Unlocking the complexities of healthcare

Magellan's next generation of healthcare provides our members and customers

With Smart Solutions

Musculoskeletal
Management Program

Musculoskeletal (MSK) care is a key driver of rising medical expenses, in part due to overuse of invasive surgery, lack of medical integration and an increase in risk factors associated with aging populations with complex, chronic conditions. Our MSK management program leverages clinical expertise to manage variations in care and reduce costs to payers, while improving healthcare outcomes. Customizable solutions may include surgical management, interventional pain management, physical medicine and chiropractic care, along with online member tools and opioid management solutions to complement and integrate with existing customer programs.

IVIG UTILIZATION
MANAGEMENT PROGRAM

Intravenous Immunoglobulin (IVIG) therapy, used to treat immune deficiencies, is a leading specialty pharmacy cost driver. We offer a comprehensive utilization management program that optimizes appropriate use while improving quality of care. We work closely with providers to educate and drive behavior change, mitigate inappropriate off-label use and optimize dosing regimens to improve outcomes and drive down costs.

CLINICALLY INTENSIVE BEHAVIORAL HEALTH PROGRAM

Behavioral health is increasingly recognized as critical to managing the medical care and associated costs for individuals with chronic diseases. Our clinically intensive behavioral health program provides a technology enabled member-centered solution that assists medical providers with early identification, assessment and monitoring. Our program is focused on the development of clinically appropriate treatment plans that provide better health outcomes and quality of care for members, while lowering costs by reducing avoidable hospitalization and use of services.

STAR
PROGRAM SUPPORT

In an effort to reduce federal healthcare expenditures and ensure better quality of care for patients, the Centers for Medicare & Medicaid Services continues to push for health plan metrics and tracking through the use of a Five-Star Quality Rating System. Rooted in clinical best practices, health plan providers are incented to achieve Star rating improvements and often view these measures as an opportunity to differentiate themselves from other plans. We offer targeted clinical programs that address specific Star rating areas and leverage our expert clinical staff and advanced analytics to improve performance, resulting in consistent rating improvements for our clients.

The healthcare industry continued its transformation this past year, expanding coverage to millions of individuals on the public and private exchanges, and through Medicaid expansion in the states. In addition, healthcare delivery and payment models continued to evolve, with technology playing an increasingly important role in clinical programs and decision support tools. Specialty drug costs continue to skyrocket, with new therapies expected to compose half of the country’s drug expenditures by 2018. With these dynamics come additional pressure on payers to find effective ways to manage costly populations – particularly those with complex care needs. Over the past year, we continued to make progress on our strategy to be the leader in providing solutions for managing complex populations and conditions across the healthcare continuum.

The Year in Review

During 2015, we consolidated into two businesses – healthcare and pharmacy – to better align with our primary growth initiatives and customer markets. This has allowed us to develop innovative solutions that more effectively address our customers’ most significant needs and cost challenges. We also strengthened our leadership team by adding individuals with expertise in areas that will be particularly important to us in the future. Additionally, we expanded our government relations functions to work proactively with states to help shape their healthcare strategies and identify long-term opportunities.

The pace of growth of our pharmacy benefit management (PBM) business has exceeded our initial expectations. Over the past year, our pharmacy revenue grew by over 65 percent compared to 2014, with approximately half of the growth organic, and the balance from acquisitions. We acquired 4D Pharmacy Management Systems, a full-service PBM, which added scale and provided deeper inroads into the Medicare Part D, managed Medicaid, dual eligible and exchange areas, and we completed the integration of two previous pharmacy acquisitions. Additionally, we successfully built out traditional mail order capabilities and expanded into Medicare Part D, with the launch of our own Centers for Medicare & Medicaid Services-approved Prescription Drug Plan, allowing us to effectively compete in all markets – employer, managed care, government and specialty. With about a quarter of our managed care and government customers utilizing more than one of our pharmacy products, we are seeing the benefit of cross-selling our capabilities across the pharmacy spectrum.





