MAGELLAN HEALTH, INC.

REPORT ON FORM 10-K

10‑K

For the Fiscal Year Ended December 31, 2014
2017

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PART I

Cautionary Statement Concerning Forward-LookingForward‑Looking Statements

This Form 10-K10‑K includes "forward-looking statements"“forward‑looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). Examples of forward-lookingforward‑looking statements include, but are not limited to, statements the Company (as defined below) makes regarding our future operating results and liquidity needs. Although the Company believes that its plans, intentions and expectations reflected in such forward-lookingforward‑looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Prospective investors are cautioned that any such forward-lookingforward‑looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-lookingforward‑looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-lookingforward‑looking statements are set forth under the heading "Risk Factors"“Risk Factors” in Item 1A and elsewhere in this Form 10-K.10‑K. When used in this Form 10-K,10‑K, the words "estimate," "anticipate," "expect," "believe," "should"“estimate,” “anticipate,” “expect,” “believe,” “should” and similar expressions are intended to be forward-lookingforward‑looking statements.

Any forward-lookingforward‑looking statement made by the Company in this Form 10-K10‑K speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-lookingforward‑looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

You should also be aware that while the Company from time to time communicates with securities analysts, the Company does not disclose to them any material non-publicnon‑public information, internal forecasts or other confidential business information. Therefore, to the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not the Company'sCompany’s responsibility and are not endorsed by the Company. You should not assume that the Company agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report.

Item 1.    Business

Magellan Health, Inc. ("Magellan"(“Magellan”) is a leader within the healthcare management business, and is focused on delivering innovative specialty solutions for the fastest growing, most complex areas of health, including special populations, complete pharmacy benefits, and other specialty carve-out areas of healthcare. The Company develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers we serve. The Company provides services to health plans and other managed care organizations (“MCOs”), employers, labor unions, various military and governmental agencies and third party administrators (“TPAs”). Magellan operates three segments: Healthcare, Pharmacy Management and Corporate. In this report, references to the “Company” include Magellan and its subsidiaries. Magellan was incorporated in 1969 under the laws of the State of Delaware. Magellan's executive offices are located at 4800 Scottsdale Road, Suite 4400, Scottsdale, Arizona 85251,

Healthcare

The Healthcare segment (“Healthcare”) is broken down into two reporting units – Commercial and its telephone number at that location is (602) 572-6050. References in this report to the "Company"Government.

The Commercial reporting unit’s customers include health plans, accountable care organizations (“ACOs”), and employers for whom Magellan provides carve-out management services for behavioral health, employee assistance plans (“EAP”), and its subsidiaries.

Business Overview

        The Company is engaged in the healthcare management business, and is focused on meeting needs inother areas of specialty healthcare thatincluding diagnostic imaging, musculoskeletal management, cardiac, and physical medicine. These management services are fast growing, highlyapplied to a health plan’s or ACO’s entire book of business including commercial, Medicaid and Medicare members or targeted complex populations basis.

The Government reporting unit contracts with local, state and high cost, with an emphasis on special population management. The Company providesfederal governmental agencies to provide services to health plansrecipients under Medicaid, Medicare and other managed care organizations ("MCOs"), employers, labor unions, various militarygovernment programs. Currently these management services include behavioral health and governmental agencies, third party administrators, consultants and brokers.EAP. The Company's business is divided into the following five segments, based on the services it provides and/or the customers that it serves, as described below.

Managed Healthcare

        Two of the Company's segments are in the managed healthcare business. This line of business reflects the Company's: (i) management of behavioral healthcaretotal medical cost, as well as long term support services, and (ii) the integrated management of physical, behavioral and pharmaceutical healthcare for special populations is delivered through Magellan Complete Care ("MCC"(“MCC”). The Company'sThese special populations include individuals with

serious mental illness (“SMI”), dual eligibles, aged, blind and disabled (“ABD”) and other populations with unique and often complex healthcare needs.

Magellan’s coordination and management of physicalthese healthcare and behavioral healthcare includeslong term support services are provided through its comprehensive network of medical and

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behavioral health professionals, clinics, hospitals, skilled nursing facilities, home care agencies and ancillary service providers. This network of credentialed and privileged providers is integrated with clinical and quality improvement programs to improve access to care and enhance the healthcare experience for individuals in need of care, while at the same time managingmaking the cost of these services more affordable for our customers. The treatment services provided through the Company's provider network include outpatient programs, intermediate care programs, inpatient treatment and crisis intervention services. The Company generally does not directly provide or own any provider of treatment services, although it does employ licensed behavioral health counselors to deliver non-medicalnon‑medical counseling under certain government contracts.

        The Company's integrated management of physical and behavioral healthcare includes full service health plans which provide for the holistic management of special populations. These special populations include individuals with serious mental illness ("SMI"), those covered under both Medicare and Medicaid (dual eligibles), those eligible for long term care and other populations with unique and often complex healthcare needs.

The Company provides its Healthcare management services primarily through: (i) risk-basedrisk‑based products, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed per member per month fee, or  (ii) administrative services only ("ASO"(“ASO”) products, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, (iii) employee assistance programs ("EAPs") where the Company provides short-term outpatient behavioral counseling services.

        The managed healthcare business includes the following two segments, which are differentiated based on the services provided and/or the customers served:

        Commercial.    The Managed Healthcare Commercial segment ("Commercial") generally reflects managed behavioral healthcare services and EAP services provided under contracts with health plans, insurance companies and MCOs forin some or all of their commercial, Medicaid and Medicare members, as well as with employers, including corporations, governmental agencies, military and labor unions. Commercial's contracts encompass risk-based, ASO and EAP arrangements. As of December 31, 2014, Commercial's covered lives were 2.7 million, 14.3 million and 13.3 million for risk-based, ASO and EAP products, respectively. For the year ended December 31, 2014, Commercial's revenue was $362.6 million, $127.0 million and $184.4 million for risk-based, ASO and EAP products, respectively.

        Public Sector.    The Managed Healthcare Public Sector segment ("Public Sector") generally reflects: (i) the management of behavioral health services provided to recipients under Medicaid and other state sponsored programs under contracts with state and local governmental agencies, and (ii) the integrated management of physical, behavioral and pharmaceutical care for special populations covered under Medicaid and other government sponsored programs. Public Sector contracts encompass either risk-based or ASO arrangements. As of December 31, 2014, Public Sector's covered lives were 1.4 million and 1.8 million for risk-based and ASO products, respectively. For the year ended December 31, 2014, Public Sector's revenue was $1.6 billion and $55.6 million for risk-based and ASO products, respectively.

Specialty Solutions

        The Specialty Solutions segment ("Specialty Solutions") generally reflects the management of the delivery of diagnostic imaging (radiology benefits management or "RBM") andinstances, a variety of other specialty areas such as radiation oncology, obstetrical ultrasound, cardiology and musculoskeletal management to ensure that such services are clinically appropriate and cost effective. The Company's Specialty Solutions services are currently provided under contracts with health plans and insurance companies for some or all of their commercial, Medicaid and Medicare members. The Company also contracts with state and local governmental agencies for the provision of such services to Medicaid

Employee Retirement Income Security Act ("ERISA"(“ERISA”)

Certain of the Company'sCompany’s services are subject to the provisions of ERISA. ERISA governs certain aspects of the relationship between employer-sponsoredemployer‑sponsored healthcare benefit plans and certain providers of services to such plans through a series of complex laws and regulations that are subject to periodic interpretation by the Internal Revenue Service ("IRS"(“IRS”) and the U.S. Department of Labor ("DOL"(“DOL”). In

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some circumstances, and under certain customer contracts, the Company may be expressly named as a "fiduciary"“fiduciary” under ERISA, or be deemed to have assumed duties that make it an ERISA fiduciary, and thus be required to carry out its operations in a manner that complies with ERISA in all material respects. In other circumstances, particularly in the administration of pharmacy benefits, the Company does not believe that its services are subject to the fiduciary obligations and requirements of ERISA. In addition, the DOL has not yet finalized guidance regarding whether discounts and other forms of remuneration from pharmaceutical manufacturers are required to be reported to ERISA-governedERISA‑governed plans in connection with ERISA reporting requirements.

Numerous states require the licensing or certification of entities performing utilization review, TPA and PBM activities; however, certain federal courts have held that such licensing requirements are preempted by ERISA. ERISA preempts state laws that mandate employee benefit structures or their administration, as well as those that provide alternative enforcement mechanisms. The Company believes that its TPA activities performed for its self-insuredself‑insured employee benefit plan customers are exempt from otherwise applicable state licensing or registration requirements based upon federal preemption under ERISA and have relied on this general principle in determining not to seek licenses for certain of the Company'sCompany’s activities in some states. Existing case law is not uniform on the applicability of ERISA preemption with respect to state regulation of utilization reviewPBM or TPA activities. In some states, the Company has licensed its self-fundedself‑funded pharmacy related business as a TPA or PBM after a review of state regulatory requirements and case law. There can be no assurance that additional licenses will not be required with respect to utilization review or TPA activities in certain states.

Some of the state regulatory requirements described herein may be preempted in whole or in part by ERISA, which provides for comprehensive federal regulation of employee benefit plans. However, the scope of ERISA preemption is uncertain and is subject to conflicting court rulings. As a result, the Company could be subject to overlapping federal and state regulatory requirements with respect to certain of its operations and may need to implement compliance programs that satisfy multiple regulatory regimes. The Company believes that it is in compliance with ERISA and that such compliance does not currently have a material adverse effect on its operations. However, thereThere can be no assurance that continuing ERISA compliance efforts or any future changes to ERISA will not have a material adverse effect on the Company.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"(“HIPAA”) and Other Privacy Regulation

HIPAA requires the Secretary of the Department of Health and Human Services ("HHS") to adoptpromulgated standards relating to the transmission, privacy and security of health information by healthcare providers and healthcare plans. Confidentiality and patient privacy requirements are particularly strict in the Company'sCompany’s behavioral managed care business. Oversight responsibilities for HIPAA compliance are handled by the Company's Corporate Compliance Department. The Company believes it is currently in compliance with the provisions of HIPAA.

The Health Information Technology for Economic and Clinical Health Act ("(“HITECH Act"Act”), passed as part of the American Recovery and Reinvestment Act of 2009, representsrepresented a significant expansion of the HIPAA privacy and security laws. The HITECH Act provisions contain multiple effective dates. The Company believes it is currently in compliance with those provisions of the HITECH Act and associated regulations that are currently in effect including the January 2013 "Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules under the Health Information Technology for Economic and Clinical Health Act" Rule, and will be in compliance with those portions of the law and regulations that become effective in the future. The Company believes that it can comply with future changes in these laws and regulations; however, there can be no assurance that compliance with such future laws and regulations would not have a material adverse effect on its operations.

