Steve Yedlin, MD Chief Medical Officer. Lenda Townsend-Williams, MBA Chief Operating Officer

2015 ANNUAL REPORT

Steve Yedlin, MD Chief Medical Officer Lenda Townsend-Williams, MBA Chief Operating Officer

2015 Annual Report Shareholder s Meeting May 3, 2016 To Our Shareholders, 2015 has been a great year. We celebrated our 21st year of success. We will continue to focus on the success of our physicians and supporting them to provide quality care and to improve the health and wellness of the foundation of our community, our pediatric members. As your Independent Practice Association (IPA), we are dedicated to providing support and to operate an effective, well-managed organization with a focus on quality and cost containment. This report highlights some of the accomplishments made possible by the outstanding employees of Children First Medical Group, Inc. We value our physician shareholders who continue to serve as a choice for pediatric well care and specialty care services in the local community, and surrounding counties and states. Thank you for your feedback, support and the exemplary care provided to your patients. Steve Yedlin, MD Chief Medical Officer Lenda Townsend-Williams, MBA Chief Operating Officer Arnold Blustein, MD Board President Table of Contents 2015 Highlights...1 Financial Review...2 Independent Auditor s Report...3 Administrative Services...5 Medical Management...9 Board of Directors & Committees...11

2015 Highlights We increased our provider network in Alameda, Contra Costa, and San Francisco counties by adding primary care physicians from Roots Community Health Center, specialists from San Francisco Oculofacial Plastic Surgery, and UCSF Physicians in Nephrology, Otolaryngology and Plastic Surgery. Eighty-three (83) new physicians joined our network. Primary Care Physicians and Specialty Care Physicians expressed continued high satisfaction with the services provided by CFMG. Successfully met and exceeded financial solvency requirements for the Department of Managed Care. We received 100% on the following audits: 1) Claims 2) Credentialing 3) Utilization Management Excellent Member Satisfaction results with the physician practices rating of 96%. Successfully met National Committee for Quality Assurance and Department of Health Care Services requirements for all delegated activities. The Provider Relations Department received 3,359 calls on the customer service line compared to 3,654 calls in 2014, an 8% decrease. The Medical Management Department processed 7,091 authorizations compared to 6,768 in 2014, a 4.8% increase. We hosted two (2) Provider Education & Training Workshops. We maintained credentialing delegation authority with 19 payors. The Claims Department processed 209,001 paper and EDI claims. The Claims Error Ratio was <1% compared to the industry standard of 5%. 2016 Strategic Focus 1) Improve operating systems and upgrade technology 2) Continued financial stability 3) Expand physician network 1 Children First Medical Group, Inc.

Financial Review In 2015, Children First Medical Group, Inc. continued its course of stable financial growth. Our total revenue increased 7.8%. Our operating expenses remain at approximately 11%, a ratio well within industry standard. Our physician membership increased to 534. We continue to add UCSF faculty who have partnered with our physicians to provide clinic and ED coverage at UCSF Benioff Children s Hospital Oakland. As most know, we also have primary care and specialty physician members who are associated with Stanford and Packard Children s Hospital. For the calendar year 2015, our surplus was a new high of $4.8 Million. About $900,000 was distributed in September. The remainder was distributed in March. This year we faced system challenges with incorrect member counts resulting in over payments of capitation. These were corrected with the surplus distribution to prevent any financial disruption for our providers. We again provided funding to the Children s Specialty Care Coalition (CSCC), a statewide group of California Children Services (CCS) providers that works to ensure continued support for our most at risk patients. The state decided not to renew the waiver that ensures CCS funding as a separate entity last year. It has not committed to any specific plan but clearly is planning to incorporate CCS into managed care. This makes the work of CSCC even more important. The surplus was first determined by providing a participation bonus to both primary care physicians and specialists open to providing services to our Medi-Cal members. A member-month bonus was distributed to our PCPs. The remaining funds were distributed based on services provided by all participating physicians. The healthcare industry (which we clearly are) continues to change with further consolidation of facilities and physicians. The hope is that emphasis on Don Berwick s [former Administrator of the Centers for Medicare and Medicaid Services (CMS) and former CEO of the Institute for Health Care Improvement] goals of better health and better health care will prevail. We continue to provide administrative support services to UCSF Benioff Children s Physicians to which many of our physicians belong. We maintain strong relationships with our two Medi-Cal Managed Care plans, Anthem Blue Cross and Alameda Alliance for Health. We continue to successfully meet and exceed financial solvency requirements for the Department of Managed Health Care. 2015 Annual Report to Shareholders 2

Independent Auditor s Report 3 Children First Medical Group, Inc.

