Document and Entity Information
Document and Entity Information - USD ($) $ in Billions | 12 Months Ended | ||
Dec. 31, 2016 | Feb. 22, 2017 | Jun. 30, 2016 | |
Document and Entity Information | |||
Entity Registrant Name | MAGELLAN HEALTH INC | ||
Entity Central Index Key | 19,411 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $ 1.6 | ||
Entity Common Stock, Shares Outstanding | 23,599,396 | ||
Document Fiscal Year Focus | 2,016 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Current Assets: | ||
Cash and cash equivalents (restricted balances of $133,597 and $81,776 at December 31, 2015 and 2016, respectively) | $ 304,508 | $ 249,029 |
Accounts receivable, less allowance for doubtful accounts of $3,246 and $5,644 at December 31, 2015 and 2016, respectively | 606,764 | 428,644 |
Short-term investments (restricted balances of $277,556 and $227,795 at December 31, 2015 and 2016, respectively) | 297,493 | 322,339 |
Pharmaceutical inventory | 58,995 | 50,749 |
Other current assets (restricted balances of $27,752 and $38,785 at December 31, 2015 and 2016, respectively) | 51,507 | 46,921 |
Total Current Assets | 1,319,267 | 1,097,682 |
Property and equipment, net | 172,524 | 174,745 |
Long-term investments (restricted balances of $3,826 and $6,306 at December 31, 2015 and 2016, respectively) | 7,760 | 3,826 |
Deferred income taxes | 3,125 | 26,836 |
Other long-term assets | 12,725 | 11,207 |
Goodwill | 742,054 | 621,390 |
Other intangible assets, net | 186,232 | 133,374 |
Total Assets | 2,443,687 | 2,069,060 |
Current Liabilities: | ||
Accounts payable | 95,635 | 86,484 |
Accrued liabilities | 202,176 | 139,726 |
Short-term contingent consideration | 9,354 | 91,623 |
Medical claims payable | 184,136 | 250,449 |
Other medical liabilities | 197,856 | 136,939 |
Current debt maturities and capital lease obligations | 403,693 | 19,014 |
Total Current Liabilities | 1,092,850 | 724,235 |
Long-term debt and capital lease obligations | 214,686 | 238,295 |
Tax contingencies | 13,981 | 12,677 |
Long-term contingent consideration | 1,799 | 803 |
Deferred credits and other long-term liabilities | 15,882 | 20,930 |
Total Liabilities | 1,339,198 | 996,940 |
Redeemable non-controlling interest | 4,770 | 5,937 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value $.01 per share Authorized—10,000 shares at December 31, 2015 and 2016-Issued and outstanding-none | ||
Other Stockholders' Equity: | ||
Additional paid-in capital | 1,186,283 | 1,124,013 |
Retained earnings | 1,289,288 | 1,211,310 |
Accumulated other comprehensive loss | (175) | (262) |
Ordinary common stock in treasury, at cost, 26,648 shares and 28,476 shares at December 31, 2015 and 2016, respectively | (1,376,197) | (1,269,391) |
Total Stockholders' Equity | 1,099,719 | 1,066,183 |
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity | 2,443,687 | 2,069,060 |
Ordinary common stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock | 520 | 513 |
Multi-Vote common stock | ||
STOCKHOLDERS' EQUITY | ||
Common stock |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Restricted Cash and Cash Equivalents, Current | $ 81,776 | $ 133,597 |
Accounts receivable, allowance for doubtful accounts (in dollars) | 5,644 | 3,246 |
Short-term restricted investments (in dollars) | 227,795 | 277,556 |
Other current assets, restricted deposits (in dollars) | 38,785 | 27,752 |
Long term restricted investments (in dollars) | $ 6,306 | $ 3,826 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, Authorized shares | 10,000 | 10,000 |
Preferred stock, Issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Ordinary common stock in treasury, shares | 28,476 | 26,648 |
Ordinary common stock | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, Authorized shares | 100,000 | 100,000 |
Common stock, Issued shares | 51,993 | 51,340 |
Common stock, outstanding shares | 23,517 | 24,692 |
Multi-Vote common stock | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, Authorized shares | 40,000 | 40,000 |
Common stock, Issued shares | 0 | 0 |
Common stock, outstanding shares | 0 | 0 |
CONSOLIDATED STATEMENTS OF INCO
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Net revenue: | ||||||||||||||
Managed care and other | $ 775,031 | $ 751,589 | $ 699,861 | $ 676,461 | $ 863,506 | $ 809,249 | $ 776,240 | $ 748,650 | $ 2,902,942 | $ 3,197,645 | $ 2,968,374 | |||
PBM and dispensing | 488,354 | 540,543 | 464,484 | 440,561 | 405,237 | 380,833 | 381,367 | 232,318 | 1,933,942 | 1,399,755 | 791,744 | |||
Total net revenue | 1,263,385 | 1,292,132 | 1,164,345 | 1,117,022 | 1,268,743 | 1,190,082 | 1,157,607 | 980,968 | 4,836,884 | 4,597,400 | 3,760,118 | |||
Costs and expenses: | ||||||||||||||
Cost of care | 472,211 | 480,243 | 472,529 | 457,631 | 587,816 | 596,323 | 568,288 | 522,328 | 1,882,614 | 2,274,755 | 2,088,595 | |||
Cost of goods sold | 456,658 | 509,673 | 436,930 | 415,459 | 381,817 | 360,444 | 361,409 | 218,207 | 1,818,720 | 1,321,877 | 732,949 | |||
Direct service costs and other operating expenses (1) (2) (3) | 240,985 | 229,094 | 214,077 | 192,456 | 205,901 | 220,586 | 191,455 | 204,450 | 876,612 | [1],[2],[3] | 822,392 | [1],[2],[3] | 723,498 | [1],[2],[3] |
Depreciation and amortization | 28,574 | 26,885 | 25,580 | 25,007 | 27,605 | 26,721 | 25,022 | 23,496 | 106,046 | 102,844 | 91,070 | |||
Interest expense | 3,413 | 3,038 | 1,994 | 1,748 | 1,648 | 1,654 | 1,653 | 1,626 | 10,193 | 6,581 | 7,387 | |||
Interest and other income | (702) | (741) | (692) | (683) | (568) | (631) | (500) | (466) | (2,818) | (2,165) | (1,301) | |||
Total costs and expenses | 1,201,139 | 1,248,192 | 1,150,418 | 1,091,618 | 1,204,219 | 1,205,097 | 1,147,327 | 969,641 | 4,691,367 | 4,526,284 | 3,642,198 | |||
Income (loss) before income taxes | 62,246 | 43,940 | 13,927 | 25,404 | 64,524 | (15,015) | 10,280 | 11,327 | 145,517 | 71,116 | 117,920 | |||
Provision for income taxes | 26,469 | 18,631 | 12,615 | 12,013 | 39,543 | (7,254) | 5,987 | 4,133 | 69,728 | 42,409 | 43,689 | |||
Net income (loss) | 35,777 | 25,309 | 1,312 | 13,391 | 24,981 | (7,761) | 4,293 | 7,194 | 75,789 | 28,707 | 74,231 | |||
Less: net income (loss) attributable to non-controlling interest | 602 | (200) | (2,646) | 154 | (2,309) | 47 | (350) | (94) | (2,090) | (2,706) | (5,173) | |||
Net income (loss) attributable to Magellan Health, Inc. | $ 35,175 | $ 25,509 | $ 3,958 | $ 13,237 | $ 27,290 | $ (7,808) | $ 4,643 | $ 7,288 | $ 77,879 | $ 31,413 | $ 79,404 | |||
Net income per common share attributable to Magellan Health, Inc.: | ||||||||||||||
Basic (in dollars per share) | $ 1.56 | $ 1.11 | $ 0.17 | $ 0.56 | $ 1.16 | $ (0.31) | $ 0.18 | $ 0.29 | $ 3.36 | $ 1.26 | $ 2.98 | |||
Diluted (in dollars per share) | $ 1.50 | $ 1.06 | $ 0.16 | $ 0.54 | $ 1.12 | $ (0.31) | $ 0.17 | $ 0.28 | $ 3.22 | $ 1.21 | $ 2.90 | |||
[1] | Includes changes in fair value of contingent consideration of $6,172, $44,257 and $(104) for the years ended December 31, 2014, 2015 and 2016, respectively. | |||||||||||||