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        The privacy regulation under HIPAA generally does not preempt state law except under the following limited circumstances: (i) the privacy rights afforded under state law are contrary to those provided by HIPAA so that compliance with both standards is not possible and (ii) HIPAA's privacy protections are more stringent than the state law in question. Becauselaw. Therefore, because many states have privacy laws that either provide more stringent privacy protections than those imposed by HIPAA, or laws that can be followed in addition to HIPAA, the Company must address privacy issues under HIPAA and state law as well. The Company believes it is in compliance with all applicablethose state laws governing privacy and security.as well.

In addition to HIPAA and the HITECH Act, the Company is also subject to federal laws and regulations governing patient records involving substance abuse treatment, as well as other federal privacy laws and regulations. The Company believes

There can be no assurance that it is currently in compliance with these applicablesuch future laws and regulations.regulations would not have a material adverse effect on its operations.

Fraud, Waste and Abuse Laws

The Company is subject to federal and state laws and regulations protecting against fraud, waste and abuse. Fraud, waste and abuse prohibitions cover a wide range of activities, including kickbacks and other inducements for referral of members or the coverage of products, billing for unnecessary services by a healthcare provider and improper marketing. Companies involved in public health carehealthcare programs such as Medicare and Medicaid are required to maintain compliance programs to detect and deter fraud, waste and abuse, and are often subject to audits. The regulations and contractual requirements applicable to the Company in relation to these programs are complex and subject to change.

The federal healthcare Anti-KickbackAnti‑Kickback Statute (the "Anti-Kickback Statute"“Anti‑Kickback Statute”) prohibits, among other things, an entity from paying or receiving, subject to certain exceptions and "safe“safe harbors,"” any remuneration, directly or indirectly, to induce the referral of individuals covered by federally funded healthcare programs, or the purchase, or the arranging for or recommending of the purchase, of items or services for which payment may be made in whole, or in part, under Medicare, Medicaid, TRICARE or other federally funded healthcare programs. Sanctions for violating the Anti-KickbackAnti‑Kickback Statute may include imprisonment, criminal and civil fines and exclusion from participation in the federally funded healthcare programs. The Anti-KickbackAnti‑Kickback Statute has been interpreted broadly by courts, the Office of Inspector General ("OIG"(“OIG”) within, the U.S. Department of Health and Human Services ("DHHS"(“DHHS”), and other administrative bodies.

It also is a crime under the Public Contracts Anti-KickbackAnti‑Kickback Statute, for any person to knowingly and willfully offer or provide any remuneration to a prime contractor to the United States, including a contractor servicing federally funded health programs, in order to obtain favorable treatment in a subcontract. Violators of this law also may be subject to civil monetary penalties. There have been a series of substantial civil and criminal investigations and settlements, at the state and federal level, by pharmacy benefit managers over the last several years in connection with alleged kickback schemes.

The federal civil monetary penalty ("CMP"(“CMP”) statute provides for civil monetary penalties for any person who provides something of value to a beneficiary covered under a federal health carehealthcare program, such as Medicare or Medicaid, in order to influence the beneficiary'sbeneficiary’s choice of a provider. For example, our HMO and specialty pharmacy business are subject to the CMP statute.

ERISA, to which certain of our customers'customers’ services are subject, generally prohibits any person from providing to a plan fiduciary a remuneration in order to affect the fiduciary'sfiduciary’s selection of or decisions with respect to service providers. Unlike the federal healthcare Anti-KickbackAnti‑Kickback Statute, ERISA regulations do not provide specific safe harbors and its application may be unclear.

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The Federal Civil False Claims Act imposes civil penalties for knowingly making or causing to be made false claims with respect to governmental programs, such as Medicare and Medicaid, for services not rendered, or for misrepresenting actual services rendered, in order to obtain higher reimbursement. Private individuals may bringqui tam or whistleblower suits against providers under the Federal Civil False Claims Act, which authorizes the payment of a portion of any recovery to the individual bringing suit. Further, pursuant to the Patient Protection and Affordable Care Act ("ACA"(“ACA”), a violation of the Anti-KickbackAnti‑Kickback Statute is also a per se violation of the Federal Civil False Claims Act. The Federal Civil False Claims Act generally provides for the imposition of civil penalties and for treble damages, resulting in the possibility of substantial financial penalties for small billing errors.discrepancies. Criminal provisions that are similar to the Federal Civil False Claims Act provide that a corporation may be fined if it is convicted of presenting to any federal agency a claim or making a statement that it knows to be false, fictitious or fraudulent. Even in situations where the Company does not directly provide services to beneficiaries of federally funded health programs and, accordingly, does not directly submit claims to the federal government, it is possible that the Company could nevertheless become involved in a situation where false claim issues are raised based on allegations that it caused or assisted a government contractor in making a false claim.

The Company is subject to certain provisions of the Deficit Reduction Act of 2005 (the "Act"“Act”). The Act requires entities that receive $5 million or more in annual Medicaid payments to establish written policies that provide detailed information about the Federal Civil False Claims Act and the remedies thereunder, as well as any state laws pertaining to civil or criminal penalties for false claims and statements, the "whistleblower"“whistleblower” protections afforded under such laws, and the role of such laws in preventing and detecting fraud, waste and abuse. The written policies areCompany is also subject to be disseminated to all employees, contractors and agents which or who, on behalf of the entity, furnishes, or otherwise authorizes the furnishing of, Medicaid healthcare items or services, performs billing or coding functions, or is involved in the monitoring of healthcare provided by the entity. In addition, any such entity that has an employee handbook must include a specific discussion of the federal and state false claims laws, the rights of an employee to be protected as a whistleblower and the entity's policies and procedures for detecting and preventing fraud, waste, and abuse.

        On July 21, 2010, the President of the United States signed into lawThe Dodd-FrankDodd‑Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"(“Dodd‑Frank”). Under the law, those with independent knowledge of a financial fraud committed by a business required to report to the U.S. Securities and Exchange Commission ("SEC"(“SEC”) or the U.S. Commodity Futures Trading Commission ("CFTC"(“CFTC”) may be entitled to a percentage of the money recovered. Included in Dodd-FrankDodd‑Frank are provisions which protect employees of publicly traded companies from retaliation for reporting securities fraud, fraud against shareholders and violation of the SEC rules/regulations. Dodd-FrankDodd‑Frank also amends the Sarbanes-OxleySarbanes‑Oxley Act ("SOX"(“SOX”) and Federal Civil False Claims Act to expand their whistleblower protections. On May 25, 2011, the SEC adopted final rules (the "Rules") for the expanded whistleblower program established by Dodd-Frank. The Company believes it is in compliance with these Rules.

Many states have laws and/or regulations similar to the federal fraud, waste and abuse laws described above. Sanctions for violating these laws may include injunction, imprisonment, criminal and civil fines and exclusion from participation in the state Medicaid programs. The Company believeshas a corporate compliance and ethics program, policies and procedures and internal controls in place designed to ensure that it is in substantial compliance with the legal requirements imposed by such laws and regulations.Company conducts business appropriately. However, there can be no assurance that the Company will not be subject to scrutiny or challenge under such laws or regulations and that any such challenge would not have a material adverse effect on the Company'sCompany’s business, results of operations, financial condition or cash flows.

        The Company has a corporate compliance and ethics program, policies and procedures and internal controls in place designed to ensure that the Company conducts business appropriately, and the Company believes it is in substantial compliance with the legal requirements imposed by all of these laws and regulations. However, there can be no assurance that the Company will not be subject

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to scrutiny or challenge under such laws or regulations and that any such challenge would not have a material adverse effect on the Company's business, results of operations, financial condition or cash flows.

Mental Health Parity

        In October 2008, the United States Congress passed theThe Paul Wellstone and Pete Domenici Mental Health Parity Act of 2008 ("MHPAEA"(“MHPAEA”) establishingestablishes parity in financial requirements (e.g. co-pays,, co‑pays, deductibles, etc.) and treatment limitations (e.g., limits on the number of visits) between mental health and substance abuse benefits and medical/surgical benefits for health plan members. This law does not require coverage for mental health or substance abuse disorders, but if coverage is provided it must be provided at parity. No specific disorders are mandated for coverage; health plans are able to define mental health and substance abuse to determine what they are going to cover. Under the ACA, non-grandfatherednon‑grandfathered individual and small group plans (both on and off of the Health Insurance Exchange) are required to provide mental health and substance useabuse disorder benefits as essential health benefits. These mandated benefits under the ACA must be provided at parity in these plans. Under the ACA, grandfathered individual plans are required to comply with parity if they offer behavioral health benefits. Grandfathered small group plans are exempt from requirements to provide essential health benefits and parity requirements. State mandated benefits laws are not preempted. The law applies to ERISA plans, Medicaid managed care plans and State Children'sChildren’s Health Insurance Program ("SCHIP"(“SCHIP”) plans. On February 2, 2010, the Department of the Treasury, the Department of Labor and the Department of Health and Human Services issued Interim Final Rules interpreting the MHPAEA ("IFR"). The IFR applies to ERISA plans and insured business. A State Medicaid Director Letter was issued in January 2013 discussing applicability of parity to Medicaid managed care plans, SCHIP plans and Alternative Benefit (Benchmark) Plans. It is possible that some states will change their behavioral health plan benefits or management techniques as a result of this letter. On November 13, 2013 the Department of the Treasury, the Department of Labor and the Department of Health and Human Services issued Final Rules on the MHPAEA.MHPAEA (“Final Rules”). The Health Insurance Exchange regulations provide that plans offered on the exchange must offer behavioral health benefits that are compliant with federal parity law. The IFR includedFinal Rules include some concepts not included under the statute including the requirement to conduct the parity review at the category level within the plan, introducing the concept of non-quantitativenon‑quantitative treatment limitations, and prohibiting separate but equal deductibles. The Final Rules affirmed the content of the IFR with a few changes and some additional clarifications on the regulator's intent. The Company believes it is in compliance with these requirements.  In March 2016, CMS promulgated a final rule on the requirementsapplication of parity to Medicaid Managed Care Plans, CHIP, and alternative benefit plans. Compliance with this rule was required on or after October 2, 2017.  The Company has been working with our state Medicaid customers on compliance with these rules.  On December 7, 2016, the IFR andCongress adopted the Twenty-First Century Cures Act, which codified some concepts in the Final Rules. The Company anticipates that a parity regulation relating to Managed Medicaid business will be released in 2015. The Company'sCompany’s risk contracts do allow for repricing to occur effective the same date that any legislation/regulation becomes effective if that legislation/regulation is projected to have a material effect on cost of care.

Health Care Reform

The ACA is a broad and sweeping piece of legislation creating numerous changes in the healthcare regulatory environment. To date, numerous regulations implementing provisionsSome of the regulations interpreting the ACA, have been released in addition to many requests for information, frequently asked questions and other informational notices. Some of these regulations, most notably the Medical Loss Ratio regulations, the Internal Claims and Appeals and External Review Processes Regulations, and Health Insurance Exchanges have an impact on the Company and its business. Others, such as the regulation on dependent coverage to age 26 and coverage of preventative health services, could impact the nature of the members that we serve and the utilization rates. Medicaid expansion under the ACA has had some impact on the Company'sCompany’s Medicaid business. The Company has behavioral health and radiology customers that are participating in the state and federal Health Insurance Exchanges. The Company has taken necessary steps to support our customers in their administration of these new plans. The

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Supreme Court will decide the issue of continuing to allow premium tax credits for enrollees in the states that have federally facilitated exchanges. If these credits are no longer permitted in the federally facilitated exchanges it will impact customers of the Company that are participating in these exchanges and the Company as a vendor to these plans.

