Magellan Health reported a sizable jump in earnings during the first quarter, primarily the result of acquisitions. Otherwise, profits were down because of contract terminations and soaring medical costs.
The Scottsdale, Ariz.-based insurer beat estimates and reported that net earnings were up 80.8% to $13.2 million in the three months ended March 31. But profit was down 20.5% at $19.4 million when accounting for acquisitions, including recent buys of 4D Pharmacy Management Systems, a pharmacy benefits manager, and The Management Group, a provider of managed long-term-care services.
Magellan's managed-care business suffered from terminated contracts as well as high medical claims costs. Revenue from managed-care and other healthcare services was down 10% at $676.5 million. That includes a loss of approximately $4.5 million from the company's Medicare Part D Plan. Magellan attributes that to the seasonality of Medicare benefits. Despite these issues, the company reported some new business and organic growth.
High medical claims costs were similarly a headache for Magellan for much of 2015, as were the loss of several state contracts for behavioral health. The Management Group acquisition intended to offset some of those losses.
The company's PBM business fared better, with revenue of $440.6 million, up nearly 100%, due in large part to additional revenue following the 4D acquisition. Despite those positive results, the future is cloudy: The PBM industry could face some significant changes amid the Anthem-Express Scripts lawsuit over price transparency.
Magellan said it expects fiscal 2016 revenue to be between $4.62 billion and $4.86 billion, and the company expects adjusted earnings per share between $3.19 and $3.96.