[2] | Includes impairment of intangible assets of $4,800 for the year ended December 31, 2016. | |||||||||||||
[3] | Includes stock compensation expense of $40,584, $50,384 and $37,422 for the years ended December 31, 2014, 2015 and 2016, respectively. |
CONSOLIDATED STATEMENTS OF INC5
CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
Stock compensation expense | $ 9,849 | $ 9,176 | $ 9,510 | $ 8,887 | $ 9,791 | $ 12,897 | $ 13,795 | $ 13,901 | $ 37,422 | $ 50,384 | $ 40,584 |
changes in fair value of contingent consideration | $ (614) | $ 313 | 463 | $ (266) | $ (3,017) | $ 29,738 | $ 2,567 | $ 14,969 | (104) | $ 44,257 | $ 6,172 |
Impairment of intangible assets | $ 4,800 | $ 4,800 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net income | $ 75,789 | $ 28,707 | $ 74,231 | |
Other comprehensive (loss) income: | ||||
Unrealized (losses) gains on available-for-sale securities (1) | [1] | 87 | (119) | (50) |
Comprehensive income | 75,876 | 28,588 | 74,181 | |
Less: comprehensive income (loss) attributable to non-controlling interest | (2,090) | (2,706) | (5,173) | |
Comprehensive income attributable to Magellan Health, Inc. | $ 77,966 | $ 31,294 | $ 79,354 | |
[1] | Net of income tax (benefit) expense of $(33), $(68) and $51 for the years ended December 31, 2014, 2015 and 2016, respectively. |
CONSOLIDATED STATEMENTS OF COM7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||
Net of income tax (benefit) expense | $ 51 | $ (68) | $ (33) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands | Common Stock | Common Stock In Treasury | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total |
Balance at Dec. 31, 2013 | $ 474 | $ (866,714) | $ 922,325 | $ 1,100,493 | $ (93) | $ 1,156,485 |
Balance (in shares) at Dec. 31, 2013 | 47,351 | (19,735) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Stock compensation expense | 40,584 | 40,584 | ||||
Exercise of stock options | $ 12 | 52,982 | 52,994 | |||
Exercise of stock options (in shares) | 1,191 | |||||
Tax benefit from exercise of stock options and vesting of stock awards | 2,980 | 2,980 | ||||
Issuance of equity | $ 15 | (369) | (354) | |||
Issuance of equity (in shares) | 1,543 | |||||
Repurchase of stock | $ (198,249) | (198,249) | ||||
Repurchase of stock (in shares) | (3,415) | |||||
Adjustment to additional paid in capital due to reversal of tax contingency | 2,591 | 2,591 | ||||
Adjustment to non-controlling interest | (2,827) | (2,827) | ||||
Net income attributable to Magellan Health, Inc. | 79,404 | 79,404 | ||||
Other comprehensive income (loss)-other | (50) | (50) | ||||
Balance at Dec. 31, 2014 | $ 501 | $ (1,064,963) | 1,018,266 | 1,179,897 | (143) | 1,133,558 |
Balance (in shares) at Dec. 31, 2014 | 50,085 | (23,150) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Stock compensation expense | 50,384 | 50,384 | ||||
Exercise of stock options | $ 11 | 54,079 | 54,090 | |||
Exercise of stock options (in shares) | 1,140 | |||||
Tax benefit from exercise of stock options and vesting of stock awards | 3,530 | 3,530 | ||||
Issuance of equity | $ 1 | 408 | 409 | |||
Issuance of equity (in shares) | 115 | |||||
Repurchase of stock | $ (204,428) | (204,428) | ||||
Repurchase of stock (in shares) | (3,498) | |||||
Adjustment to additional paid in capital due to reversal of tax contingency | 32 | 32 | ||||
Adjustment to non-controlling interest | (2,686) | (2,686) | ||||
Net income attributable to Magellan Health, Inc. | 31,413 | 31,413 | ||||
Other comprehensive income (loss)-other | (119) | (119) | ||||
Balance at Dec. 31, 2015 | $ 513 | $ (1,269,391) | 1,124,013 | 1,211,310 | (262) | 1,066,183 |
Balance (in shares) at Dec. 31, 2015 | 51,340 | (26,648) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Stock compensation expense | 37,422 | 37,422 | ||||
Exercise of stock options | $ 6 | 24,542 | 24,548 | |||
Exercise of stock options (in shares) | 494 | |||||
Adjustment due to adoption of ASU 2016-09 | 99 | 99 | ||||
Tax benefit from exercise of stock options and vesting of stock awards | 800 | |||||
Issuance of equity | $ 1 | 1,229 | 1,230 | |||
Issuance of equity (in shares) | 159 | |||||
Repurchase of stock | $ (106,806) | (106,806) | ||||
Repurchase of stock (in shares) | (1,828) | |||||
Adjustment to non-controlling interest | (923) | (923) | ||||
Net income attributable to Magellan Health, Inc. | 77,879 | 77,879 | ||||
Other comprehensive income (loss)-other | 87 | 87 | ||||
Balance at Dec. 31, 2016 | $ 520 | $ (1,376,197) | $ 1,186,283 | $ 1,289,288 | $ (175) | $ 1,099,719 |
Balance (in shares) at Dec. 31, 2016 | 51,993 | (28,476) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Cash flows from operating activities: | |||
Net income | $ 75,789 | $ 28,707 | $ 74,231 |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 106,046 | 102,844 | 91,070 |
Non-cash impairment of intangible assets | 4,800 | ||
Non-cash interest expense | 565 | 399 | 3,987 |
Non-cash stock compensation expense | 37,422 | 50,384 | 40,584 |
Non-cash income tax (benefit) provision | 4,710 | (26,999) | (4,291) |
Non-cash amortization on investments | 5,238 | 7,118 | 5,050 |
Cash flows from changes in assets and liabilities, net of effects from acquisitions of businesses: | |||
Accounts receivable, net | (134,089) | (52,394) | (74,604) |
Pharmaceutical inventory | (8,246) | (11,374) | 10,234 |
Other assets | (13,900) | 4,149 | (7,557) |
Accounts payable and accrued liabilities | 52,470 | (36,043) | 5,887 |
Medical claims payable and other medical liabilities | (8,042) | 36,187 | 55,670 |
Contingent consideration | (51,205) | 55,035 | |
Tax contingencies | 673 | (1,021) | (14,955) |
Deferred credits and other long-term liabilities | (5,584) | 294 | 4,045 |
Other | 52 | 171 | 322 |
Net cash provided by operating activities | 66,699 | 157,457 | 189,673 |
Cash flows from investing activities: | |||
Capital expenditures | (60,881) | (71,584) | (62,337) |
Acquisitions and investments in businesses, net of cash acquired | (199,237) | (55,818) | (128,277) |
Purchase of investments | (478,477) | (470,093) | (340,961) |
Maturity of investments | 494,256 | 404,308 | 276,446 |
Net cash used in investing activities | (244,339) | (193,187) | (255,129) |
Cash flows from financing activities: | |||
Proceeds from issuance of debt | 375,000 | 250,000 | |
Payments to acquire treasury stock | (106,806) | (206,044) | (197,533) |
Proceeds from exercise of stock options and warrants | 25,145 | 53,493 | 52,994 |
Payments on long-term debt and capital lease obligations | (20,891) | (17,038) | (8,045) |
Payments on contingent consideration | (40,559) | (20,762) | |
Tax benefit from exercise of stock options and vesting of stock awards | 4,073 | 3,218 | |
Other | 1,230 | 409 | (4,433) |
Net cash provided by (used in) financing activities | 233,119 | (185,869) | 96,201 |