The ACA also contains provisions related to fees that impact the Company'sCompany’s direct public sector contracts and provisions regarding the non-deductibilitynon‑deductibility of those fees. Our state public sector customers have made rate adjustments to cover the direct costs of these fees and a majority of the impact from non-deductibilitynon‑deductibility of such fees for federal income tax purposes. There may be some impact due to taxes paid for non-renewingnon‑renewing customers where the timing and amount of recoupment of these additional costs is uncertain. There can be no guarantees regarding this adjustment from our state public sector customers and these taxes and fees may have a material impact on the Company.

Federal and State Medicaid Laws and Regulations

The Company directly contracts with various states to provide Medicaid services to states. In addition, the Company directly contracts with various states to provide Medicaid managed care services to state Medicaid beneficiaries. As such, it is subject to certain federal and state laws and regulations affecting Medicaid as well as state contractual requirements. TheIn addition to state regulation, certain Medicaid contracts require the Company believes itto maintain Medicare Advantage special needs plan status, which is in compliance with these laws, regulations, and contractual requirements.regulated by CMS.

The Company also is a sub-contractorsub‑contractor to health plans that provide Medicaid managed care services to state Medicaid beneficiaries. In the Company'sCompany’s capacity as a subcontractor with these health plans, the Company is indirectly subject to certain federal and state laws and regulations as well as contractual requirements pertaining to the operation of this business. If a state or a health plan customer determines that the Company has not performed satisfactorily as a subcontractor, the state or the health plan customer may require the Company to cease these activities or responsibilities under the subcontract. While the Company believes that it provides satisfactory levels of service under its respective subcontracts, the Company can give no assurances that a state or health plan will not terminate the Company'sCompany’s business relationships insofar as they pertain to these services.

On May 6, 2016, CMS published final regulations that significantly modified the existing federal Medicaid Managed Care and the SCHIP regulations. On June 30, 2017, CMS issued an Informational Bulletin regarding the applicable effective/compliance dates for the new Medicaid Managed Care and the SCHIP regulations. Magellan is working respectively with state Medicaid agencies and Medicaid Managed Care Plans (our Medicaid customers) to ensure ongoing compliance with those sections of the regulations that are specified as effective based on the determination made by the applicable state Medicaid agency.

In connection with its specialty pharmacyPBM business, the Company negotiates rebates with and provides services for drug manufacturers. The manufacturers which are subject to Medicaid "best price"“best price” regulations requiring essentially that the manufacturer provide its deepest level of discounts to the Medicaid program. In some instances, the government has challenged a manufacturer'smanufacturer’s calculation of best price and we cannot be certain what effect, if any, the outcome of any such investigation or proceeding will have on our ability to negotiate favorable terms.

Medicare Laws and Regulations

The Company is contracted with the CMS as a Medicare Advantage Organization (“MAO”) and Prescription Drug Plan (“PDP”) to provide health services and prescription drug benefits to Medicare beneficiaries. The regulations and contractual requirements applicable to the Company and other participants in Medicare programs are complex and subject to change. CMS regularly audits its contractors'contractors’ performance to determine compliance with contracts and CMS regulations, and to assess the quality of services provided to Medicare beneficiaries. The Company believes it substantially complies with all applicable federal laws, regulations and contractual requirements. However, CMS penalties for non-compliancenoncompliance include premium refunds, civil monetary penalties, prohibiting a company from continuing to market and/or enroll members in the company'scompany’s Medicare product,products, exclusion forfrom participation in federally funded healthcare programs and other sanctions.

In July 2017 CMS issued a civil monetary penalty against one of the Company’s subsidiaries for non-compliance with a contractual standard outlined in its Part D contract. In February 2018 CMS issued civil monetary penalties against this subsidiary for deficiencies cited as a result of CMS audits conducted in the 2nd and 3rd quarters of 2017. These penalties do not have a material impact on the Company nor its Part D business. The Company is also subcontractor to health plans that are Medicare Advantage OrganizationsMAOs and Medicare Prescription Drug Plans ("PDP") and provide benefits to Medicare beneficiaries.PDPs. In the Company'sCompany’s capacity as a subcontractor with these health plans, the Company administers benefits to Medicare beneficiaries and is indirectly subject to

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certain federal laws and regulations as well as contractual requirements pertaining to the operation of this business. If the CMS or a health plan customer determines that the Company has not performed satisfactorily as a subcontractor, CMS or the health plan customer may require the Company to cease these activities or responsibilities under the subcontract. While the Company believes that it provides satisfactory levels of service under its respective subcontracts, the Company can give no assurances that CMS or a health plan will not terminate the Company'sCompany’s business relationships insofar as they pertain to these services.

 The Company was approved by CMS to operate a Medicare PDP with respect to employer/union groups, beginning January 1, 2015. The Company has also applied to CMS to operate a PDP and offer Medicare Part D benefits to individual eligible beneficiaries in various CMS Regions. CMS has issued significant interpretive regulations and guidance regarding PDPs to which the Company is directly subject. If CMS determines that the Company has not performed satisfactorily, CMS may require the Company to cease its Part D activities or responsibilities under the contract. The Company can give no assurance as to whether its application will be approved. However, the Company believes that it will be in compliance with these requirements if approval is obtained and business operations commence.

        Moreover, in relation to its pharmaceutical management business, the Company contracts with PDPs and MA-PD plans (collectively, "Part D Plans") to provide various services. In the Company's capacity as a subcontractor with certain Part D Plan clients, the Company is subject to certain federal rules, regulations, and sub-regulatory guidance pertaining to the operation of Medicare Part D. If CMS or a Part D Plan determines that the Company has not performed satisfactorily as a subcontractor, CMS or the Part D Plan may require the Company to cease its Part D activities or responsibilities under the subcontract. While the Company believes that it provides satisfactory levels of service under its respective subcontracts, the Company can give no assurances that CMS or a Part D Plan will not terminate the Company's business relationships insofar as they pertain to Medicare Part D.

CMS requires Part D Plans to report all price concessions received for PBM services. The applicable CMS guidance requires Part D Plans to contractually require the right to audit their PBMs as well as require full transparency as to manufacturer rebates and administrative fees paid for drugs or services provided in connection with the sponsor'ssponsor’s plan, including the portion of such rebates retained by the PBM. Additionally, CMS requires Part D Plans to ensure through their contractual arrangements with first tier, downstream and related entities (which would include PBMs) that CMS has access to such entities'entities’ books and records pertaining to services performed in connection with Part D Plans. The CMS regulations also suggests that Part D Plans should contractually require their first tier, downstream and related entities to comply with certain elements of the Part D Plan'sPlan’s compliance program. The Company has not experienced, and does not anticipate, that such disclosure and auditing requirements, to the extent required by its Part D Plan partners, will have a materially adverse effect on the Company'sCompany’s business.

The Company expects CMS and the U.S. Congress to continue to closely scrutinize each component of the Medicare program, modify the terms and requirements of the program and possibly seek to limitmodify private insurers'insurers’ role. Therefore, it is not possible to predict the outcome of any Congressional or regulatory activity, either of which could have a material adverse effect on the Company.

Other Federal and State Laws and Regulations

Federal Laws and Regulations affecting Procurement.  The Company is subject to certain federal laws and regulations in connection with its contracts with the federal government. These laws and regulations affect how the Company conducts business with its federal agency customers and may impose added costs on its business. The Company'sCompany’s failure to comply with federal procurement laws and regulations could cause it to lose business, incur additional costs and subject it to a variety of civil

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and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to reputation, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. The Company’s wholly owned subsidiary, AFSC, conducts business with federal agency customers and federal contractors to such agencies. The Company believes that it is currently in the process of conducting an investigation into matters relating to compliance by AFSC with all applicable laws andSmall Business Administration (“SBA”) regulations and other federal laws applicable to government contractors, and the Company intends to make its findings available to the SBA during and upon concluding the investigation. The results of this investigation may give rise to contingencies, if any, that such compliance doescould require us to record balance sheet liabilities or accrue expenses, the amounts of which we are not able to currently have a material adverse effect on its operations.estimate. For 2017 AFSC’s total revenue comprised approximately 3% of the total revenues of the Company.

The Company also provides services to various state Medicaid programs. Services procurement related to Medicaid programs is governed in part by federal regulations because the federal government provides a substantial amount of funding for the services. The Company'sCompany’s state customers risk loss of federal funding if the Company is not in compliance with federal regulations. The Company's non-complianceCompany’s non‑compliance may also lead to unanticipated, negative financial consequences including corrective action plans or contract default risks. The Company believes the Company is in substantial compliance with various federal regulations and in compliance with contract provisions relating to the services provided by a commercial organization

        Federal PBM Transparency Laws.    Pursuant to the ACA, companies may participate in state and federally run health insurance exchanges. The Company has contracted to provide services to certain health insurance exchange products offered by insurers and may be subject to certain financial transparency and disclosure requirements. The ACA mandates that pharmacy benefit managers provide financial transparency and reporting in connection with Medicare Part D plans, as well as plans offered through exchanges. In the event that the Company is determined to be subject to these requirements, the Company does not anticipate that such requirements will have a materially adverse effect on the Company's business.

FDA Regulation.  The U.S. Food and Drug Administration ("FDA"(“FDA”) generally has authority to regulate drug promotional activities that are performed "by“by or on behalf of"of” a drug manufacturer. The Company's business includes the provision of educational seminars for prescribersCompany provides certain consulting and other of the Company's customers on behalf of manufacturer clientsrelated services to drug manufacturers and thus may be subject to the federal laws applicable to the promotion of prescription drugs. Therethere can be no assurance that the FDA will not attempt to assert jurisdiction over certain aspects of the Company's pharmaceutical management business in the future and, although the Company is not controlled directly or indirectly by any drug manufacturer, theCompany’s activities. The impact of future FDA regulation could materially adversely affect the Company's pharmaceutical managementCompany’s business, results of operations, financial condition or cash flows.

State PBM Regulation.  States continue to introduce broad legislation to regulate PBM activities. This legislation encompasses some of the productsservices offered by the pharmaceutical management business of the Company.Company’s PBM business. Legislation in this area is varied and encompasses licensing, audit provision,provisions, network access, recoupment of funds, submission of claims data to state all payor claims databases, potential fiduciary duties;duties, pass through of cost savings and disclosure obligations. The Districtobligations, including the disclosure of Columbia has enacted a statute designed to impose certain fiduciary obligations on entities providing PBM services, although a federal appeals court has heldinformation regarding the law to be pre-empted by ERISA. Maryland has also implemented comprehensive PBM registration and examination legislation. Other states require PBMs to registercompany’s maximum allowable cost pricing with the state or be licensed. The Company has obtained these licenses as necessary to support current business and future opportunities. Furthermore, numerous states subject PBMs to audit provisions and generally require certain financial disclosures.pharmacies. In some circumstances, claims or inquiries against PBMs have been asserted under state consumer protection laws, which exist in most states. The Company has obtained licenses as necessary to support current business and future opportunities. The various state laws do not appear to be havinghave a material adverse effect on the Company'sCompany’s pharmaceutical management business. However, the Company can give no assurance that these and other states will not enact legislation with more adverse consequences in the near future; nor can the Company be certain that future regulations or interpretations of existing laws will not adversely affect its business.

