Managed-care and pharmacy-benefits company Magellan Health lost $7.8 million in the third quarter this year. Magellan's prospects remain shaky going forward after it lost a big Medicaid contract in August.
Magellan's $7.8 million deficit contrasts a $27 million profit in the same period last year. Aside from some accounting measures, executives attributed the loss to “unfavorable” medical claims costs. Magellan holds several state contracts for Medicaid enrollees and behavioral health patients, two groups with typically high-cost healthcare needs.
One state Magellan won't be in anymore is Iowa, where the company had a Medicaid behavioral health deal. Iowa consolidated all Medicaid services into one managed-care program, and in August, the state awarded contracts to AmeriHealth Caritas, Anthem, UnitedHealthcare and WellCare Health Plans. More than $520 million in annual revenue, or about 12% of Magellan's total revenue base, will be wiped away.
Earlier this year, before Iowa's announcement, Magellan CEO Barry Smith said the company felt “positive” about its chances in Iowa.
In the past year, Magellan has also lost behavioral health contracts in Arizona and Louisiana, and the Scottsdale, Ariz.-based company disclosed it received lower capitated Medicaid rates for its Florida behavioral health contract. Magellan consequently lowered profit targets for the rest of the year despite optimism in the second quarter that the company would experience “an increasing pattern of earnings over each of the last two quarters” of 2015.
Magellan's pharmacy benefit management business was a rare bright spot, executives said. The PBM is expected to net the company $125 million of profit on $1.7 billion of revenue by the end of the year. Through the first nine months of 2015, Magellan's total revenue was up 20% to $3.3 billion.
Despite the red ink and lowered predictions, Magellan's stock was up approximately 12% Tuesday afternoon. Some analysts speculate that short sellers are buying back stock, believing the company's price is near a floor.