Net increase (decrease) in cash and cash equivalents | 55,479 | (221,599) | 30,745 |
Cash and cash equivalents at beginning of period | 249,029 | 470,628 | 439,883 |
Cash and cash equivalents at end of period | $ 304,508 | $ 249,029 | $ 470,628 |
General
General | 12 Months Ended |
Dec. 31, 2016 | |
General | |
General | 1. General Basis of Presentation The consolidated financial statements of Magellan Health, Inc., a Delaware corporation (“Magellan”), include Magellan and its subsidiaries (together with Magellan, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. Business Overview The Company is engaged in the healthcare management business, and is focused on managing the fastest growing, most complex areas of health, including special populations, complete pharmacy benefits and other specialty areas of healthcare. The Company develops innovative solutions that combine advanced analytics, agile technology and clinical excellence to drive better decision making, positively impact health outcomes and optimize the cost of care for the members 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”). Healthcare Healthcare includes the Company’s: (i) management of behavioral healthcare services and employee assistance program (“EAP”) services, (ii) management of other specialty areas including diagnostic imaging and musculoskeletal management, and (iii) the integrated management of physical, behavioral and pharmaceutical healthcare for special populations, delivered through Magellan Complete Care (“MCC”). These special populations include individuals with serious mental illness (“SMI”), dual eligibles, long‑term services and supports and other populations with unique and often complex healthcare needs. The Company’s coordination and management of these healthcare services are provided through its comprehensive network of medical and behavioral health professionals, clinics, hospitals 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 making the cost of these services more affordable for our customers. 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‑medical counseling under certain government contracts. The Healthcare segment’s commercial division serves a variety of customers, with services, inclusive of special population management, provided under contracts with health plans and accountable care organizations for some or all of their commercial, Medicaid and Medicare members, as well as with employers. The government division contracts with local, state and federal governmental agencies to provide services to recipients under Medicaid, Medicare and other government programs. The Company provides its management services primarily through: (i) risk‑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 and (ii) administrative services only (“ASO”) products, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume responsibility for the cost of the treatment services. Pharmacy Management The Pharmacy Management segment (“Pharmacy Management”) comprises products and solutions that provide clinical and financial management of pharmaceuticals paid under medical and pharmacy benefit programs. Pharmacy Management’s services include: (i) pharmacy benefit management (“PBM”) services; (ii) pharmacy benefit administration (“PBA”) for state Medicaid and other government sponsored programs; (iii) pharmaceutical dispensing operations; (iv) clinical and formulary management programs; (v) medical pharmacy management programs; and (vi) programs for the integrated management of specialty drugs across both the medical and pharmacy benefit that treat complex conditions, regardless of site of service, method of delivery, or benefit reimbursement. Pharmacy Management’s services are provided under contracts with health plans, employers, MCOs, state Medicaid programs, Medicare Part D and other government agencies, and encompass risk‑based and fee‑for‑service (“FFS”) arrangements. In addition, Pharmacy Management has subcontract arrangements to provide PBM services for certain Healthcare customers. Corporate This segment of the Company is comprised primarily of amounts not allocated to the Healthcare and Pharmacy Management segments that are largely associated with costs related to being a publicly traded company. In order to better represent the operations of the Company’s segments, effective January 1, 2016, the Company began allocating operational and corporate support costs to the Healthcare and Pharmacy Management segments. These costs, which were historically reported in the Corporate segment, include operational support functions such as sales and marketing and information technology, as well as corporate support functions such as executive, finance and human resources. Prior period balances have been reclassified to reflect this change |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2016 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which is a new comprehensive revenue recognition standard that will supersede virtually all existing revenue guidance under GAAP. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the performance obligations and licensing implementation guidance of ASU 2014-09. In July 2015, the FASB approved to defer the effective date of ASU 2014-09. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which amends various aspects of ASU 2014-09. The amendments in these ASUs are effective for annual and interim reporting periods of public entities beginning after December 15, 2017. The Company has identified its major revenue streams and is in the process of completing formal contract reviews. While the Company continues to assess all of the potential impacts of these ASUs, the Company does not expect implementation of these ASUs will have a significant impact on the Company’s consolidated results of operations, financial position and cash flows. The Company intends to adopt the new standard on a modified retrospective basis. In June 2014, the FASB issued ASU No. 2014‑12, “Compensation—Stock Compensation (Topic 718): Accounting for Share‑Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period” (“ASU 2014‑12”), which revises the accounting treatment for stock compensation tied to performance targets. The amendments in this ASU are effective for annual and interim reporting periods beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In August 2014, the FASB issued ASU No. 2014‑15, “Presentation of Financial Statements—Going Concern (Subtopic 205‑40)” (“ASU 2014‑ 15”), which provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This amendment should reduce diversity in the timing and content of footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, was adopted by the Company during the quarter ended December 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In February 2015, the FASB issued ASU No. 2015‑02, “Amendments to the Consolidation Analysis” (“ASU 2015‑02”), which amends certain requirements for determining whether a variable interest entity must be consolidated. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In April 2015, the FASB issued ASU No. 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company on a prospective basis during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In July 2015, the FASB issued ASU No. 2015‑11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015‑11”). The amendment under this ASU requires that an entity measure inventory at the lower of cost or net realizable value. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2016. The guidance is not expected to materially impact the Company’s consolidated results of operations, financial position or cash flows. In September 2015, the FASB issued ASU No. 2015‑16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments” (“ASU 2015‑16”). The amendment under this ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance is immaterial to the Company’s consolidated results of operations, financial position and cash flows. In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU 2016‑02”). This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of adoption, but believes the effect of this ASU will have a material effect on the Company’s consolidated balance sheets. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial position and cash flows. In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718)” (“ASU 2016-09”). This ASU amends the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual and interim reporting period of public entities beginning after December 15, 2016, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. During the quarter ended December 31, 2016, the Company elected to early adopt this standard as of January 1, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This ASU amends the accounting on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 31, 2018. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The ASU is required to be applied using a retrospective transition method to each period presented unless impractical. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). This ASU requires that the statement of cash flows explain the change during the period in total cash, cash equivalents, restricted cash and restricted equivalents. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The ASU is required to be applied using a retrospective transition method to each period presented. During the quarter ended December 31, 2016, the Company elected to early adopt this standard. Adoption of this standard resulted in a reduction to the Company’s operating cash flows of $21.4 million, $81.7 million and $51.8 million for the years ended December 31, 2014, 2015 and 2016, respectively. In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements” (“ASU 2016-19”). The amendments in this ASU cover a wide range of Topics in the Accounting Standard Codification, including internal use software covered under Subtopic 350-40. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in this ASU clarify whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in this ASU eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, contingent consideration, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates. Managed Care and Other Revenue Managed Care Revenue. Managed care revenue, inclusive of revenue from the Company’s risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period in which terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $2.6 billion, $2.7 billion and $2.3 billion for the years ended December 31, 2014, 2015 and 2016, respectively. Fee‑For‑Service, Fixed Fee and Cost‑Plus Contracts. The Company has certain contracts with customers under which the Company recognizes revenue as services are performed and as costs are incurred. This includes revenues recorded in relation to the Patient Protection and Affordable Care Act health insurer fee (“HIF fee”) billed on a cost reimbursement basis. Revenues from these contracts approximated $290.9 million, $342.0 million and $503.2 million for the years ended December 31, 2014, 2015 and 2016, respectively. Rebate Revenue. The Company administers a rebate program for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Each period, the Company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the Company’s clients, as well as historical and/or anticipated sharing percentages. The Company earns fees based upon the volume of rebates generated for its clients. The Company does not record as rebate revenue any rebates that are passed through to its clients. Total rebate revenues for the years ended December 31, 2014, 2015 and 2016 approximated $43.6 million, $88.7 million and $85.4 million, respectively. In relation to the Company’s PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers is recorded as a reduction of cost of goods sold. PBM and Dispensing Revenue Pharmacy Benefit Management Revenue . The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co‑payments collected by the pharmacy and any associated administrative fees, when claims are adjudicated. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co‑payments) as it is acting as the principal in the arrangement and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collection of payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client’s members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. PBM revenues approximated $575.7 million, $1.2 billion and $1.5 billion for the years ended December 31, 2014, 2015 and 2016, respectively. Dispensing Revenue. The Company recognizes dispensing revenue, which includes the co‑payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete, the obligation of the Company’s customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans approximated $216.0 million, $211.6 million and $221.8 million for the years ended December 31, 2014, 2015 and 2016, respectively. Medicare Part D. The Company is contracted with the Centers for Medicare and Medicaid (“CMS”) as a Prescription Drug Plan (“PDP”) to provide prescription drug benefits to Medicare beneficiaries. Net revenues include premiums earned by the PDP, which includes a direct premium paid by CMS and a beneficiary premium paid by the PDP member. In cases of low-income members, the beneficiary premium may be subsidized by CMS. The Company recognizes insurance premium revenues on a monthly basis on a per member basis for covered members. In addition to these premiums, net revenue includes certain payments from the members based on the members’ actual prescription claims, including co-payments, coverage gap benefits, deductibles and co-insurance (collectively, “Member Responsibilities”). The Company receives a prospective subsidy payment from CMS each month to subsidize a portion of the Member Responsibilities for low-income members. If the prospective