Magellan Health reported Monday that second-quarter earnings fell far below Wall Street's expectations. Results at the managed-care and pharmacy benefits company have trended down in both quarters this year.
Investors reacted negatively to the second-quarter numbers, as Magellan's stock tumbled 13.3% to $56.67 per share.
Magellan manages care and prescription drug benefits, and it works heavily with state Medicaid agencies and people who have complex, high-cost conditions. Behavioral healthcare is one of the company's primary business segments.
The Scottsdale, Ariz.-based insurer continued to post higher top-line growth. Magellan's revenue soared 30% to $1.16 billion (PDF) in the second quarter thanks to new contracts and small acquisitions.
But the cost of covering high-risk populations has eaten away at Magellan's profitability. Second-quarter earnings dropped 8% year over year to $4.6 million. Magellan's earnings per share totaled $0.17, well below Wall Street's predictions of about $0.40. In the first six months of 2015, Magellan's net profit declined 61% to $12 million.
The public sector has posed the biggest problems for Magellan. The company covers 3.3 million people through Medicaid or some other state or local government program. The cost of care for that population soared 38% year over year, according to Magellan's financial statements. Inpatient and outpatient utilization were both up, executives said.
Much is at stake for Magellan during the second half of this year. It was one of eight bidders for Iowa's Medicaid managed-care contract. Iowa is outsourcing its entire Medicaid program to private companies, representing hundreds of millions of dollars in potential revenue. The state is expected to announce winners next month, and the contracts will begin Jan. 1.
A win in Iowa would help offset some of Magellan's losing bids. Arizona's Medicaid agency recently rejected Magellan for its behavioral healthcare contract.