State Legislation Affecting Plan or Benefit Design.  Some states have enacted legislation that prohibits certain types of managed care plan sponsors from implementing certain restrictive formulary

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and network design features, and many states have legislation regulating various aspects of managed care plans, including provisions relating to pharmacy benefits. Other states mandate coverage of certain benefits or conditions and require health plan coverage of specific drugs, if deemed medically necessary by the prescribing physician. Such legislation does not generally apply to the Company directly, but may apply to certain clients of the Company, such as HMOs and health insurers. These types of laws would generally have an adverse effect on the ability of a PBM to reduce cost for its plan sponsor customers.

Prompt Pay Laws.  Under Medicare Part D and some state laws, the Company or customer may be required to pay network pharmacies within certain time periods and/or by electronic transfer instead of by check. The shorter time periods may negatively impact our cash flow. We cannot predict whether additional states will enact some form of prompt pay legislation.

Legislation and Regulation Affecting Drug Prices.  Specialty pharmaceutical manufacturers generally report various price metrics to the federal government, including "average“average sales price" ("ASP"price” (“ASP”), "average“average manufacturer price" ("AMP"price” (“AMP”) and "best price" ("BP"“best price” (“BP”). The Company does not calculate these price metrics, but the Company notes that the ASP, AMP and BP methodologies may create incentives for some drug manufacturers to reduce the levels of discounts or rebates available to purchasers, including the Company, or their clients with respect to specialty drugs. Any changes in the guidance affecting pharmaceutical manufacturer price metric calculations could materially adversely affect the Company'sCompany’s business.

Additionally, most of the Company'sCompany’s pharmacy benefit management and dispensing contracts with its customers use "average“average wholesale price" ("AWP"price” (“AWP”) as a benchmark for establishing pricing. At least one major third party publisher of AWP pricing data has ceased to publish such data in the past few years, and there can be no guarantee that AWP will continue to be an available pricing metric in the future. The discontinuance of AWP reporting by one data source has not had a material adverse affecteffect on the Company'sCompany’s results of operations and the Company expects that were AWP data to no longer be available, other equitable pricing measures would be available to avoid a material adverse impact on the Company'sCompany’s business. Separately, on a monthly basis CMS and several states have taken an interest in attemptingpublishes the National Average Drug Acquisition Cost (“NADAC”), a data set that purports to determineprovide the "actualaverage acquisition costs"cost of pharmacies. In 2012, CMS began conducting surveys and releasing preliminary dataretail drugs based on pharmacy acquisition costs.a nationwide voluntary survey of retail pharmacies. At this time, the Company does not anticipate that actual acquisition cost surveys or pricing shouldNADAC will materially adversely impact its operations, but it is too early to speculate what impact, if any, such a reimbursement shift might have in pharmacy reimbursement and/or costs in the future.

Regulations Affecting the Company'sCompany’s Pharmacies.  The Company owns twofive pharmacies that provide services primarily to members of certain of the Company'sCompany’s health plan customers. The activities undertaken by the Company'sCompany’s pharmacies subject the pharmacies to state and federal statutes and regulations governing, among other things, the licensure and operation of mail order and non-residentnonresident pharmacies, repackaging of drug products, stocking of prescription drug products and dispensing of prescription drug products, including controlled substances. The Company'sCompany’s pharmacy facilities are located in Florida, Utah and New York and are duly licensed to conduct business in those states. Many states, however, require out-of-stateout‑of‑state mail order pharmacies to register with or be licensed by the state board of pharmacy or similar governing body when pharmaceuticals are delivered by mail into the state, and some states require that an out-of-stateout‑of‑state pharmacy employ a pharmacist that is licensed in the state into which pharmaceuticals are shipped. The Company holds mail order and non-residentnonresident pharmacy licenses where required. The Company also maintains Medicare and Medicaid provider licenses where required for the pharmacies to provide services to these plans. In some states the Company is not able to obtain Medicaid licenses to dispense because those states require that the pharmacy have a physical location in the state to participate in the Medicaid network.

Regulation of Controlled Substances.  The Company'sCompany’s pharmacies must register with the United States Drug Enforcement Administration (the "DEA"“DEA”) and individual state controlled substance authorities in order to dispense controlled substances. Federal law requires the Company to comply with the DEA'sDEA’s security, recordkeeping, inventory control and labeling standards in order to dispense

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controlled substances. State controlled substance law requires registration and compliance with state pharmacy licensure, registration or permit standards promulgated by the state pharmacy licensing authority.authority and in some states drug database reporting requirements.

Employees of the Registrant

At December 31, 2014,2017, the Company had approximately 6,600 full-time10,700 full‑time and part-time employees. The Company believes it has satisfactory relations with itspart‑time employees.

History

        Magellan was incorporated in 1969 under the laws of the State of Delaware. The Company is engaged in the healthcare management business. Through 2005, the Company predominantly operated in the managed behavioral healthcare business. As a result of certain acquisitions and material growth since 2005, the Company expanded into integrated healthcare management for special populations, specialty solutions and pharmacy management.Available Information

Available Information

The Company makes its annual reports on Form 10-K,10‑K, quarterly reports on Form 10-Q,10‑Q, current reports on Form 8-K,8‑K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and Section 16 filings available, free of charge, on the Company'sCompany’s website atwww.magellanhealth.com as soon as practicable after the Company has electronically filed such material with, or furnished it to, the SEC. The information on the Company'sCompany’s website is not part of or incorporated by reference in this report on Form 10-K.

10‑K.

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Item 1A.  Risk Factors

Reliance on Customer Contracts—The Company'sCompany’s inability to renew, extend or replace expiring or terminated contracts could adversely affect the Company'sCompany’s liquidity, profitability and financial condition.

Substantially all of the Company'sCompany’s net revenue is derived from contracts that may be terminated immediately with cause and many, including some of the Company'sCompany’s most significant contracts, are terminable without cause by the customer upon notice and the passage of a specified period of time (typically between 60 and 180 days), or upon the occurrence of certain other specified events. The Company'sCompany’s ten largest customers accounted for 65.0approximately 50.0 percent, 63.143.9 percent and 52.240.3 percent of the Company'sCompany’s net revenue in the years ended December 31, 2012, 20132015, 2016 and 2014,2017, respectively. Loss of all of these contracts or customers would, and loss of any one of these contracts or customers could, materially reduce the Company'sCompany’s net revenue and have a material adverse effect on the Company'sCompany’s liquidity, profitability and financial condition.

See Note 2—“Summary of Significant Customers

Consolidated Company

        Through March 31, 2014, the Company provided behavioral healthcare management and other related services to approximately 680,000 members pursuantAccounting Policies—Significant Customers” to the Maricopa Contract. The Maricopa Contract wasconsolidated financial statements set forth elsewhere herein for the managementa discussion of the publicly funded behavioral health system that delivered mental health, substance abuse and crisis services for adults, youth, and children. The Maricopa Contract terminated on March 31, 2014. The Maricopa Contract generated net revenues of $758.3 million, $755.0 million and $216.6 million for the years ended December 31, 2012, 2013 and 2014, respectively.Company’s significant customers.

        The Iowa Contracts generated net revenues that exceeded, in the aggregate, ten percent of net revenues for the consolidated Company for the years ended December 31, 2014. The Company currently has two contracts; the Iowa Medicaid Contract and Iowa Medicaid Integrated Health Home Provider Agreement ("IHH Agreement"). Under the Iowa Medicaid Contract, the Company is responsible for providing managed mental health and substance abuse treatment to enrollees under a Medicaid 1915(b) waiver, as well as substance abuse treatment services plan funded by federal block grant and state appropriations under the authority of the Iowa Department of Public Health. The Iowa Health and Wellness Plan for members who qualify as an "exempt individual", as defined in 441 of the Iowa Administrative Code, were also added to the contract on January 1, 2014. The latest Iowa Medicaid Contract began on January 1, 2010 and extends through June 30, 2015 unless sooner terminated by the parties. The Iowa Department of Human Services and the Iowa Department of Public Health has the right to terminate the Iowa Medicaid Contract upon thirty days notice for any reason or no reason at all. We expect that the Iowa Medicaid Contract will be extended to coincide with the start date of new Iowa High Quality Healthcare Initiative, as discussed below, however there can be no assurance that the Iowa Medicaid Contract will be extended. Under the IHH Agreement, the Company establishes a health home for individuals identified with serious and persistent mental illness through enrolled provider organizations capable of providing enhanced care. The IHH Agreement began on July 1, 2013 and extends through June 30, 2016 unless sooner terminated by either party with 60 days notice for any reason or no reason at all. The IHH program is part of the new Iowa High Quality Healthcare Initiative and we expect that the end of the IHH agreement will coincide with the start date of the new initiative. The Iowa Contracts generated net revenues of $240.2 million, $321.1 million and $465.0 million for the years ended December 31, 2012, 2013 and 2014, respectively.

        On February 16, 2015 the Iowa Department of Human Services (the "Agency") released the Iowa High Quality Healthcare Initiative Request for Proposal ("RFP"). The Agency intends to contract on a statewide basis with two to four successful bidders with a demonstrated capacity to coordinate care and provide quality outcomes for the Medicaid and Children's Health Insurance Program ("CHIP")

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populations. The program will enroll the majority of the Iowa Medicaid and CHIP populations and will also provide services for individuals qualifying for Iowa Department of Public Health ("IDPH") funded substance abuse services. The anticipated start of the contract is January 1, 2016 for an initial period of three years and the ability for the Agency to extend the contract for two additional two year terms. The RFP includes the services provided by the Company's current Iowa Contracts. The Company intends to submit a proposal on this RFP. There can be no assurance that the Company will be awarded a contract pursuant to the RFP, or that the terms of any contract awarded pursuant to the RFP will be similar to the current Iowa Contracts.

By Segment

        In addition to the Maricopa Contract and the Iowa Contracts previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the years ended December 31, 2012, 2013 and 2014 (in thousands):

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Concentration of Business

        The Company also has a significant concentration of business with various counties in the State of Pennsylvania (the "Pennsylvania Counties") which are part of the Pennsylvania Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $354.1 million, $359.0 million and $369.9 million for the years ended December 31, 2012, 2013 and 2014, respectively.

Integration of Companies Acquired by Magellan—The Company'sCompany’s profitability could be adversely affected if the integration of companies acquired by Magellan is not completed in a timely and effective manner.

