). Thus, all cash flow analyses will err on the conservative side.

According to the terms of the existing agreement with Blair Mill, Southeast Health Plans will earn 25% of medical facility cost savings (as incurred) in years one and two and 17% in year three.

All services revenues generated by Southeast for new clients produced for Blair Mill will be paid as sales commissions according to the formula contained in the agreement. (A copy of the agreement is available to investors).

The sales commissions are as follows:

• 11.2% of all fees in the first year of the sale.
• 2% of all fees in the second and third years.
• 5% of all fees in the fourth year and in each renewal year thereafter.
• Blair Mill administrative service costs average about $15 per month per employee covered.
• In addition, commissions on new stop-loss policies will average 15% in year one.

5.2 Sales Strategy

The sales strategy for Southeast Health Plans is based upon concentrated targeted direct marketing with sales call follow-up. Closing ratios are estimated at only 5% of prospects to yield cumulative covered plan employees projected in the sales forecasts. Thus, higher closing ratios are potentially possible and would accelerate growth and revenue beyond the forecasts.

All forecasts are based upon per employee estimates. Dollar charges are based upon “A,” “B”, and “C” size markets and the prevailing costs for medical care for those markets respectively. Back-up market data is too extensive to include in this plan.

Note: An “A” market is defined as metro Atlanta. A “B” market is a population center over one million. A “C” market is any market below one million in population.

Annual projected revenues are illustrated in the chart below.

Monthly sales forecasts for the first year are included in the appendix.

Note: A total of 23 employer groups have already become active through Blair Mill as of November 1, 1996. Revenues based upon health care cost savings will show up in the beginning of 1997. Initial monthly revenues are based upon these employer groups, which represent approximately 1,500 employees (already 31% of the first year goal of 4,800 covered employees).

On an average annual basis, the revenue projections for health care savings revenue to Southeast are based upon $7.40 per employee for 1997. This number is for “A” markets. “B” markets are estimated at $5.66, and “C” markets at $3.71 per employee. Rationale: Atlanta is over-bedded and under-utilized, while in smaller markets the reverse is true.

Additional selling and retention fees are added to the above estimates to obtain total revenue numbers. In “A” markets, for example, this is set at $1.75 for new employees and at $0.75 for renewal/retention fees.

5.2.1 Sales Forecast

The following sales forecasts are based upon the premises previously presented.

Management feels these forecasts are highly attainable.

5.3 Strategic Alliances

In addition to the primary strategic alliance with Blair Mill, Southeast Health Plans, Inc. has already formed alliances on the health care provider network side which will provide cost advantages and thereby guaranteed revenue via Blair Mill on billed medical services.

The initial agreement with Columbia Health Care Systems will provide coverage to a substantial portion of metro Atlanta. In addition, a second agreement is forthcoming with Independent Health Care Providers, which includes DeKalb Medical Center, Scottish Rite Hospitals, and Northside Hospital System. Comprehensive availability for Atlanta Metro will then be in place. 52% of available hospital beds will then be included. Cost savings are reflected in revenue projections on a per covered employee basis.

5.4 Milestones

Milestones already achieved:

• Founder “seed” funding of $200 K to develop and research plan, secure strategic alliances, and establish initial infrastructure.
• Strategic alliances in place with Blair Mill and with Columbia Health Systems.
• 23 employer groups and 1500 employees already under managed care contracts.
• 52% of Atlanta metro area available hospital beds under contract at acceptable cost discounts.

Upcoming milestones:

• Obtain $300 K capital to staff and launch full sales and marketing executions.
• Present Blair Mill products and services to 50 of the largest employers in our target market by March 1, 1997.
• To reach stated first year goal of 4800 covered plan employees by January 1, 1998.
• To reach first year revenue goal of $288 K by December 31, 1997.
• To attain break-even cash flow by the end of year two.