Magellan files bankruptcy, focuses on restructuring

Physicians say the mental health company's financial strain has made it easier to work with.

By Mike Norbut, amednews staff. April 7, 2003.

Saddled with more than $1 billion in debt, Magellan Health Services Inc. filed for Chapter 11 bankruptcy protection March 11 in U.S. Bankruptcy Court in New York. However, most psychiatrists working with the behavioral health giant have not noticed a change in service or reimbursement, and some have even reported a better relationship since the filing.

Columbia, Md.-based Magellan, the nation's largest behavioral health insurer with nearly 68 million insured lives, said it had worked out a deal with creditors to reduce its overall debt by $500 million, which company executives said will aid in their goal to emerge from bankruptcy by the third quarter. The company said service would continue through the bankruptcy proceedings, and it had enough working capital to continue daily operations.

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Magellan announced last fall it wouldn't have the funds to be in compliance with bank agreements by January, though it denied at the time it planned to file for bankruptcy. Magellan's financial straits had contracting psychiatrists worried they would not be paid if the company did indeed file, but some said their fears thus far have not been realized.

If anything, physicians said they have been receiving more attention and they have seen less delay time in reimbursements.

The psychiatrists also have noticed a concerted effort by Magellan not to lose any contracts, which could hurt its chances to reorganize. The strategies seem to be working; psychiatric association leaders have not seen a mass exodus of physicians from Magellan contracts.

Another key to the company's restructuring is an agreement it brokered with Aetna Inc. to extend its service contract through 2005.

Magellan executives "have made all sorts of assurances," said George Wilson, MD, a psychiatrist in Princeton, N.J., and chair of the Managed Care Committee for the New Jersey Psychiatric Assn. "If Aetna is saying they are providing full backup, that is as good an assurance as we're going to get in the real world."

Magellan accrued its debt through a tremendous growth spurt in the 1990s, but it felt the backlash of its aggressive strategy last year. Declining membership and growing utilization costs contributed to its current financial state, in which its stock price fell so low it was kicked off the New York Stock Exchange last fall.