Learn more about Magellan Health from its Chairman and CEO, Barry M. Smith.


In our healthcare business, we further refined our Magellan Complete Care strategy for the integrated management of special populations, utilizing the best practices learned from our experience working with individuals with serious mental illness in Florida and with those eligible for long-term care in New York. By focusing on opportunities that play to our strength in behavioral health, while leveraging our experience with complex populations, we can help states, employers and health plans manage these special populations in a way that improves health outcomes and optimizes cost for the customers we serve. The integration of our specialty solutions business into our healthcare business has enabled us to market a broad suite of services that range from traditional behavioral health products to specialized programs, such as comprehensive oncology management, autism support services, musculoskeletal management, genetic testing and cardiac solutions, as well as the management of high-cost chronic conditions. Lastly, we continue to invest in new technology to help reach members more easily and improve customer service and care.

Next-Generation Healthcare Solutions

In our pharmacy business, you can expect to see us develop cutting-edge, patient-centered management programs for high-cost drugs to ensure effective and appropriate use and better outcomes for patients. On the healthcare side, we will bring new programs to market with virtual care delivery, as well as programs that address long-term services and supports and solutions for individuals with disabilities.

Magellan Health has built its reputation on solving challenges that consumers and payers face. As the healthcare industry continues to evolve, and new cost and care concerns arise, Magellan Health has the tools and experience necessary to solve some of the most complex emerging healthcare issues.

Barry M. Smith
Chairman and CEO
Magellan Health

Across the healthcare spectrum, a small number of patients with chronic conditions drives a disproportionate percentage of the healthcare spend. While our solutions address the entire continuum of care, we excel in the management of complex populations that require unique and personalized care models to improve outcomes and lower costs.


Helping those who need it most

While the healthcare industry continues to grapple with how best to provide care for complex populations and specialty areas, Magellan Healthcare is leading the way by leveraging its decades of expertise working with individuals across the behavioral health continuum. We offer programs for a wide spectrum of individuals that are designed to ensure they get the care they need in their own communities. These individuals include those who are healthy, but may need some added support during a specific life event, those who experience continual behavioral health concerns, as well as individuals with chronic conditions. Most current management programs are lacking in care coordination, crisis management and one-on-one interventions, all of which can help improve outcomes and drive down costs. We provide clinical excellence, coupled with advanced analytics and agile technology, to help those who need it most.

Magellan Complete Care of Florida is an example of our unique model of care for the integrated management of complex populations. As the nation’s only specialty health plan for individuals with serious mental illness, we offer rigorous, personalized and one-on-one care management programs, utilizing care managers who often visit members where they reside. The plan’s clinical protocols and data analytics are built using medical, behavioral and pharmacy interfaces to integrate care and improve health outcomes. We are leveraging best practices based on our experiences in Florida to offer this model of care in other geographies and special populations, inclusive of individuals with long-term care needs and those with developmental disabilities. The market for managing these special populations is not limited to states. Employers and health plans, both Medicaid and commercial, are also challenged by the management of their most complex and costly special populations.

We also offer a full suite of other healthcare management products, including radiology, cardiac and other services, that can be bundled with our industry-leading behavioral health, integrated care and pharmacy products. Our innovative musculoskeletal management program was borne from our experience in both pain management and pharmacy benefit management, and it has grown significantly in the two years since its launch. We designed a population health management solution intended for integrated delivery networks looking for new and innovative ways to better manage their most complex patients. By utilizing our platform and our people to manage the program, providers are able to spend more time doing what they were trained to do – provide care to those who need it most.

We know the optimal way to successfully manage special populations. Working with states, health plans, employers, providers and members, we are continually providing new and innovative ways to solve some of the healthcare industry’s greatest challenges.


