Magellan Health Services sails into rough financial waters

The behavioral health giant's ship is sinking, and physicians don't need to read stock tables to notice it.

By Mike Norbut, AMNews staff. Oct. 28, 2002.

Magellan Health Services Inc. spent big money to become the nation's largest behavioral health insurer, but that growth spurt has come back to haunt the company.

Columbia, Md.-based Magellan -- which manages mental health benefits for such plans as Aetna and TennCare, the state of Tennessee's Medicaid plan -- is struggling under declining membership and a $1 billion debt load that had investors pushing its stock price so low, the company got kicked off the New York Stock Exchange. These days, 75 cents can buy you either a candy bar or more than 10 shares of Magellan stock.

Magellan recently announced it wouldn't have the funds to be in compliance with bank agreements when it files financial results in January 2003. That would give lenders the right to demand accelerated debt payments, the company said. Some financial analysts say that could force Magellan to file for bankruptcy, although the company said it had no plans to do so.

Magellan's financial troubles are apparent to physicians. Some say they've noticed that in recent months Magellan is slower to reimburse and quicker to deny coverage. But even in its best days, Magellan had a reputation among many for being penurious.

Reimbursement "has historically been difficult, but it has worsened since [Magellan's] financial problems started," said Maria Ruiza Yee, MD, a psychiatrist in Wyomissing, Pa., outside Philadelphia, a market Magellan dominates.

"It's become ridiculous," said Dr. Yee, who is vice president of the Pennsylvania Psychiatric Society. [...]