subsidy differs from actual prescription claims, the difference is recorded as either a receivable or payable on the consolidated balance sheets. The Company assumes no risk for the Member Responsibilities, including the portion subsidized by CMS. The Company recognizes revenues for Member Responsibilities, including the portion subsidized by CMS, on a gross basis as claims are adjudicated. The CMS also provides an annual risk corridor adjustment which compares the Company’s actual drug costs incurred to the premiums received. Based on the risk corridor adjustment, the Company may receive additional premiums from CMS or may be required to refund CMS a portion of previously received premiums. The Company calculates the risk corridor adjustment on a quarterly basis and the amount is included in net revenues with a corresponding receivable or payable on the consolidated balance sheets. Medicare Part D revenues approximated $272.8 million for the year ended December 31, 2016, including co-payments, which are included in PBM revenues above, of $31.0 million. As of December 31, 2016, the Company had $117.5 million in net receivables associated with Medicare Part D from CMS and other parties related to this business. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company provides behavioral healthcare management and other related services to members in the state of Florida pursuant to contracts with the State of Florida (the “Florida Contracts”). The Company had behavioral healthcare contracts with various areas in the State of Florida (the “Florida Areas”) which were part of the Florida Medicaid program. The State of Florida implemented a new system of mandated managed care through which Medicaid enrollees receive integrated healthcare services, and in 2014 phased out the behavioral healthcare programs under which the Florida Areas’ contracts operated. The Company has a contract with the State of Florida to provide integrated healthcare services under the new program (“the Florida Medicaid Contract”). The Florida Medicaid Contract began on February 4, 2014 and extends through December 31, 2018, unless sooner terminated by the parties. The State of Florida has the right to terminate the Florida Medicaid Contract with cause, as defined, upon 24 hour notice and upon 30 days notice for any reason or no reason at all. The Florida Contracts generated net revenues of $253.7 million, $439.5 million and $548.7 million for the years ended December 31, 2014, 2015 and 2016, respectively. Through December 31, 2015, the Company provided behavioral healthcare management and other related services to members in the state of Iowa pursuant to contracts with the State of Iowa (the “Iowa Contracts”). The Iowa Contracts terminated on December 31, 2015. The Iowa Contracts generated net revenues of $465.0 million, $530.3 million and $13.5 million for the years ended December 31, 2014, 2015 and 2016, respectively. Customers exceeding ten percent of segment net revenues In addition to the Florida Contracts and 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, 2014, 2015 and 2016 (in thousands): Segment Term Date 2014 2015 2016 Healthcare None Pharmacy Management Customer A December 31, 2016 (1) $ $ $ Customer B December 31, 2018 * * * (1) A vast majority of this customer’s revenues were generated from drug acquisition costs related to PBM services which terminated on September 1, 2016. The Company continues to provide specialty drug formulary management services to the customer and is in negotiations with the customer to extend this contract. 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, with members under its contract with CMS and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $369.9 million, $395.7 million and $461.6 million for the years ended December 31, 2014, 2015 and 2016, respectively. Net revenues from members in relation to its contract with CMS in aggregate totaled $272.8 million for the year ended December 31, 2016. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $139.5 million, $164.3 million, and $252.5 million for the years ended December 31, 2014, 2015 and 2016, respectively. The Company’s contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer’s option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company’s contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company’s contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made. Income Taxes The Company files a consolidated federal income tax return with most of its eighty-percent or more controlled subsidiaries. The Company files a separate consolidated federal income tax return for AlphaCare of New York, Inc. (“AlphaCare”) and its parent, AlphaCare Holdings, Inc. (“AlphaCare Holdings”). The Company and its subsidiaries also file income tax returns in various state and local jurisdictions. The Company estimates income taxes for each of the jurisdictions in which it operates. This process involves determining both permanent and temporary differences resulting from differing treatment for tax and book purposes. Deferred tax assets and/or liabilities are determined by multiplying the temporary differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The Company then assesses the likelihood that the deferred tax assets will be recovered from the reversal of temporary differences, the implementation of feasible and prudent tax planning strategies, and future taxable income. To the extent the Company cannot conclude that recovery is more likely than not, it establishes a valuation allowance. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. Reversals of both valuation allowances and unrecognized tax benefits are recorded in the period they occur, typically as reductions to income tax expense. However, reversals of unrecognized tax benefits related to deductions for stock compensation in excess of the related book expense are recorded as reductions to deferred tax assets, although prior to the adoption of ASU 2016-09 in 2016 were recorded as increases in additional paid‑in capital. The Company recognizes interim period income taxes by estimating an annual effective tax rate and applying it to year‑to‑date results. The estimated annual effective tax rate is periodically updated throughout the year based on actual results to date and an updated projection of full year income. Although the effective tax rate approach is generally used for interim periods, taxes on significant, unusual and infrequent items are recognized at the statutory tax rate entirely in the period the amounts are realized. Health Care Reform The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposes a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company has obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. To the extent the Company has such a customer that does not renew, there may be some impact due to taxes paid where the timing