BEHAVIORAL HEALTH M OVERVIEW - …

1 BEHAVIORAL HEALTH MARKET OVERVIEW May 2014 - I BEHAVIORAL HEALTH MARKET OVERVIEW The US Mental HEALTH and Substance Abuse Services industry includes over 17,000 facilities with combined annual revenue of approximately $50 billion. Including ancillary services, broader industry revenues represent over $300 billion combined. Mental HEALTH and substance abuse market has grown at a CAGR from 2008 to 2014 and is expected to grow at a CAGR from 2014 to 2018. Demand for mental HEALTH services has reached an all-time high and continues to grow, while the supply of hospital beds dedicated to mental HEALTH patients has steadily declined. decrease in number of public psychiatric beds from 2000 to 2011 Supply / demand disconnect has resulted in shorter stays, growth in outpatient / community-based services, and an increased prevalence of mental HEALTH among prison and homeless populations US mental HEALTH industry remains highly fragmented, continues to incorporate ACA changes, and is expected to remain dynamic.

2 1 ..GROWING MENTAL HEALTH BUDGETS TO MEET DEMAND Source: 2012 BEHAVIORAL HEALTH , United States Report from SAMHSA. Wall Street research, Treatment Advocacy Center, National Alliance on Mental Illness, IBIS World Mental HEALTH and Substance Abuse Clinics in the US March 2014, IBIS World Mental HEALTH and Substance Abuse Centers in the US February 2014, IBIS World Psychiatric Hospitals in the US December 2013, the Pew Center, and Congressional testimony. Increasing or level budgets in 44 states. LARGE AND GROWING INDUSTRY ACCOMPANIED $ $ $ $ $ $ $ $ $ $ $ $0$20$40$602008200920102011201220132014P 2015P2016P2017P2018 PPsychiatric HospitalsMental HEALTH & Substance Abuse ClinicsMental HEALTH & Substance Abuse Counseling / Residential Care($ in billions) 2014E 2018P CAGR - I Non-communicable DiseasesChronic Respiratory DiseasesDiabetes, Urogenital, Blood, and Endocrine DiseasesMusculoskeletal DisordersNeoplasmsCardiovascular and Circulatory DiseasesNeuropsychiatric DisordersPercent of Total DALYsMENTAL HEALTH AND NEUROLOGICAL DISORDERS CREATE LEADING DISEASE BURDEN ON US ADULTS 2 Source: The World HEALTH Organization (WHO), SAMHSA, 2010.

3 US Burden of Disease Collaborators, JAMA, 2013, and Congressional Testimony. Major studies have indicated that Mental / BEHAVIORAL disorders a have a profound impact on both length and quality of patient life. LEADING CATEGORIES OF US DALY CONTRIBUTORS MENTAL / BEHAVIORAL DALY CONTRIBUTORS Disability-Adjusted Life-Year (DALY) is a metric that combines the burden of mortality and morbidity (non-fatal HEALTH problems) into a single number. The DALY metric is used to provide a single number to capture all of the HEALTH costs caused by a disease (or averted by an aid program) and is calculated as the sum of Years Life Lost (YLL) due to disease and Years Lived with Disability (YLD). DALY metric provides a holistic measure of total disease burden Higher DALY scores may allude to commercial opportunity based upon: Reduction of YLL, which may yield a corresponding rise in YLD Niche opportunities for underserved chronic conditions Extensive co-morbidities may provide opportunities to create a best-in-class population HEALTH treatment platform Americans with a Serious Mental Illness (SMI)