Administrative Services Lenda Townsend-Williams, MBA Chief Operating Officer Michael McCarty Claims Manager Membership CFMG currently serves over 60,000 enrollees who are participants through Alameda Alliance for Health and Anthem Blue Cross. Provider Network Our provider network is comprised of 534 physicians, with 176 Primary Care Physicians (PCPs) and 358 Specialty Care Physicians (SCPs). Contract Management HMO Commercial Contracts We maintain contracts for Specialty services with the following payors: Brown & Toland Medical Group CIGNA Healthcare Hill Physicians Medical Group John Muir Physician Network Marin Sonoma IPA Palo Alto Medical Foundation Sutter Gould Medical Group Sutter Medical Foundation Medi-Cal Contracts We manage contracts with the following state-sponsored plans: Alameda Alliance for Health Anthem Blue Cross Medi-Cal HMO Specialist Contracts We manage contracts with the following state-sponsored plans: Contra Costa Health Plan Community Health Center Network Health Plan of San Joaquin PPO Contracts We currently maintain Preferred Provider Organization (PPO) contracts with the following payors: Aetna Benefit Risk Management CIGNA Healthcare Coventry First Health Care Healthsmart (Interplan) Hometown Health Humana/ChoiceCare Network MultiPlan Pacific Health Alliance Pacific Foundation for Medical Care Prime Health Services, Inc. Provider Select Sutter Redwoods Medical Foundation Three Rivers Provider Network USA Managed Care Organization 5 Children First Medical Group, Inc.

Children First Medical Group, Inc. Contracts To view CFMG contracts, please access our website at www.childrenfirstmedicalgroup.com. Claims Management 2015 2014 Processed Claims 209,001 199,805 Errors Ratio <1% <1% We processed 9,000 more claims in 2015 than in 2014. Quarterly claims review meetings were held to continually educate and train staff. A Claims Tip Sheet for billing agents and providers is posted on the CFMG website and is updated as needed. Provider and billing agents in-service trainings performed on request for new office staff through our Provider Outreach Program. Extensive claims adjudication and eligibility reports are reviewed to ensure accuracy. Claims processing timeline continues to be 30 calendar days or less (which is lower than the industry standard of 45 working days). CFMG experienced a successful implementation of ICD-10 codes on October 1, 2015. Our claims processing errors ratio maintained a standard of less than 1%. We continually remain below the industry standard of 5%. Electronic Data Interchange (EDI) We processed and adjudicated 197,107 professional claims through the EDI system compared to 189,058 in 2014, 4% more than last year. Majority of electronic claims are paid within 10 business days from date of receipt. Our department remains compliant in meeting claims acknowledgement and timeliness processing standards. 2015 Annual Report to Shareholders 6

Credentialing The Credentialing Department received 100% on all health plan annual audits. Our provider network continues to steadily increase, with the addition of eighty-three (83) new physicians. Provider Network Credentialing 600 500 534 # of PCPs # of Specialists 400 358 # Total Physicians 300 200 176 205 100 0 Total CFMG Physicians 13 70 83 110 95 New Recredentialed Terminated/ Retired 9 40 49 We maintained delegation authority for credentialing with the following payors: Aetna Alameda Alliance for Health Anthem Blue Cross Benefit Risk Management Service Brown & Toland Medical Group Humana ChoiceCare Network CIGNA Healthcare Contra Costa Health Plan Coventry First Health Care Health Plan of San Joaquin Healthsmart (Interplan) Hill Physicians Medical Group Marin-Sonoma IPA Multiplan/Private Health Care Systems Pacific Foundation for Medical Care Provider Select, Inc. Prime Health Services, Inc. Sutter Redwoods Medical Foundation USA Managed Care Organization 7 Children First Medical Group, Inc.

