Lower medical costs improve Magellan's final 2015 quarter

Magellan Health, a managed-care insurer and pharmacy-benefits manager, scored a higher profit in the last quarter of 2015, but the company still closed the year with depressed earnings.

Magellan reported fourth-quarter earnings of $27.3 million (PDF) compared with $21.6 million in the same period of 2014, a 26% increase. However, Magellan's profit for all of 2015 dropped more than 60% to $31.4 million.

Stronger margins from its specialty pharmacy business and lower overall medical costs were the primary sources of the company's improved fourth quarter. Magellan, which closed the year with nearly $4.6 billion in revenue, mostly provides coverage for people who have serious mental illnesses or those who have multiple chronic health conditions. Its PBM division works with other health plans, employers, state Medicaid programs and Medicare Part D to manage drug spending.

Magellan had struggled for much of 2015 because of high medical claims costs. Further, the company lost several state contracts. Behavioral health management deals were not renewed in Arizona, Iowa and Nebraska, costing hundreds of millions of dollars in annual revenue, most of which will hurt the company in 2016 and beyond. More states are moving toward managed Medicaid and including all services, including behavioral health and substance abuse, into one contract.

That's why Magellan expects revenue will decline in 2016 (PDF), hitting between $4.28 billion and $4.52 billion. Profits are expected to be higher since Magellan still has a large presence managing long-term care and mental illness in Florida and New York.

Magellan's recent acquisition of the Management Group, a company that cares for people who need long-term services and support, will fill in a small portion of Magellan's lost business. Executives expect the transaction will net $40 million in revenue and $3 million of profit over the final 10 months of 2016.

Bob Herman

Bob Herman covers the health insurance industry and other healthcare news. Before joining Modern Healthcare in 2014, he covered hospital finance as a reporter and editor at Becker’s Hospital Review. He has a bachelor's degree from Butler University in Indianapolis

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