One of the Company'sCompany’s growth strategies is to make strategic acquisitions which are complementary to its existing operations. After Magellan closes on an acquisition, it must integrate the acquired company into Magellan'sMagellan’s policies, procedures and systems. Failure to effectively integrate an acquired business or the failure of the acquired business to perform as anticipated could result in excessive costs being incurred, a delay in obtaining targeted synergies, decreased customer performance (which could result in contract penalties and/or terminations), increased employee turnover, and lost sales opportunities. Finally, difficulties assimilating acquired operations and services could result in the diversion of capital and management'smanagement’s attention away from other business issues and opportunities.

Changes in the Medical Managed Care Carve-OutCarve‑Out Industry—Certain changes in the business practices of this industry could negatively impact the Company'sCompany’s resources, profitability and results of operations.

        Substantially allA portion of the Company's Commercial, Specialty SolutionsCompany’s Healthcare and Pharmacy Management segments'segments’ net revenues are derived from customers in the medical managed healthcare industry, including managed care companies, health insurers and other health plans. Some types of changes in this industry'sindustry’s business practices could negatively impact the Company. For example, if the Company'sCompany’s managed care customers seek to provide services directly to their subscribers, instead of contracting with the Company for such services, the Company could be adversely affected. In this regard, certain of the Company'sCompany’s major customers in the past have not renewed all or part of their contracts with the Company, and instead provided managed healthcare services directly to their subscribers. Other of the Company's customers that are managed care companies could also seek to provide services directly to their subscribers, rather than by contracting with the Company for such services. In addition, the Company has a significant number of contracts with Blue Cross Blue Shield plans and other regional health plans. Consolidation of the healthcare industry through acquisitions and mergers could potentially result in the loss of contracts for the Company. Any of these changes could reduce the Company'sCompany’s net revenue, and adversely affect the Company'sCompany’s profitability and financial condition.

Changes in the Contracting Model for Medicaid Contracts—Certain changes in the contracting model used by states for managed healthcare services contracts relating to Medicaid lives could negatively impact the Company'sCompany’s resources, profitability and results of operations.

        Substantially allA portion of the Company's Public SectorCompany’s Healthcare segment net revenue is derived from direct contracts that it has with state or county governments for the provision of services to Medicaid

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enrollees. Certain states have recently contracted with managed care companies to manage both the behavioral and physical medical care of their Medicaid enrollees. If other governmental entities change the method for contracting for Medicaid business to a fully integrated model, the Company will attempt to subcontract with the managed care organizations to provide behavioral healthcare management for such Medicaid business; however, there is no assurance that the Company would be able to secure such arrangements. Alternatively, the Company may choose to pursue licensure as a health plan to bid on this integrated business. Accordingly, if such a change in the contracting model were to occur, it is possible that the Company could lose current contracted revenues, as well as be unable to bid on potential new business opportunities, thus negatively impacting the Company'sCompany’s profitability and financial condition.

Risk-BasedRisk‑Based Products—Because the Company provides services at a fixed fee, if the Company is unable to maintain historical margins, or is unable to accurately predict and control healthcare costs, the Company'sCompany’s profitability could decline.

The Company derives its net revenue primarily from arrangements under which the Company assumes responsibility for costs of treatment in exchange for a fixed fee. The Company refers to such arrangements as "risk-based contracts"“risk‑based contracts” or "risk-based“risk‑based products,"” which include EAP services. These arrangements provided 78.358.8 percent, 79.449.1 percent and 67.849.6 percent of the Company'sCompany’s net revenue in the years ended December 31, 2012, 20132015, 2016 and 2014,2017, respectively.

The profitability of the Company'sCompany’s risk contracts could be reduced if the Company is unable to maintain its historical margins. The competitive environment for the Company'sCompany’s risk products could result in pricing pressures which cause the Company to reduce its rates. In addition, customer demands or expectations as to margin levels could cause the Company to reduce its rates. A reduction in risk rates which are not accompanied by a reduction in services covered or expected underlying care trend could result in a decrease in the Company'sCompany’s operating margins.

Profitability of the Company'sCompany’s risk contracts could also be reduced if the Company is unable to accurately estimate the rate of service utilization by members or the cost of such services when the Company prices its services. The Company'sCompany’s assumptions of utilization and costs when the Company prices its services may not ultimately reflect actual utilization rates and costs, many aspects of which are beyond the Company'sCompany’s control. If the cost of services provided to members under a contract together with the administrative costs exceeds the aggregate fees received by the Company under such contract, the Company will incur a loss on the contract.

The Company'sCompany’s profitability could also be reduced if the Company is required to make adjustments to estimates made in reporting historical financial results regarding cost of care, reflected in the Company'sCompany’s financial statements as medical claims payable. Medical claims payable includes reserves for incurred but not reported ("IBNR"(“IBNR”) claims, which are claims for covered services rendered by the Company'sCompany’s providers which have not yet been submitted to the Company for payment. The Company estimates and reserves for IBNR claims based on past claims payment experience, including the average interval between the date services are rendered and the date the claims are received and between the date services are rendered and the date claims are paid, enrollment data, utilization statistics, adjudication decisions, authorized healthcare services and other factors. This data is incorporated into contract-specificcontract‑specific reserve models. The estimates for submitted claims and IBNR claims are made on an accrual basis and adjusted in future periods as required. If such risk-basedrisk‑based products are not correctly underwritten, the Company'sCompany’s profitability and financial condition could be adversely affected.

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Factors that affect the Company'sCompany’s ability to price the Company'sCompany’s services, or accurately make estimates of IBNR claims and other expenses for which the Company creates reserves may include differences between the Company'sCompany’s assumptions and actual results arising from, among other things:

•

changes in the delivery system;



•

changes in utilization patterns;



•

changes in the number of members seeking treatment;



•

unforeseen fluctuations in claims backlogs;



•

unforeseen increases in the costs of the services;



•

the occurrence of catastrophes;



•

regulatory changes; and



•

changes in benefit plan design.

Some of these factors could impact the ability of the Company to manage and control the medical costs to the extent assumed in the pricing of its services.

If the Company'sCompany’s membership in risk-basedrisk‑based business continues to grow (which is a major focus of the Company'sCompany’s strategy), the Company'sCompany’s exposure to potential losses from risk-basedrisk‑based products will also increase.

Expansion of Risk-BasedRisk‑Based Products—Because the Company intends to expandcontinue its expansion into clinically integrated management of special populations eligible for Medicaid and Medicare including individuals with SMI, and other unique high-costhigh‑cost populations, if the Company is unable to accurately underwrite the healthcare cost risk for this new business and control associated costs, the Company'sCompany’s profitability could decline.

The Company believes that it can leverage its information systems, call center, claims and network infrastructure as well as its financial strength and underwriting expertise to facilitate the development of risk product offerings to states that include behavioral healthcare and physical medical care for their special Medicaid and dual eligible populations, particularly individuals with SMI. As this represents athe Company expands into new business for the Company,markets, the Company will incur start-upstart‑up costs to develop and grow this business. The Company'sCompany’s profitability may be negatively impacted until such time that sufficient business is generated to offset these start-upstart‑up costs.

Furthermore, since this is a new business foras the Company expands into new markets, there is an increased risk associated with the underwriting and implementation for this business. Profitability of any such business could be adversely affected if the Company is unable to accurately estimate the rate of service utilization or the cost of such services when the Company prices its services. The Company'sCompany’s assumptions of utilization and costs when the Company prices its services may not ultimately reflect actual utilization rates and costs, many aspects of which are beyond the Company'sCompany’s control. If the cost of services provided to members under a contract together with the administrative costs exceeds the aggregate fees received by the Company under such contract, the Company will incur a loss on the contract.

The Company may partner with managed care organizations to create joint ventures in some states. Conflicts or disagreements between the Company and any joint venture partner may negatively impact the benefits to be achieved by the relevant joint venture or may ultimately threaten the ability of any such joint venture to continue. The Company is also subject to additional risks and uncertainties because the Company may be dependent upon, and subject to, liability, losses or reputational damage relating to systems, controls and personnel that are not entirely under the Company'sCompany’s control.

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Provider Agreements—Failure to maintain or to secure cost-effectivecost‑effective healthcare provider contracts may result in a loss of membership or higher medical costs.

The Company'sCompany’s profitability depends, to an extent, upon the ability to contract favorably with certain healthcare providers. The Company may be unable to enter into agreements with providers in new markets on a timely basis or under favorable terms. If the Company is unable to retain its current provider contracts or enter into new provider contracts timely or on favorable terms, the Company'sCompany’s profitability could be reduced. The Company cannot provide any assurance that it will be able to continue to renew its existing provider contracts or enter into new contracts.

Pharmacy Management—Loss of Relationship with Providers—If we lose our relationship, or our relationship otherwise changes in an unfavorable manner, with one or more key pharmacy providers or if significant changes occur within the pharmacy provider marketplace, or if other issues arise with respect to our pharmacy networks, our business could be adversely affected.

Our operations are dependent to a significant extent on our ability to obtain discounts on prescription purchases from retail pharmacies that can be utilized by our clients and their members. Our contracts with retail pharmacies, which are non-exclusive,non‑exclusive, are generally terminable by either party on short notice. If one or more of our top pharmacy chains elects to terminate its relationship with us, or if we are only able to continue our relationship on terms less favorable to us, access to retail pharmacies by our clients and their health plan members, and consequently our business, results of operations, financial condition or cash flows could be adversely affected.

Pharmacy Management—Loss of Relationship with Vendors—Our specialty pharmacies, pharmacy claims processing, and mail processing are dependent on our relationships with a limited number of vendors and suppliers and the loss of any of these relationships could significantly impact our ability to sustain our financial performance.

We acquire a substantial percentage of our specialty pharmacies prescription drug supply from a limited number of suppliers. Our agreements with these suppliers may be short-termshort‑term and cancelable by either party without cause with a relatively short time-frametime‑frame of prior notice. These agreements may limit our ability to provide services for competing drugs during the term of the agreement and allow the supplier to dispense through channels other than us. Further, certain of these agreements allow pricing and other terms of these relationships to be periodically adjusted for changing market conditions or required service levels. A termination or modification to any of these relationships could have an adverse effect on our business, financial condition and results of operations. An additional risk related to supply is that many products dispensed by our specialty pharmacy business are manufactured with ingredients that are susceptible to supply shortages. If any products we dispense are in short supply for long periods of time, this could result in a material adverse effect on our business, financial condition and results of operations. Further, we source from a limited number of vendors certain aspects of our pharmacy claims and mail processing capabilities. An interruption of service, termination or modification to the terms to any of these agreements may adversely affect our business and financial condition.

Pharmacy Management—Loss of Relationship with Manufacturers—If we lose relationships with one or more key pharmaceutical manufacturers or third party rebate administrators or if rebate payments we receive from pharmaceutical manufacturers and rebate processing service providers decline, our business, results of operations, financial condition or cash flows could be adversely affected.