Member Services We received 320 calls from Anthem Blue Cross and Alameda Alliance for Health Managed Medi-Cal enrollees. Provider Relations/Customer Services In 2015, we handled 3,359 customer service calls compared to 3,654 in 2014 and returned all calls within 2-3 hours. Utilization Management handled 1,175 calls from providers and and returned all calls within 24 hours. We continue to educate and assist physician office staff and billers through our Provider Outreach Program. As new providers join, training sessions are scheduled to ensure the staff are properly trained on billing guidelines and the Messenger Model contracting process. Customer Service Calls 6000 Utilization Management Calls 5000 Provider Relations Calls 4000 3000 1046 3055 966 2688 1175 2000 2184 1000 0 2013 2014 2015 2015 Annual Report to Shareholders 8

Medical Management Steve Yedlin, MD Chief Medical Officer The Medical Management Department processed 7,091 authorizations, compared to 6,768 authorizations in 2014. We underwent an annual health plan audit by Anthem Blue Cross. The Department successfully met National Committee for Quality Assurance and Department of Health Care Services requirements for all delegated activities: Utilization Management 100% Medi-Cal Specific Activities 100% Credentialing 100% Claims 100% Marie Barrett Director of Utilization & Quality Management Hospital Utilization Overall, hospital utilization for the Medi-Cal program was higher compared to 2014. Admits/ 1000 = 22.5 13% higher than 2014 ALOS = 2.47 days 6% higher than 2014 Days/ 1000 = 55.6 20% higher than 2014 UCSF Benioff Children s Hospital Oakland ER Utilization Overall, ED utilization for the Medi-Cal program was higher compared to 2014. ED Visits/ 1000 = 223.7 18% higher than 2014 The UM / QM Committees met quarterly to review utilization data, member grievances, satisfaction surveys, quality improvement reports, and to approve policies and procedures. Note: At the end of 2015, Sylvia Herrick, RN, our Director of Utilization & Quality Management for 15 years, retired. We are pleased to announce we have hired Marie Barrett, effective February 2016, who is the new Director of Utilization & Quality Management. 9 Children First Medical Group, Inc.

Quality Improvement Studies CFMG conducted the following quality improvement studies in 2015: Access to Care Telephone Answer Survey The median telephone response time for the Primary Care offices was 30 seconds and 36 seconds for the Specialty offices. Average Wait for new Specialty Appointments The average wait for a non-urgent, new patient appointment ranged from 1-4 weeks. Appropriate Utilization of Emergency Services CFMG notified the PCP s of members with 3 or more ED visits per quarter. Pediatric Advice Line Utilization and Quality Report Claims Input Error Report The claims error ratio was <1%, which is well below the industry standard of 5%. The QM Department provides support to Alameda Alliance in resolving member grievances. There were no member grievances in 2015. Provider Satisfaction Survey CFMG conducted its annual Provider Satisfaction Survey in the fall of 2015. Providers expressed continued satisfaction with services provided by CFMG. The overall satisfaction ratings for 2015 continue to be positive. Member Satisfaction Survey CFMG conducted its annual Member Satisfaction Survey in the fall. Surveys were distributed in English, Spanish, Vietnamese and Chinese. Once again, members reported a high level of satisfaction with the care provided by CFMG physicians. The overall member satisfaction ratings for 2015 were: Primary Care Physicians 96% Specialists 92% 2015 Annual Report to Shareholders 10

Board of Directors & Committees Board of Directors Arnold Blustein, MD, President Robert Watts, MD, Secretary Richard Ash, MD Theodore Chaconas, MD Jonathan Clarke, MD Kenneth Ducker, MD Carol Glann, MD Amit Gupta, MD Robert Haining, MD Caroline Hastings, MD R. Scott Heidersbach, MD Mika Hiramatsu, MD Thomas Hui, MD Lawrence Ng, MD Stephen Santucci, MD Lloyd Takao, MD Michael Usem, MD Robin Winokur, MD Steven Yedlin, MD Credentialing Committee Steve Yedlin, MD, Chair Stephen Daane, MD R. Scott Heidersbach, MD David Kittams, MD Kathleen Newkumet, MD Robert Nicholson, MD Miriam Rhew, MD Elizabeth Salsburg, MD Compensation Committee Steve Yedlin, MD, Chair Arnold Blustein, MD Jonathan Clarke, MD Caroline Hastings, MD Robert Watts, MD Robin Winokur, MD Contracting Committee Steve Yedlin, MD, Chair Jonathan Clarke, MD Robert Watts, MD Robin Winokur, MD Nominating Committee Jonathan Clarke, MD, Chair Kenneth Ducker, MD Thomas Hui, MD Utilization Management Committee Robert Nicholson, MD, Chair Mindy Benson, PNP Theodore Chaconas, MD Jose Enz, MD Carol Glann, MD David Kittams, MD Gena Lewis, MD Steve Yedlin, MD 11 Children First Medical Group, Inc.

2015 Annual Report to Shareholders 12

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