and amount of recoupment of these additional costs is uncertain. In the event the Company is unable to obtain rate adjustments to cover the financial impact of the annual fee, the fee may have a material impact on the Company. For 2014, 2015 and 2016, the HIF fees were $21.4 million, $26.5 million and $26.5 million, respectively, which have been paid and which are included in direct service costs and other operating expenses in the consolidated statements of income. The Company recorded revenues of $36.5 million, $45.4 million and $44.0 million in the years ended December 31, 2014, 2015 and 2016, respectively, associated with the accrual for the reimbursement of the economic impact of the HIF fees from its customers. As of December 31, 2016, the Company has a $13.3 million receivable related to a terminated contract that the customer has expressed their unwillingness to pay, however the Company believes the amount is collectible and has not established a reserve. Cash and Cash Equivalents Cash equivalents are short‑term, highly liquid interest‑bearing investments with maturity dates of three months or less when purchased, consisting primarily of money market instruments. At December 31, 2016, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of $117.7 million are included in cash and cash equivalents. Restricted Assets The Company has certain assets which are considered restricted for: (i) the payment of claims under the terms of certain managed care contracts; (ii) regulatory purposes related to the payment of claims in certain jurisdictions; and (iii) the maintenance of minimum required tangible net equity levels for certain of the Company’s subsidiaries. Significant restricted assets of the Company as of December 31, 2015 and 2016 were as follows (in thousands): 2015 2016 Restricted cash and cash equivalents $ $ Restricted short-term investments Restricted deposits (included in other current assets) Restricted long-term investments Total $ $ Fair Value Measurements The Company has certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company’s data. In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of December 31, 2015 and 2016 (in thousands): December 31, 2015 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (2) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ December 31, 2016 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (3) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (4) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ (1) Excludes $160.2 million of cash held in bank accounts by the Company. (2) Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks. (3) Excludes $ 127.0 million of cash held in bank accounts by the Company. (4) Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association. For the years ended December 31, 2015 and 2016, the Company did not transfer any assets between fair value measurement levels. The carrying values of financial instruments, including accounts receivable and accounts payable, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s term loans of $418.8 million as of December 31, 2016 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. All of the Company’s investments are classified as “available-for-sale” and are carried at fair value. The contingent consideration liability reflects the fair value of potential future payments related to the Cobalt Therapeutics, LLC (“Cobalt”), 4D Pharmacy Management Systems, Inc. (“4D”), The Management Group, LLC (“TMG”) and Armed Forces Services Corporation (“AFSC”) acquisitions. The CDMI, LLC (“CDMI”) purchase agreement provided for potential contingent payments up to a maximum aggregate amount of $165.0 million. The potential future payments were contingent upon CDMI meeting certain client retention, client conversion and gross profit milestones through December 31, 2016. The CDMI contingent payments were finalized in 2016 and no future potential payments remain outstanding. The 4D purchase agreement provided for potential contingent payments up to a maximum aggregate amount of $30.0 million. The potential future payments were contingent upon the achievement of certain growth targets in the underlying dual eligible membership served by 4D during calendar year 2015 and the retention of certain business. The 4D contingent payments were finalized in 2016 and no future potential payments remain outstanding. Th |
Acquisitions
Acquisitions | 12 Months Ended |
Dec. 31, 2016 | |
Acquisitions | |
Acquisitions | 3. Acquisitions Acquisition of AFSC Pursuant to the May 15, 2016 share purchase agreement (the “AFSC Agreement”) AFSC, on July 1, 2016 the Company acquired all of the outstanding equity interests of AFSC (the “AFSC Acquisition”). AFSC has extensive experience providing and managing behavioral health and specialty services to various agencies of the federal government, including all five branches of the U.S. Armed Forces. The base purchase price for the AFSC Acquisition per the AFSC Agreement was $117.5 million, subject to working capital adjustments. Pursuant to the AFSC Agreement, certain members of AFSC’s management, who were also shareholders of AFSC, purchased a total of $4.0 million in Magellan restricted common stock, which will vest over a two-year period, conditioned upon continued employment with the Company. Consideration for the AFSC Acquisition includes a net payment for the net base purchase price of $113.5 million in cash, subject to working capital adjustments, including adjustments for cash acquired. Proceeds from the sale of restricted common stock are recorded as stock compensation expense over the requisite service period. In addition to the base purchase price, the AFSC Agreement provides for potential contingent payments up to a maximum aggregate amount of $10.0 million. The potential contingent payments are based on the retention of certain core business by AFSC. The Company reports the results of operation of AFSC within the Healthcare segment. The consolidated statements of income include total revenues and Segment Profit for AFSC of $88.1 million and $14.5 million for the six months subsequent to the acquisition, respectively. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of acquisition. A portion of the excess purchase price over tangible net assets acquired has been allocated to identified intangible assets totaling $51.7 million, consisting of customer contracts in the amount of $47.7 million, which is being amortized over seven years, trade name in the amount of $3.9 million, which has an indefinite life, and non-compete agreements in the amount of $0.1 million, which is being amortized over four years. The acquisition resulted in $76.7 million in goodwill related primarily to anticipated synergies and the expanded presence in the PBM market. The goodwill is included in the Company’s Government reporting unit. None of the goodwill or other identified intangibles assets are deductible for tax purposes. The Company’s total consideration for this transaction, as of the date of acquisition, totaled $140.4 million, including an accrual for estimated contingent consideration of $8.2 million. The estimated fair value of AFSC assets acquired and liabilities assumed at the date of the acquisition are summarized as follows (in thousands): Assets acquired: Current assets (includes $32,143 and $18,188 of accounts receivable and cash, respectively) $ Property and equipment, net Other assets Other identified intangible assets Goodwill Total assets acquired Liabilities assumed: Current liabilities Deferred tax liabilities Other liabilities Total liabilities assumed Net assets acquired $ The Company’s estimated fair values of AFSC’s accounts receivable acquired at the date of acquisition are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the accounts receivable acquired are subject to adjustment once the analyses are completed. In addition, the amount recognized for deferred tax liabilities may be impacted by the determination of these items. The Company will make appropriate adjustments to the purchase price allocation prior to the completion of the measurement period as required. As of December 31, 2016, the Company established a working capital receivable of $3.2 million that was reflected as a reduction to the transaction price. The fair value of contingent consideration is determined based on probabilities of payment, projected payment dates, discount rates and projected contract retention. The Company used a probability weighted discounted cash flow method to arrive at the fair value of contingent consideration. Changes in the probabilities of payment, discount rates or projected payment dates may result in a change in the fair value measurement. Any changes in the fair value measurement are reflected as income or expense in the consolidated statements of income. As of the acquisition date, the Company estimated undiscounted future contingent consideration payments of $9.0 million. As of December 31, 2016, the fair value of the contingent consideration was $8.5 million and is included in short-term contingent consideration in the accompanying consolidated balance sheets. The change in the present value of the contingent consideration was $0.3 million for the year ended December 31, 2016 and was recorded as direct service costs and other operating expenses in the consolidated statements of income. In connection with the AFSC acquisition, the Company incurred $1.9 million of acquisition related costs that were expensed during the year ended December 31, 2016. These costs are included within direct service costs and other operating expenses in the accompanying consolidated statements of income. Acquisition of Veridicus Holdings, LLC. Pursuant to the November 19, 2016 purchase agreement (the “Veridicus Agreement”) with Veridicus Holdings, LLC (“Veridicus”) and Veridicus Health, LLC, on December 13, 2016 the Company acquired all of the outstanding equity interests of Veridicus (the “Veridicus Acquisition”). Veridicus is a PBM with a unique set of clinical services and capabilities. The base purchase price for the Veridicus Acquisition per the Veridicus Agreement was $72.5 million, subject to working capital adjustments. The Company reports the results of operations of Veridicus within its Pharmacy Management segment. The purchase price has been allocated based upon the estimated fair value of net assets acquired at the date of acquisition. A portion of the excess purchase price over tangible net assets acquired has been allocated to identified intangible assets totaling $34.4 million, consisting of total customer contract intangible assets in the amount of $33.8 million, which are being amortized over six to eight years, trade name in the amount of $0.4 million, which is being amortized over 1 year, and non-compete agreements in the amount of $0.3 million, which is being amortized over five years. The acquisition resulted in $30.7 million in goodwill related primarily to anticipated synergies and the assembled workforce of Veridicus. The entire excess purchase price over tangible net assets acquired is amortizable for tax purposes, although the Company’s effective rate will not be impacted by the tax amortization. The estimated fair value of Veridicus assets acquired and liabilities assumed at the date of the acquisition are summarized as follows (in thousands): Assets acquired: Current assets (includes $5,625, $1,569 and $1,564 of accounts receivable, cash and inventory, respectively) $ Property and equipment, net Other assets Other identified intangible assets Goodwill Total assets acquired Liabilities assumed: Current liabilities Total liabilities assumed Net assets acquired $ The Company’s estimated fair values of Veridicus assets acquired and liabilities assumed at the date of acquisition are determined based on certain valuations and analyses that have yet to be finalized, and accordingly, the assets acquired and liabilities assumed, as detailed above, are subject to adjustment once the analyses are completed. The Company will make appropriate adjustments to the purchase price allocation prior to the completion of the measurement period as required. As of December 31, 2016, the Company established a working capital receivable of $0.1 million that was reflected as a reduction to the transaction price. In connection with the Veridicus acquisition, the Company incurred $0.5 million of acquisition related costs, of which $0.2 million and $0.3 million were expensed during the years ended December 31, 2015 and 2016, respectively. These costs are included within direct service costs and other operating expenses in the accompanying consolidated statements of income. Acquisition of 4D Pharmacy Management Systems, Inc. Pursuant to the March 17, 2015 Purchase Agreement (the “4D Agreement”) with 4D, on April 1, 2015 the Company acquired (the “4D Acquisition”) all of the outstanding equity interests of 4D. 4D was a privately held, full-service PBM serving managed care organizations, employers and government-sponsored benefit programs, such as Medicare Part D plans. As consideration for the 4D Acquisition, the Company paid a base price of $54.7 million, including net receipts of $0.3 million for working capital adjustments. In addition to the base purchase price, the Company made additional contingent payments of $20.0 million. The contingent payments were based on the achievement of certain growth targets in the underlying dual eligible membership served by 4D during calendar year 2015 and for the retention of certain business. The Company reports the results of operations of 4D within its Pharmacy Management segment. Acquisition of AlphaCare Holdings, Inc. Pursuant to the August 13, 2013 stock purchase agreement (the “AlphaCare Agreement”), on December 