We receive fees from our clients for administering rebate programs with pharmaceutical manufacturers based on the use of selected drugs by members of health plans sponsored by our clients,

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as well as fees for other programs and services. Our business, results of operations, financial condition or cash flows could be adversely affected if:

•

we lose relationships with one or more key pharmaceutical manufacturers or third party rebate administrators;



•

we are unable to renew or finalize rebate contracts with one or more key pharmaceutical manufacturers in the future, or are unable to negotiate interim arrangements;



•

rebates decline due to the failure of our health plan sponsors to meet market share or other thresholds;



•

legal restrictions are imposed on the ability of pharmaceutical manufacturers to offer rebates or purchase our programs or services;



•

pharmaceutical manufacturers choose not to offer rebates or purchase our programs or services; or



•

rebates decline due to contract branded products losing their patients.

Fluctuation in Operating Results—The Company experiences fluctuations in quarterly operating results and, as a consequence, the Company may fail to meet or exceed market expectations, which could cause the Company'sCompany’s stock price to decline.

The Company'sCompany’s quarterly operating results have varied in the past and may fluctuate significantly in the future due to seasonal and other factors, including:

•

changes in utilization levels by enrolled members of the Company's risk-based contracts, including seasonal utilization patterns (for example, members generally tend to seek services less during the third and fourth quarters of the year than in the first and second quarters of the year);



•

performance-based contractual adjustments to net revenue, reflecting utilization results or other performance measures;



•

changes in estimates for contractual adjustments under commercial contracts;



•

retrospective membership adjustments;



•

the timing of implementation of new contracts and enrollment changes; and



•

changes in estimates regarding medical costs and IBNR claims.

These factors may affect the Company'sCompany’s quarterly and annual net revenue, expenses and profitability in the future and, accordingly, the Company may fail to meet market expectations, which could cause the Company'sCompany’s stock price to decline.

Dependence on Government Spending—The Company can be adversely affected by changes in federal, state and local healthcare policies, programs, funding and enrollments.

        All of the Company's Public Sector segment net revenue, and aA portion of the Company'sCompany’s net revenue in the Company's other segmentsrevenues are derived, directly or indirectly, from governmental agencies, including state Medicaid programs. Contract rates vary from state to state, are subject to periodic negotiation and may limit the Company'sCompany’s ability to maintain or increase rates. The Company is unable to predict the impact on the Company'sCompany’s operations of future regulations or legislation affecting Medicaid programs, or the healthcare industry in general. Future regulations or legislation may have a material adverse effect on the Company. Moreover, any reduction in government spending for such programs could also have a material adverse effect on the Company (See "Reliance“Reliance on Customer

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Contracts" Contracts”). In addition, the Company'sCompany’s contracts with federal, state and local governmental agencies, under both direct contract and subcontract arrangements, generally are conditioned upon financial appropriations by one or more governmental agencies, especially in the case of state Medicaid programs. These contracts generally can be terminated or modified by the customer if such appropriations are not made. The Company faces increased risks in this regard as state budgets have come under increasing pressure due to the recent economic downturn.pressure. Finally, some of the Company'sCompany’s contracts with federal, state and local governmental agencies, under both direct contract and subcontract arrangements, require the Company to perform additional services if federal, state or local laws or regulations imposed after the contract is signed so require, in exchange for additional compensation, to be negotiated by the parties in good faith. Government and other third-partythird‑party payors generally seek to impose lower contract rates and to renegotiate reduced contract rates with service providers in a trend toward cost control.

Restrictive Covenants in the Company'sCompany’s Debt Instruments—Restrictions imposed by the Company'sCompany’s debt agreements limit the Company'sCompany’s operating and financial flexibility. These restrictions may adversely affect the Company'sCompany’s ability to finance the Company'sCompany’s future operations or capital needs or engage in other business activities that may be in the Company'sCompany’s interest.

On July 23, 2014,September 22, 2017, the Company completed the public offering of $400.0 million aggregate principal amount of its 4.400% Senior Notes due 2024 (the “Notes”). The Notes are governed by an indenture, dated as of September 22, 2017 (the “Base Indenture”), between the Company, as issuer and U.S. Bank National Association, as trustee, as supplemented by a first supplemental indenture, dated as of September 22, 2017 (the “First Supplemental Indenture” together, with the Base Indenture, the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee.

The Indenture contains certain covenants which restrict the Company’s ability to, among other things, create liens on its and its subsidiaries’ assets; engage in sale and lease-back transactions; and engage in a consolidation, merger or sale of assets.

On September 22, 2017, the Company entered into a $500.0 million Credit Agreementcredit agreement with various lenders that provides for Magellan Rx Management, Inc. (a wholly owned subsidiary of Magellan Health, Inc.)a $400.0 million senior unsecured revolving credit facility and a $350.0 million senior unsecured term loan facility to borrow up to $250.0 million of revolving loans, with a sublimit of up to $70.0 million for the issuance of letters of credit for the account of the Company, and a term loan in an original aggregate principal amount of $250.0 millionas the borrower (the "2014“2017 Credit Facility"Agreement”). The 20142017 Credit FacilityAgreement is guaranteed by substantially all of the non-regulated subsidiaries of the Company and willscheduled to mature on July 23, 2019, but the Company holds an option to extend the 2014September 22, 2022.

The 2017 Credit Facility for an additional one year period. The 2014 Credit FacilityAgreement contains a number of covenants.

        These covenants that limit management'smanagement’s discretion in operating the Company'sCompany’s business by restricting or limiting the Company'sCompany’s ability, among other things, to:

•

·

incur or guarantee additional indebtedness or issue preferred or redeemable stock;

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pay dividends and make other distributions;

·

repurchase equity interests;

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make certain advances, investments and loans;

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enter into sale and leaseback transactions;

·

create liens;

·

sell and otherwise dispose of assets;

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acquire or merge or consolidate with another company; and

·

enter into some types of transactions with affiliates.

incur or guarantee additional indebtedness or issue preferred or redeemable stock;



•

pay dividends and make other distributions;



•

repurchase equity interests;



•

make certain advances, investments and loans;



•

enter into sale and leaseback transactions;



•

create liens;



•

sell and otherwise dispose of assets;



•

acquire, merge or consolidate with another company; and



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enter into some types of transactions with affiliates.

These restrictions could adversely affect the Company'sCompany’s ability to finance future operations or capital needs or engage in other business activities that may be in the Company'sCompany’s interest. The 20142017 Credit FacilityAgreement also requires the Company to comply with specified financial ratios and tests. Failure to do so, unless waived by the lenders under the 20142017 Credit Facility,Agreement, pursuant to its terms, would result in an event of default. The 2014 Credit Facility is guaranteed by most of the Company's subsidiaries and is secured by most of the Company's assets and the Company's subsidiaries' assets.

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Required Assurances of Financial Resources—The Company'sCompany’s liquidity, financial condition, prospects and profitability can be adversely affected by present or future state regulations and contractual requirements that the Company provide financial assurance of the Company'sCompany’s ability to meet the Company'sCompany’s obligations.

Some of the Company'sCompany’s contracts and certain state regulations require the Company or certain of the Company'sCompany’s subsidiaries to maintain specified cash reserves or letters of credit and/or to maintain certain minimum tangible net equity in certain of the Company'sCompany’s subsidiaries as assurance that the Company has financial resources to meet the Company'sCompany’s contractual obligations. Many of these state regulations also restrict the investment activity of certain of the Company'sCompany’s subsidiaries. Some state regulations also restrict the ability of certain of the Company'sCompany’s subsidiaries to pay dividends to Magellan. Additional state regulations could be promulgated that would increase the cash or other security the Company would be required to maintain. In addition, the Company'sCompany’s customers may require additional restricted cash or other security with respect to the Company'sCompany’s obligations under the Company'sCompany’s contracts, including the Company'sCompany’s obligation to pay IBNR claims and other medical claims not yet processed and paid. In addition, certain of the Company'sCompany’s contracts and state regulations limit the profits that the Company may earn on risk-basedrisk‑based business. The Company'sCompany’s liquidity, financial condition, prospects and profitability could be adversely affected by the effects of such regulations and contractual provisions. See Note 2—"“Summary of Significant Accounting Policies—Restricted Assets"Assets” to the consolidated financial statements set forth elsewhere herein for a discussion of the Company'sCompany’s restricted assets.

Competition—The competitive environment in the managed healthcare industry may limit the Company'sCompany’s ability to maintain or increase the Company'sCompany’s rates, which would limit or adversely affect the Company'sCompany’s profitability, and any failure in the Company'sCompany’s ability to respond adequately may adversely affect the Company'sCompany’s ability to maintain contracts or obtain new contracts.

The Company'sCompany’s business is highly competitive. The Company competes with other healthcare organizations as well as with insurance companies, including HMOs, PPOs, TPAs, IPAs, multi-disciplinarymulti‑disciplinary medical groups, PBMs, specialty pharmacy companies, RBM companies and other specialty healthcare and managed care companies. Many of the Company'sCompany’s competitors, particularly certain insurance companies, HMOs and PBMs are significantly larger and have greater financial, marketing and other resources than the Company, which can create downward pressure on prices through economies of scale. The entrance or expansion of these larger companies in the managed healthcare industry (including the Company'sCompany’s customers who have in-sourcedin‑sourced or who may choose to in-sourcein‑source healthcare services) could increase the competitive pressures the Company faces and could limit the Company'sCompany’s ability to maintain or increase the Company'sCompany’s rates. If this happens, the Company'sCompany’s profitability could be adversely affected. In addition, if the Company does not adequately respond to these competitive pressures, it could cause the Company to not be able to maintain its current contracts or to not be able to obtain new contracts.

Possible Impact of Federal Healthcare Reform Law—can significantly impact the Company'sCompany’s revenues or profitability.

The ACA is a comprehensive piece of legislation intended to make significant changes to the healthcare system in the United States. The ACA contains various effective dates extending through 2020. Numerous regulations have been promulgated related to the ACA with hundreds more expected in the future.

Significant provisions in the ACA include requiring individuals to purchase health insurance, minimum medical loss ratios for health insurance issuers, significant changes to the Medicare and Medicaid programs and many other changes that affect healthcare insurance and managed care. See "Regulation"“Regulation” above for more information. Therefore, it is uncertain at this time what the financial

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impact of healthcare reform will be to the Company. The Company cannot predict the effect of this legislation or other legislation that may be adopted by the United States Congress or by the states, and such legislation, if implemented, could have an adverse effect on the Company.

The ACA also contains provisions related to fees that impact the Company'sCompany’s direct public sector contracts and provisions regarding the non-deductibilitynon‑deductibility of those fees. We believe that our state public sector customers will make rate adjustments to cover the direct costs of these fees and a majority of the impact from non-deductibilitynon‑deductibility of such fees for federal income tax purposes. There may be some impact due to taxes paid for non-renewingnon‑renewing customers where the timing and amount of recoupment of these additional costs is uncertain. There can be no guarantees regarding this adjustment from our state public sector customers and these taxes and fees may have a material impact on the Company.

Possible Impact of Federal Mental Health Parity—can significantly impact the Company'sCompany’s revenues or profitability.

