Mental Health Services

History Of Magellan

Magellan Health Services, a carve-out company specializing in managed care for mental health, has had a history of ups and downs since its inception in 1995.

 Purchased as Charter Medical Company, a chain of psychiatric hospitals, they soon changed their focus. Darla Moore, chief executive of Rainwater, Inc., stated, Magellan wanted to be known as “a behavioral health care company, not a psychiatric hospital company.” After the purchase of Charter, for $69.7m, Magellan continued to purchase other behavioral health contracts over the next few years, totaling over $245m.

After a series of purchases and sales of various psychiatric hospitals, Magellan found itself part of an investigation from the Justice Department regarding nationwide Medicare fraud.

In 1999, Magellan was in the news again, after the Securities and Exchange Commission asked Aetna to re-evaluate their earnings from the sale of mental health managed care unit to Magellan. An accounting error in the amount of $39m was found and corrected. By all reports, the accounting error was on the part of Aetna, and not Magellan, but Magellan again found its name in the headlines.

At the beginning of 2000, Charter Behavioral Health Systems announced its decision to file for bankruptcy protection. Magellan Health Services, having stock in Charter, ended up making a large profit because stock in Magellan went up when Charter sold the run-down chain of hospitals. Magellan was now out of the psychiatric hospital business and into mental health managed care business, a much more profitable place to be.

Magellan was in the news again in 2003, stating they were looking into filing for bankruptcy protection. With about $1 billion in debt, Magellan stated it needed to restructure its debt. The company assured that filing bankruptcy would not affect payment of any claims. After this announcement, stock in Magellan fell to 17 cents.

After filing for bankruptcy, Magellan sold controlling interest to a Toronto-based company, the Onex Corporation. Magellan successfully restructured about $1.5 billion in debt, and was able to shed $6 million in debt.

During all this financial difficulty, an article was written by Milo Geyelin of the Wall Street Journal, investigating the authorization approval standards by Magellan. Several case studies were presented where Magellan refused to authorize care in situations where the primary care physician, the psychiatrist or the psychologist, or the parents believed the treatment was necessary. The denials for authorization were blamed on acquisitions of other companies with different authorization guidelines. Magellan stated they were in the process of combining all systems into one. An extreme case was cited, stating that a patient committed suicide the day after he was released from a Magellan-network hospital. The family of the patient sued Magellan, stating the patient was discharged prematurely based on pressure from Magellan to keep inpatient stays to a minimum number of days.

These days, you don’t hear much about Magellan Health Services, except to know they are still the largest managed care mental health providers in the United States. Complaints have dropped, at least as far as being reported to the media, and Magellan seems to be bulking up its network to provide access to network providers in a timely manner. Let’s hope Magellan is on its way up.

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