4 Experience a significantly shorter life-span than the general American population Mental and BEHAVIORAL Disorders Neurological Disorders Intellectual DisabilityOther Mental and BEHAVIORAL DisordersADHD and Conduct DisorderEating DisordersAutism and Asperger's SyndromeDysthymiaBipolar DisorderSchizophreniaAlcohol Use DisordersAnxiety DisordersDrug Use DisordersMajor Depressive DisorderPercent of Total DALYs- I SUBSTANTIAL UNMET NEED FOR MENTAL HEALTH SERVICES RESULTING FROM GROWING DEMAND AND CONTRACTING SUPPLY Utilization of prescription therapies has grown to help serve the unmet need for mental HEALTH services, while outpatient and inpatient services has remained flat. 3 Age Group Gender ..PREVALENCE OF ADULT MENTAL ILLNESS AND ACA Source: SAMHSA, Center for BEHAVIORAL HEALTH Statistics and Quality. INCREASING MENTAL HEALTH SERVICE USE DRIVEN Using Mental HEALTH Servicesin the Past YearAny Type of CareOutpatientPrescription UNMET NEED & COMMERCIAL OPPORTUNITY ACROSS THE ADULT POPULATION or Older18 to 2526 to 4950 or OlderMaleFemalePercent with any Mental Illness (AMI) in the Past Mental Illness (AMI)Serious Mental Illness (SMI)Moderate Mental IllnessLow (Mild) Mental IllnessNo Mental IllnessTreatment in Diagnosed PopulationOver 1/3 of SMI Patients & Over 1/2 of MMI Patients DO NOT Receive Treatment REDUCED SUPPLY DESPITE GROWING DEMAND RESULTS 6206406606807007207407607808006466687072 7476788082842000200120022003200420052006 20072008200920102011 Beds (k)Admissions (k)For the Years Ended December 31, 2000 to 2011 ( ) - I GROWING POPULATION OF INDIVIDUALS ELIGIBLE FOR CARE 4.

5 ARE DIMINISHING THROUGH RECENT REFORMS Source: SAMHSA, Center for BEHAVIORAL HEALTH Statistics and Quality. REASONS FOR NOT RECEIVING MENTAL HEALTH Recent changes from healthcare reform and reimbursement policies may promote expanded utilization ACA seeks to reduce the negative stigma of mental HEALTH and substance use disorder (SUD) treatments and services by: Including mental HEALTH and SUD benefits as Essential HEALTH Benefits Applying federal parity protections to mental HEALTH and SUD benefits Providing more Americans with access to quality healthcare, mental HEALTH and SUD services Integrated Care models shift focus on inpatient treatment to a PCP lead team for treatment management Integrated care models may provide a path to greater at risk posture for both payors and providers Healthcare reform aims to reduce the fiscal and psychological barriers to mental healthcare services. Insuance Did Not Cover Any TreatmentTreatment Would Not HelpHealth Insurance Did Not Cover Enough TreatmentMight Have Negative Impact on JobDid Not Want Others to Find OutFear of Being Committed / Having to Take MedicineMight Cause Neighbors /Community to Have Negative OpinionConcerned About ConfidentialityDid Not Feel Need for TreatmentDid Not Have TimeDid Not Know Where to Go for ServicesCould Handle the Problem without TreatmentCould Not Afford CostHHS ESTIMATES 62 MILLION WILL GAIN COVERAGE ACA Implementation32 Small Group Markets23 Individual Markets7 Federal Parity Protections 30 (millions) May be mitigated by ACA - I Mental Illness, No and Mental , No Mental and Mentally Ill PatientsSUBSTANTIAL UNMET NEED FOR MENTAL HEALTH / SUBSTANCE ABUSE 5.

6 PRESENTING A CLEAR UNMET PATIENT NEED Source: SAMHSA, Center for BEHAVIORAL HEALTH Statistics and Quality. MAJORITY OF POPULATION REMAINS Adults diagnosed with both Substance Use Disorder (SUD) and Any Mental Illness (AMI) remain largely underserved. Payment / reimbursement barriers may exist to achieving appropriate care Certain states prohibit same-day billing for certain combinations of BEHAVIORAL HEALTH services While Medicare often covers the services of licensed mental HEALTH practioners, many substance use treatment professionals are not licensed - which creates a funding gap Only 8% of properly diagnosed patients receiving treatment, receive appropriate care Substance abuse and mental HEALTH co-morbidity is untreated in over 50+% of population. PREVALENCE OF SUBSTANCE ABUSE AMONG MENTALLY ILL -2526 -4950+SMIAMINo Treatment54%Mental Treatment Only34%SUD + Mental Treatment8%SUD Treatment Only4%- I Medicaid27%Other State and Local18%Medicare8%Other Federal5%Private Insurance27%Out of Pocket12%Other Private3%2009 EVOLVING MENTAL HEALTH REIMBURSEMENT PARADIGM Even as Medicare expands, Private payors will be increasingly pressured to maintain coverage.