As healthcare consumers increasingly demand accessibility and convenience, we are at the forefront of enhancing the consumer experience through our delivery system transformation. We have developed integrated virtual care solutions that extend the reach of personalized care to the globally mobile individual. We connect telehealth, cognitive therapy, video coaching, and provider and social networks to increase access to care, improve engagement and deliver better health outcomes.


A Value-Driven PBM

The historical measure of success in the pharmacy benefit management (PBM) industry has been the ability to leverage scale to drive down the unit cost of drugs. With the advent of the Affordable Care Act, subsequent changes in the healthcare delivery system, as well as the rising cost of prescription drugs, that measure of success is outdated. While some industry players continue to drive savings through volume, Magellan Rx Management has been oriented differently from the start. Instead of focusing solely on volume-based strategies, our value-oriented PBM offers outcomes-based programs, enhanced patient and provider engagement strategies, advanced analytics and comprehensive specialty drug management. Combined, these tools help ensure members are adherent to the right therapies, and help payers better understand and manage trend drivers and areas of concern.

During 2015, our pharmacy business continued to expand beyond traditional PBM models to develop innovative services that differentiate us in the market, while also adding scale and enhancing our core capabilities. Our growth in 2015 was fueled in part by the expansion of our leading-edge specialty drug management capabilities, and the development of new clinical programs for disease states, such as age-related macular degeneration, Hepatitis C and programs designed to improve Star ratings and HEDIS measures for our clients. We provide rigorous analytics to payers to help them drive improved outcomes and additional savings, and we work in collaboration with providers to ensure they have the information they need to prescribe the most efficacious and cost-effective drugs. In addition, we offer enhanced strategies to help consumers understand and utilize their pharmacy and medical benefits more effectively in this consumer-directed era.

Magellan Rx Management is a full-service PBM, but with an important distinction. Because our services were borne from our experience in managing specialty drugs, including those covered under the medical benefit, we are uniquely qualified to deliver value in the new healthcare economy. That experience, coupled with our industry-leading customer service, unique clinical and engagement strategies and innovative technology, has supported our growth as a nimble, responsive and industry-leading PBM.

Looking ahead, the pharmaceutical pipeline will be dominated by specialty drugs, which are estimated to compose 50 percent of the overall drug spend by 2018. This is a critical capability PBMs must understand intimately, and we’ve been doing just that for over a decade. We know how to address emerging areas of pharmacy management with proven solutions, and deliver tailor-made, disease-specific capabilities that provide value and drive healthier outcomes for the members and customers we serve.

 

 

In today’s healthcare marketplace, it is more important than ever to ensure the safe, appropriate use of drugs while optimizing cost. We harness the power of valuable data and innovative information technology to develop cutting-edge digital tools that empower our clients and their members to make more informed healthcare decisions.

Financial Highlights1

Dollars in thousands, except per share data and number of employees

Operations 2015 2014
Net revenue $4,597,400 $3,760,118
Segment profit2 $275,651 $266,919
Net income $31,413 $79,404
Adjusted net income2 $91,775 $110,555
Diluted earnings per common share (EPS) $1.21 $2.90
Adjusted EPS2 $3.55 $4.04
Operating cash flow $239,185 $211,044
Capital expenditures $71,584 $62,337
Number of employees 6,900 6,600
Financial Position at Year End
Unrestricted cash and investments $160,215 $346,856
Total assets $2,069,060 $2,068,943
Total debt $257,309 $269,841
Total stockholders' equity $1,066,183 $1,133,558

1 The foregoing financial information should be read in conjunction with the financial statements and related notes as presented in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2015.

2 In the above financial table and elsewhere in the Annual Report, we refer to segment profit, adjusted net income and adjusted earnings per share, which are non-GAAP measures. Segment profit is equal to net revenues less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses, and includes income from unconsolidated subsidiaries, but excludes segment profit or loss from non-controlling interests held by other parties, stock compensation expense, as well as changes in the fair value of contingent consideration recorded in relation to acquisitions. Adjusted net income and adjusted earnings per share reflect certain adjustments made for acquisitions completed after January 1, 2013, to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, as well as amortization of identified acquisition intangibles. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to Magellan’s Annual Report on Form 10-K for the year ended December 31, 2015.