In October 2008, the United States Congress passed the Paul Wellstone and Pete Dominici Mental Health Parity Act of 2008 ("MHPAEA"(“MHPAEA”) establishing parity in financial requirements (e.g. co-pays,co‑pays, deductibles, etc.) and treatment limitations (e.g., limits on the number of visits) between mental health and substance abuse benefits and medical/surgical benefits for health plan members. This law does not require coverage for mental health or substance abuse disorders but if coverage is provided it must be provided at parity. No specific disorders are mandated for coverage; health plans are able to define mental health and substance abuse to determine what they are going to cover. Under the ACA non-grandfatherednon‑grandfathered individual and small group plans (both on and off of the exchange) are required to provide mental health and substance use disorder benefits as essential health benefits. These mandated benefits under the ACA must be provided at parity in these plans. Under the ACA, grandfathered individual plans are required to comply with parity if they offer behavioral health benefits. Grandfathered small group plans are exempt from requirements to provide essential health benefits and parity requirements. State mandated benefits laws are not preempted. The law applies to ERISA plans, Medicaid managed care plans and State Children's Health Insurance Program ("SCHIP")SCHIP plans. On February 2, 2010, the Department of the Treasury, the Department of Labor and the Department of Health and Human Services issued Interim Final Rules interpreting the MHPAEA ("IFR"(“IFR”). The IFR applies to ERISA plans and insured business. A State Medicaid Director Letter was issued in January 2013 discussing applicability of parity to Medicaid managed care plans, SCHIP plans and Alternative Benefit (Benchmark) Plans. It is possible that some states will change their behavioral health plan benefits or management techniques as a result of this letter. On November 13, 2013 the Department of the Treasury, the Department of Labor and the Department of Health and Human Services issued Final Rules on the MHPAEA ("(“Final Rules"Rules”). The IFR included some concepts not included under the statute including the requirement to conduct the parity review at the category level within the plan, introducing the concept of non-quantitativenon‑quantitative treatment limitations, and prohibiting separate but equal deductibles. While some of the regulatory requirements in the IFR were not anticipated, the Company believes it is in compliance with the requirements of the IFR. The Company does not anticipate any significant impacts from the Final Rules however it is still reviewing and assessing the Final Rules with customers. The Company'sCompany’s risk contracts do allow for repricing to occur effective the same date that any legislation/regulation becomes effective if that legislation/regulation is projected to have a material effect on cost of care.

Government Regulation—The Company is subject to substantial government regulation and scrutiny, which increase the Company'sCompany’s costs of doing business and could adversely affect the Company'sCompany’s profitability.

The managed healthcare industry is subject to extensive and evolving federal and state regulation. Such laws and regulations cover, but are not limited to, matters such as licensure, accreditation,

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government healthcare program participation requirements, information privacy and security, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. The Company'sCompany’s pharmaceutical management business is also the subject of substantial federal and state governmental regulation and scrutiny.

The Company is subject to certain state laws and regulations and federal laws as a result of the Company’s role in management of customers’ employee benefit plans.

Regulatory issues may also affect the Company’s operations including, but not limited to:

The imposition of additional licensing and other regulatory requirements may, among other things, increase the Company’s equity requirements, increase the cost of doing business or force significant changes in the Company’s operations to comply with these requirements.

The costs associated with compliance with government regulation as discussed above may adversely affect the Company’s financial condition and results of operation.

Noncompliance With Regulations—Noncompliance with regulations may have a material adverse effect on the Company’s business, financial condition and results of operations, including from monetary or criminal liabilities and penalties, investigations or regulatory actions, additional compliance requirements, heightened governmental scrutiny, or exclusion from participating in government programs.

Extensive laws and regulation are applicable to all of our business operations. Noncompliance by the Company with these laws and regulations may have a material adverse effect on the Company’s business, financial condition and results of operations.

Government investigations and allegations have become more frequent concerning possible violations of fraud and abuse and false claims statutes and regulations by healthcare organizations. ViolatorsThe Company also conducts its own investigations into these matters and may bechoose to self-report its findings to governmental agencies. Violations by the Company with certain laws and regulations may result in it being excluded from participating in government healthcare programs, subject to fines or penalties or required to repay amounts received from the government for previously billed services. In addition, alleged violations may result in litigation or regulatory action. A violationsubsequent legal liability or a significant regulatory action against the Company could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in any litigation, regulatory action or investigation, such lawslitigation, regulatory action or investigation could have a material adverse effect on the Company’s business, financial condition and regulationsresults of operations.

The Company also receives notifications from and engages in discussions with various government agencies concerning the Company’s businesses and operations. As a result of these contacts with regulators, the Company may, as appropriate, be required to implement changes to the Company’s operations, revise the Company’s filings with such agencies and/or seek additional licenses to conduct the Company’s business. The Company’s inability to comply with the various regulatory requirements may have a material adverse effect on the Company.Company’s business.

Reference is made to information set forth under “Regulation—Other Federal and State Laws and Regulations” under Item 1 of this Report.

Medicare Part D—The CompanyCompany’s participation in Medicare Part D is subject to certaingovernment regulation and failure to comply with regulatory requirements could adversely impact the Company’s profitability.

There are many uncertainties about the financial and regulatory risks of participating in the Medicare Part D program, and we can give no assurance these risks will not materially adversely impact the Company’s results. Certain of the Company’s subsidiaries have been approved by CMS to offer Medicare Part D prescription drug plans to individual beneficiaries and employer groups. Such subsidiaries are required to comply with Medicare Part D laws and regulations and, because CMS requires that Medicare Part D sponsors be licensed as risk‑bearing entities, also with applicable state laws and regulations regarding the business of insurance. The Company also provides services in support of our clients’ Medicare Part D plans and must be able to deliver such services in a manner that complies with applicable regulatory requirements. We have made substantial investments in both human resources and the technology required to administer Medicare Part D benefits. The adoption of new or more complex regulatory requirements or changes in the interpretation of existing regulatory requirements associated with Medicare Part D may require us to incur significant costs or otherwise impact our ability to earn a profit on such business. In addition, the Company’s receipt of federal funds made available through the Medicare Part D program is subject to compliance with the laws as a result ofand regulations governing the Company's role in management of customers' employee benefit plans.

        Regulatory issuesfederal government’s payment for healthcare goods and services, including the federal anti‑kickback law and false claims acts. If we fail to comply materially with applicable regulatory or contractual requirements, whether identified through CMS or other government audits, client audits, or otherwise, we may also affect the Company's operationsbe subject to certain sanctions, penalties, or other remedies, including, but not limited to:

•

additional state licenses that may be required to, conduct the Company's businesses, including utilization review, PBM, pharmacy, HMO and TPA activities;



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limits imposed by state authorities upon corporations' controlsuspension of marketing or excessive influence over managed healthcare services through the direct employment of physicians, psychiatrists, psychologistsenrollment activities, restrictions on expanding our service area, civil monetary penalties or other professionals, and prohibiting fee splitting;



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laws that impose financial terms and requirements on the Company due to the Company's assumption of risk under contracts with licensed insurance companies or HMOs;



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laws in certain states that impose an obligation to contract with any healthcare provider willing to meet the terms of the Company's contracts with similar providers;



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compliance with HIPAA (including the federal HITECH Act, which strengthens and expands HIPAA) and other federal and state laws impacting the confidentiality of member information;



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state legislation regulating PBMs or imposing fiduciary status on PBMs;



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pharmacy laws and regulation;



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legislation imposing benefit plan design restrictions, which limit how our clients can design their drug benefit plans; and



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network pharmacy access laws, including "any willing provider" and "due process" legislation, that affect aspectsmonetary amounts, termination of our pharmacy network contracts.

        The imposition of additional licensingcontract(s) with CMS or Part D clients, and other regulatory requirements may, among other things, increase the Company's equity requirements, increase the cost of doing business or force significant changes in the Company's operations to comply with these requirements.exclusion from federal healthcare programs.

        The costs associated with compliance with government regulation as discussed above may adversely affect the Company's financial condition and results of operation.

The Company faces risks related to unauthorized disclosure of sensitive or confidential member and other information.

As part of its normal operations, the Company collects, processes and retains confidential member information making the Company subject to various federal and state laws and rules regarding the use and disclosure of confidential member information, including HIPAA. The Company also maintains other confidential information related to its business and operations. Despite appropriate security measures, the Company may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Noncompliance with any privacy or security laws and regulations or any security breach, whether by the Company or by its

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vendors, could result in enforcement actions, material fines and penalties and could also subject the Company to litigation.

Cyber-Security -TheCyber‑Security—The Company faces risks related to a breach or failure in our operational security systems or infrastructure, or those of third parties with which we do business.

Our business requires us to securely store, process and transmit confidential, proprietary and other information in our operations. Security breaches may arise from computer hackers penetrating our systems to obtain personal information for financial gain, attempting to cause harm to our operations, or intending to obtain competitive information. Our systems are also subject to the attack of viruses, worms, and other malicious software programs. We maintain a comprehensive system of preventive and detective controls through our security programs; however, our prevention and detection controls may not prevent or identify all such attacks. The costs to update our security protocols to mitigate a security breach could be significant. A breach or failure in our operational security systems may result in loss of data or an unauthorized disclosure of sensitive or confidential member or employee information and could result in significant penalties or fines, litigation, loss of customers, or significant damage to our reputation and business, which could adversely impact the Company'sCompany’s financial condition and results of operations.

The Company faces additional regulatory risks associated with its Pharmacy Management segment which could subject it to additional regulatory scrutiny and liability and which could adversely affect the profitability of the Pharmacy Management segment in the future.

Various aspects of the Company'sCompany’s Pharmacy Management segment are governed by federal and state laws and regulations. Pharmaceutical management services are provided by the Company to Medicaid and Medicare plans as well as commercial insurance plans. There has been enhanced scrutiny on federal programs and the Company must remain vigilant in ensuring compliance with the requirements of these programs. In addition, there are provisions of the ACA which may impact the Company'sCompany’s business. For example, the ACA imposes new transparency requirements on PBMs, and the Centers for Medicare and Medicaid Services ("CMS") issued a final rule implementing these requirements in April 2012.PBMs. PBMs have also increasingly become the target of federal and state litigation over alleged practices relating to prescription drug switching, soliciting, and receiving unlawful remuneration, handling rebates, and fiduciary duties, among others. Significant sanctions may be imposed for violations of these laws and compliance programs are a significant operational requirement of the Company'sCompany’s business. There are significant uncertainties involving the application of many of these legal requirements to the Company. Accordingly, the Company may be required to incur additional administrative and compliance expenses in determining the applicable requirements and in adapting its compliance practices, or modifying its business practices, in order to satisfy changing interpretations and regulatory policies. In addition, there are numerous proposed healthcare laws and regulations at the federal and state levels, many of which, if adopted, could adversely affect the Company'sCompany’s business. See "Regulation"“Regulation” above.

Risks Related Toto Realization of Goodwill and Intangible Assets—The Company'sCompany’s profitability could be adversely affected if the value of intangible assets is not fully realized.