7 6 CURRENT MENTAL HEALTH FINANCING PRE-ACA ACA REFORM IMPLEMENTATION Federal 13% State 45% Private 42% Fee-for-service dominates the entire Healthcare industry including Mental / BEHAVIORAL HEALTH State Mental institutions have historically borne a heavy burden for those with a Serious Mental Illness, however, recent history has seen significant closure of State Institutions Employers could elect to offer less coverage to employees on Mental HEALTH than on traditional physical HEALTH State sponsored institutions have seen a reduction of funding and facilities Medicare expansion and Mental HEALTH Parity laws could expand potential patient population by up to 62 million ACA parity regulations promote mental HEALTH as part of a Essential HEALTH Benefits Integrated care platforms ( Medicare HEALTH Homes) are piloting bundled payment programs Source: National Alliance on Mental Illness. State Legislation Report, 2013.

8 - I POTENTIAL IMPACT OF CONTINUING HEALTHCARE REFORM Higher levels of integration of medical and physical expected to promote higher quality outcomes based care. 7 Coordinated Co-Located Integrated Level 1: Minimal Coordination Level 2: Basic Collaboration at a Distance Level 3: Basic Collaboration On-Site Level 4: Close Collaboration On-Site with Some System Collaboration Level 5: Close Collaboration Approaching an Integrated Practice Level 6: Full Collaboration a Transformed / Merged Integrated Practice Individual screening / assessment Separate treatment plan Evidence Based Practice ( EBP ) unique to each specialty Individual screening / assessment Separate treatment plan Separate responsibility for care / EBP May agree to specific screening for in-house referrals Some shared info between service plans Shared knowledge of EBPs Agree on specific screening Collaborative treatment plans for some patients Some EBPs and training shared, but focused on specific population Consistent common screenings Collaborative treatment plans for shared patients EBPs shared across system with some joint monitoring Standard population based medical and BH screenings Single patient treatment plan EBPs are team selected Physical / BEHAVIORAL HEALTH are separate issues Patient must navigate separate practices HEALTH needs treated separately.

9 Records are shared Patients may be referred; care access still impaired HEALTH needs treated separately at same site Proximity allows referrals to be more successful HEALTH needs treated separately at same site Internal patient referrals allow for better follow-up HEALTH needs treated by team for shared patients Patient treated by a team, as needed All HEALTH needs treated by a team Patient experiences a seamless response to all healthcare needs No coordination or management Up to providers to integrate Some practice leadership in info sharing Some provider buy-in to collaboration Org leaders supportive, but co-location viewed as project or program Provider buy-in to effective referrals Leadership supports integration through problem solving system barriers Greater buy-in although not consistent Leadership supports closer integration, practice areas remain fundamentally the same Nearly all providers buy-in Leadership supports integration as primary practice model Integrated care embraced by all providers Separate funding No sharing of resources Separate billing Separate funding May share resources for single projects Separate billing Separate funding May share facility expenses Separate billing Separate funding; may share grants May share some OpEx Separate billing Blended funding.

10 Various forms of expense sharing Combined billing or otherwise agreed upon Integrated funding Shared resources Billing maximized for integrated model Timely and autonomous decisions on care Existing model Maintains current operating structure Some info sharing helpful to patients & providers Co-location leaders to more direct interaction Referrals are more successful Removal of some system barriers Patients viewed as shared responsibility More responsive patient care Increasing provider flexibility All / almost all system barriers resolved Patient needs addressed as they occur Services may overlap Some aspects of care may take a long time to be diagnosed Info sharing may not be broad enough to affect care Referrals may fail due to barriers Proximity may not lead to greater collaboration Limited flexibility with no change to traditional roles System issues may limit collaboration Conflicting agendas may create tension Practice changes may create lack of fit for some providers Time is needed to smooth integration Sustainability issues may stress the practice Outcome expectations not clearly established Clinical Delivery Patient Experience Practice / Organization Business Model Strengths Weaknesses Gradual Movement to Integrated Healthcare Current Goal Source: SAMHSA.