Revenue
Growth

(Dollars in millions)
2015
37%
63%
2014
27%
73%
2013
20%
80%

Revenue
Diversification

(Revenue before eliminations)
Pharmacy Management
Healthcare
2015
35%
65%
2014
27%
73%
2013
18%
82%

Segment Profit
Diversification

(Segment profit before corporate expenses)

Officers

Barry M. Smith
Chairman and
Chief Executive Officer

Jonathan N. Rubin
Chief Financial Officer

Daniel N. Gregoire
General Counsel and Secretary

Caskie Lewis-Clapper
Chief Human Resources Officer

Sam K. Srivastava
Chief Executive Officer
Magellan Healthcare

Mostafa Kamal
Chief Executive Officer
Magellan Rx Management


Board of Directors

Barry M. Smith
Chairman and
Chief Executive Officer

Magellan Health, Inc.

John O. Agwunobi, M.D.
Chief Health and
Nutrition Officer

Herbalife

Eran Broshy
Operating Partner
Tailwind Capital

Michael S. Diament
Retired Portfolio Manager
Q Investments

Perry Fine, M.D.
Professor of Anesthesiology
University of Utah

Kay Coles James
President
Gloucester Institute

William J. McBride
Retired President and
Chief Operating Officer

Value Health, Inc.

Michael P. Ressner
Retired Vice President
of Finance

Nortel Networks

Mary F. Sammons
Retired Chairman and
Chief Executive Officer

Rite Aid Corporation

Our Leadership

Barry M. Smith

Barry M. Smith

Chairman and
Chief Executive Officer

Jonathan N. Rubin

Jonathan N. Rubin

Chief Financial Officer

Daniel N. Gregoire

Daniel N. Gregoire

General Counsel
and Secretary

Caskie Lewis-Clapper

Caskie Lewis-Clapper

Chief Human
Resources Officer

Sam K. Srivastava

Sam K. Srivastava

Chief Executive Officer
Magellan Healthcare

Mostafa Kamal

Mostafa Kamal

Chief Executive Officer
MagellanRx Management

Karen S. Amstutz, M.D.

Karen S. Amstutz, M.D.

Chief Medical Officer

Srini Koushik

Srini Koushik

Chief Technology Officer

Stewart LaVelle

Stewart LaVelle

Chief Sales and
Marketing Officer

Shareholder Information

Corporate Headquarters

4800 North Scottsdale Road, Suite 4400
Scottsdale, AZ 85251
MagellanHealth.com

Auditors

Ernst & Young LLP
Baltimore, Maryland

Stock Listing

Symbol: MGLN
NASDAQ Stock Exchange

Transfer Agent

American Stock Transfer & Trust Company
6201 15th Avenue, Brooklyn, New York 11219
Toll Free: 800-937-5449
Local/International: 718-921-8124
Website: amstock.com
E-mail: info@amstock.com

Our transfer agent can help with a variety of shareholder-related services, including:

  • Change of address
  • Lost stock certificates
  • Transfer of stock to another person
Investor Relations

This annual report, along with a variety of other financial materials, can be viewed at MagellanHealth.com. Inquiries may be directed to the Magellan Investor Relations Group at 877-645-6464 or ir@MagellanHealth.com.

Annual Meeting

Magellan’s annual shareholder meeting will be held on May 18, 2016 at The Phoenician, 6000 East Camelback Road, Scottsdale, Arizona 85251. The meeting will begin at 7:30 a.m., local time.

Safe Harbor Statement

Certain of the statements made in this report constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995 and are qualified in their entirety by the complete discussion of risks set forth in the section entitled “Risk Factors” in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2015.