The Company'sCompany’s total assets at December 31, 20142017 reflect goodwill of approximately $566.1 million,$1.0 billion, representing approximately 27.134.0 percent of total assets. The Company completed its annual impairment analysis of goodwill as of October 1, 20142017, noting that no impairment was identified.

At December 31, 2014,2017, identifiable intangible assets (customer lists, contracts, provider networks and provider networks)trade names) totaled approximately $133.7$268.3 million. Intangible assets are generally amortized over their estimated useful lives, which range from approximately one to eighteen years. The amortization periods used may differ from those used by other entities. In addition, the Company may be required to shorten the amortization period for intangible assets in future periods based on changes in the Company'sCompany’s business. There can be no assurance that such goodwill or intangible assets will be realizable.

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The Company evaluates, on a regular basis, whether for any reason the carrying value of the Company'sCompany’s intangible assets and other long-livedlong‑lived assets may no longer be completely recoverable, in which case a charge to earnings for impairment losses could become necessary. When events or changes in circumstances occur that indicate the carrying amount of long-livedlong‑lived assets may not be recoverable, the Company assesses the recoverability of long-livedlong‑lived assets other than goodwill by determining whether the carrying value of such assets will be recovered through the future cash flows expected from the use of the asset and its eventual disposition.

Any event or change in circumstances leading to a future determination requiring write-offwrite‑off of a significant portion of unamortized intangible assets or goodwill would adversely affect the Company'sCompany’s profitability.

Claims for Professional Liability—Pending or future actions or claims for professional liability (including any associated judgments, settlements, legal fees and other costs) could require the Company to make significant cash expenditures and consume significant management time and resources, which could have a material adverse effect on the Company'sCompany’s profitability and financial condition.

The Company'sCompany’s operating activities entail significant risks of liability. In recent years, participants in the healthcare industry generally, as well as the managed healthcare industry, have become subject to an increasing number of lawsuits. From time to time, the Company is subject to various actions and claims of professional liability alleging negligence in performing utilization review and other managed healthcare activities, as well as for the acts or omissions of the Company'sCompany’s employees, including employed physicians and other clinicians, network providers, pharmacists, or others. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company, the Company'sCompany’s employees or the Company'sCompany’s network providers. The Company is also subject to actions and claims for the costs of services for which payment was denied. Many of these actions and claims seek substantial damages and require the Company to incur significant fees and costs related to the Company'sCompany’s defense and consume significant management time and resources. While the Company maintains professional liability insurance, there can be no assurance that future actions or claims for professional liability (including any judgments, settlements or costs associated therewith) will not have a material adverse effect on the Company'sCompany’s profitability and financial condition.

Professional Liability and Other Insurance—Claims brought against the Company that exceed the scope of the Company'sCompany’s liability coverage or denial of coverage could materially and adversely affect the Company'sCompany’s profitability and financial condition.

The Company maintains a program of insurance coverage against a broad range of risks in the Company'sCompany’s business. As part of this program of insurance, the Company carries professional liability insurance, subject to certain deductibles and self-insuredself‑insured retentions. The Company also is sometimes required by customer contracts to post surety bonds with respect to the Company'sCompany’s potential liability on professional responsibility claims that may be asserted in connection with services the Company provides. As of December 31, 2014,2017, the Company had approximately $143.0$67.7 million of such bonds outstanding. The Company'sCompany’s insurance may not be sufficient to cover any judgments, settlements or costs relating to present or future claims, suits or complaints. Upon expiration of the Company'sCompany’s insurance policies, sufficient insurance may not be available on favorable terms, if at all. To the extent the Company'sCompany’s customers are entitled to indemnification under their contracts with the Company relating to liabilities they incur arising from the operation of the Company'sCompany’s programs, such indemnification may not be covered under the Company'sCompany’s insurance policies. To the extent that certain actions and claims seek punitive and compensatory damages arising from the Company'sCompany’s alleged

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intentional misconduct, such damages, if awarded, may not be covered, in whole or in part, by the Company'sCompany’s insurance policies. If the Company is unable to secure adequate insurance in the future, or if the insurance the Company carries is not sufficient to cover any judgments, settlements or costs relating to any present or future actions or claims, such judgments, settlements or costs may have a material adverse effect on the Company'sCompany’s profitability and financial condition. If the Company is unable to obtain needed surety bonds in adequate amounts or make alternative arrangements to satisfy the requirements for such bonds, the Company may no longer be able to operate in those states, which would have a material adverse effect on the Company.

Class Action Suits and Other Legal Proceedings—The Company is subject to class action and other lawsuits that could result in material liabilities to the Company or cause the Company to incur material costs, to change the Company'sCompany’s operating procedures in ways that increase costs or to comply with additional regulatory requirements.

Managed healthcare companies and PBM companies have been targeted as defendants in national class action lawsuits regarding their business practices. The Company has in the past been subject to such national class actions as defendants and is also subject to or a party to other class actions, lawsuits and legal proceedings in conducting the Company'sCompany’s business. In addition, certain of the Company'sCompany’s customers are parties to pending class action lawsuits regarding the customers'customers’ business practices for which the customers could seek indemnification from the Company. These lawsuits may take years to resolve and cause the Company to incur substantial litigation expense, and the outcomes could have a material adverse effect on the Company'sCompany’s profitability and financial condition. In addition to potential damage awards, depending upon the outcomes of such cases, these lawsuits may cause or force changes in practices of the Company'sCompany’s industry and may also cause additional regulation of the industry through new federal or state laws or new applications of existing laws or regulations. Such changes could increase the Company'sCompany’s operating costs.

Negative Publicity—The Company may be subject to negative publicity which may adversely affect the Company'sCompany’s business, financial position, results of operations or cash flows.

From time to time, the managed healthcare industry has received negative publicity. This publicity has led to increased legislation, regulation, review of industry practices and private litigation. These factors may adversely affect the Company'sCompany’s ability to market our services, require the Company to change its services, or increase the overall regulatory burden under which the Company operates. Any of these factors may increase the costs of doing business and adversely affect the Company'sCompany’s business, financial position, results of operations or cash flows.

Government Investigations—The Company may be subjected to additional regulatory requirements and to investigations or regulatory action by governmental agencies, each of which may have a material adverse effect on the Company's business, financial condition and results of operations.

        From time to time, the Company receives notifications from and engages in discussions with various government agencies concerning the Company's businesses and operations. As a result of these contacts with regulators, the Company may, as appropriate, be required to implement changes to the Company's operations, revise the Company's filings with such agencies and/or seek additional licenses to conduct the Company's business. The Company's inability to comply with the various regulatory requirements may have a material adverse effect on the Company's business.

        In addition, the Company may become subject to regulatory investigations relating to the Company's business, which may result in litigation or regulatory action. A subsequent legal liability or a significant regulatory action against the Company could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, such litigation, regulatory action

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or investigation could have a material adverse effect on the Company's business, financial condition and results of operations.

Investment Portfolio—The value of the Company'sCompany’s investments is influenced by varying economic and market conditions, and a decrease in value may result in a loss charged to income.

All of the Company'sCompany’s investments are classified as "available-for-sale"“available‑for‑sale” and are carried at fair value. The Company's available-for-saleCompany’s available‑for‑sale investment securities were $267.7$327.9 million and represented 12.811.1 percent of the Company'sCompany’s total assets at December 31, 2014.2017.

The current economic environment and recent volatility of securities markets increase the difficulty of assessing investment impairment and the same influences tend to increase the risk of potential impairment of these assets. The Company believes it has adequately reviewed its investment securities for impairment and that its investment securities are carried at fair value. However, over time, the economic and market environment may provide additional insight regarding the fair value of certain securities, which could change the Company'sCompany’s judgment regarding impairment. This could result in realized losses relating to other-than-temporaryother‑than‑temporary declines being charged against future income. Given the current market conditions and the significant judgments involved, there is a risk that declines in fair value may occur and material other-than-temporaryother‑than‑temporary impairments may be charged to income in future periods, resulting in realized losses. In addition, if it became necessary for the Company to liquidate its investment portfolio on an accelerated basis, it could have an adverse effect on the Company'sCompany’s results of operations.

Adverse Economic Conditions—The state of the national economy and adverseAdverse changes in national economic conditions could adversely affect the Company'sCompany’s business and results of operations.

        The state of the economy has negatively affected state budgets andChanges in national economic conditions could adversely affect the Company'sCompany’s reimbursement from state Medicaid programs in its Public SectorHealthcare segment. The state of the economy and adverseAdverse economic conditions could also adversely affect the Company'sCompany’s customers in the Commercial, Specialty SolutionsHealthcare and Pharmacy Management segments resulting in increased pressures on the Company'sCompany’s operating margins. In addition, the economic conditions may result in decreased membership in the Commercial, Specialty SolutionsHealthcare and Pharmacy Management segments, thereby adversely affecting the revenues to the Company from such customers as well as the Company'sCompany’s operating profitability.

Adverse economic conditions in the debt markets maycould affect the Company'sCompany’s ability to refinance the Company'sCompany’s existing 2014 Credit FacilityAgreement upon its maturity July 23, 2019 on acceptable terms, or at all.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

The Company currently leases approximately 900,0001.1 million square feet of office space comprising 4971 offices in 2428 states and the District of Columbia with terms expiring between January 2015February 28, 2018 and JanuaryNovember 30, 2025. The Company'sCompany’s principal executive offices are located in Scottsdale, Arizona, which lease expires in October 2019. The Company believes that its current facilities are suitable for and adequate to support the level of its present operations.

Item 3.    Legal Proceedings

The Company'sCompany’s operating activities entail significant risks of liability. From time to time, the Company is subject to various actions and claims arising from the acts or omissions of its employees,

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network providers or other parties. In the normal course of business, the Company receives reports relating to deaths and other serious incidents involving patients whose care is being managed by the Company. Such incidents occasionally give rise to malpractice, professional negligence and other related actions and claims against the Company or its network providers. Many of these actions and claims received by the Company seek substantial damages and therefore require the Company to incur significant fees and costs related to their defense.

The Company is also subject to or party to certain class actions and other litigation and claims relating to its operations or business practices. In the opinion of management, theThe Company has recorded reserves that, in the opinion of management, are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company'sCompany’s financial condition or results of operations; however, there can be no assurance in this regard.

Item 4.    Mine Safety Disclosures

        Not applicable.

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PART II

Item 5.    Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Since January 6, 2004, sharesShares of the Company'sCompany’s Ordinary Common Stock, $0.01 par value per share ("(“common stock"stock”) have traded on the NASDAQ Stock Market under the symbol "MGLN."“MGLN.” For further information regarding the Company'sCompany’s common stock, see Note 6—"Stockholders' Equity"“Stockholders’ Equity” to the consolidated financial statements set forth elsewhere herein. The following tables set forth the high and low closing bid prices of the Company'sCompany’s common stock as reported by the NASDAQ Stock Market for the years ended December 31, 20132016 and 2014,2017, as follows: