Magellan Health Reports 84 Percent Drop In Earnings

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The price of stock in Magellan Health Inc. fell Friday as the company reported much lower second-quarter earnings than it had last year.

Magellan Health attributed weak results to challenges in its government-funded health-care business and as greater-than-expected costs in its behavior health segment.

Quarterly net income plummeted 84 percent to $4.99 million, or 18 cents per diluted share, compared with $31.48 million, or $1.15 per diluted share, during the same period in 2013.

The company’s stock price sunk 9 percent, by $5.63, to $57.19 in midday trading.

Total revenues were $888 million for the quarter, up from $842.7 million during the same period in 2013. Second-quarter revenue this year included newly acquired businesses, Partners Rx and CDMI. Revenue was also higher in part because of new business and rate increases, but it was offset by loss of revenues from contracts that ended and weren’t renewed.

Magellan Health Inc. is a specialty insurer and health care management company. The company contracts with government employers, businesses and insurers. It has historically focused on behavioral health, radiology, specialty pharmaceuticals and public-sector pharmacy benefits management.

Goldman Sachs financial analyst Matthew Borsch said in a note to investors that revenues and profits were below Goldman Sachs’ estimates of $932 million and $65 million, respectively. The public-sector business, which is government-funded health care, was the primary under-performing unit while commercial and pharmacy-management segments performed better than expected, Borsch wrote in his note.

Magellan Health more than doubled quarterly revenue for its pharmacy benefits business, to $205 million from $96 million last year. But quarterly revenue from managed care and other segments fell to $682 million from $747 million last year.

“Our segment profit for the second quarter reflects strong performance in our Pharmacy segment, solid results in Commercial and Specialty Solutions, and challenges in the Public Sector, as a result of higher-than-expected cost of care in behavioral health and investments in Magellan Complete Care,” Chief Financial Officer Jonathan N. Rubin said in a statement. “We have plans in place to address the cost of care issues over the balance of the year.”

Magellan Complete Care is the company’s Medicaid health plan in Florida.

Through Monday, the company repurchased about 1.4 million shares at a cost of $81.3 million and an average price of $59.75. Magellan Health is about two-thirds through its current authorization to spend $300 million on stock buybacks.

Magellan Health announced in late April that it plans to move its headquarters from Avon to Scottsdale, Ariz. Barry Smith, who became CEO on Jan. 1, lives nearby in Paradise Valley, Ariz.

About Matthew Sturdevant

Full-time staff journalist at The Hartford Courant and magazine freelancer with a master's degree in writing from Dartmouth. My work has appeared in The Los Angeles Times, The Chicago Tribune, Taiwan News, The Baltimore Sun and many other news sources. My blog has been referenced by Politico.com, the Kaiser Family Foundation, the Georgetown Law Library and a number of organizations in healthcare and business. Sturdevant’s blog is "a well-written wealth of ideas," said The Donald W. Reynolds National Center for Business Journalism, (businessjournalism.org, May 18, 2011). I have experience writing for newspapers, magazines, Web sites and blogs as well as shooting and editing video. I made regular appearances on news-talk radio and on the NBC affiliate station in Corpus Christi, Texas. I made occasional appearances on the Fox affiliate in Connecticut promoting Hartford Courant articles.

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