31, 2013 the Company acquired a 65% equity interest in AlphaCare Holdings, the holding company for AlphaCare, a Health Maintenance Organization (“HMO”) in New York that operates a New York Managed Long-Term Care Plan in Bronx, New York, Queens, Kings and Westchester Counties, and Medicare Plans in Bronx, New York, Queens and Kings Counties. During the year ended December 31, 2015, the Company purchased an additional $23.6 million in shares of Series B Participating Preferred Stock and Series C Participating Preferred Stock. During the year ended December 31, 2016, the Company purchased an additional $7.5 million in shares of Series C Participating Preferred Stock. As of December 31, 2016, the Company held an 84% interest and the remaining shareholders held a 16% interest in AlphaCare Holdings. Based on the Company’s 84% equity interest in AlphaCare Holdings, the Company has included the results of operations in its consolidated financial statements. The Company reports the results of operations of AlphaCare Holdings within the Healthcare segment. Acquisition of CDMI, LLC Pursuant to the March 31, 2014 purchase agreement (the “CDMI Agreement”) with CDMI, on April 30, 2014 the Company acquired all of the outstanding equity interests of CDMI. CDMI provides a range of clinical consulting programs and negotiates and administers drug rebates for managed care organizations and other customers. As consideration for the transaction, the Company paid a base price of $201.0 million, including net receipts of $4.0 million for working capital adjustments. In addition to the base purchase price, the Company made additional contingent payments of $100.0 million. The contingent payments were based upon CDMI meeting certain client retention and gross profit milestones. The Company reports the results of operations of CDMI within its Pharmacy Management segment. Other Acquisitions Pursuant to the February 9, 2016 purchase agreement (the “TMG Agreement”) with TMG, on February 29, 2016 the Company acquired all of the outstanding equity interests of TMG. TMG is a company with 30 years of expertise in community-based long-term care services and supports. As consideration for the transaction, the Company paid a base price of $14.8 million in cash, including net receipts of $0.2 million for working capital adjustments. In addition to the base purchase price, the TMG agreement provides for potential contingent payments up to a maximum aggregate of $15.0 million. The potential future payments are contingent upon the Company being awarded additional managed long-term services and supports contracts. The Company reports the results of operations of TMG within its Healthcare segment. Pursuant to the January 15, 2015 purchase agreement (the “HSM Agreement”) with HSM Physical Health, Inc. (“HSM”) and HSM Companies Inc., on January 31, 2015 the Company acquired all of the outstanding equity interests of HSM. HSM provides cost containment and utilization management services focused on physical and musculoskeletal health specialties. As consideration for the transaction, the Company paid a base price of $13.6 million in cash, including net payments of $0.1 million for working capital adjustments. The Company reports the results of operations of HSM within its Healthcare segment. Pursuant to the July 1, 2014 purchase agreement (the “Cobalt Agreement”) with Cobalt, the Company acquired all of the outstanding equity interests of Cobalt. Cobalt provides computerized cognitive behavioral therapy self-service programs. As consideration for the transaction, the Company paid a base price of $7.8 million in cash, including net receipts of $0.2 million for working capital adjustments. In addition to the base purchase price, the Cobalt Agreement provides for potential contingent payments up to a maximum aggregate amount of $6.0 million. The potential future payments are contingent upon engagement of new members and new contract execution through June 30, 2017. The Company reports the results of operations of Cobalt within its Healthcare segment. Pro Forma Financial Information The following unaudited supplemental pro forma information represents the Company’s consolidated results of operations for the year ended December 31, 2015 as if the acquisitions of AFSC, TMG, and Veridicus had occurred on January 1, 2015, and for the year ended December 31, 2016, as if the acquisitions of AFSC, TMG and Veridicus had occurred on January 1, 2016, in all cases after giving effect to certain adjustments including interest income, depreciation, amortization, and stock compensation expense. Such pro forma information does not purport to be indicative of operating results that would have been reported had the acquisitions of AFSC, TMG and Veridicus occurred on January 1, 2015 and 2016 (in thousands, except per share amounts): Year Ended December 31, 2015 2016 (unaudited) (unaudited) Net revenue $ $ Net income attributable to Magellan Health, Inc. $ $ Income per common share attributable to Magellan Health, Inc.: Basic $ $ Diluted $ $ |
Benefit Plans
Benefit Plans | 12 Months Ended |
Dec. 31, 2016 | |
Benefit Plans | |
Benefit Plans | 4. Benefit Plans The Company has a defined contribution retirement plan (the “401(k) Plan”). Employee participants can elect to contribute up to 75 percent of their compensation, subject to Internal Revenue Service (“IRS”) deferral limitations. The Company makes contributions to the 401(k) Plan based on employee compensation and contributions. The Company matches 50 percent of each employee’s contribution up to 6 percent of their annual compensation. The Company recognized $8.7 million, $9.6 million and $11.1 million of expense for the years ended December 31, 2014, 2015 and 2016, respectively, for matching contributions to the 401(k) Plan. |
Long-Term Debt and Capital Leas
Long-Term Debt and Capital Lease Obligations | 12 Months Ended |
Dec. 31, 2016 | |
Long-Term Debt and Capital Lease Obligations. | |
Long-Term Debt and Capital Lease Obligations | 5. Long‑Term Debt and Capital Lease Obligations On July 23, 2014, the Company entered into a $500.0 million Credit Agreement with various lenders that provides for Magellan Rx Management, Inc. (a wholly owned subsidiary of Magellan Health, Inc.) 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 million (the “2014 Credit Facility”). On December 2, 2015, the Company entered into an amendment to the 2014 Credit Facility under which Magellan Pharmacy Services, Inc. (a wholly owned subsidiary of Magellan Health, Inc.) became a party to the $500.0 million Credit Agreement as the borrower and assumed all of the obligations of Magellan Rx Management, Inc. The 2014 Credit Facility is guaranteed by substantially all of the non-regulated subsidiaries of the Company and will mature on July 23, 2019; however, the Company holds an option to extend the 2014 Credit Facility for an additional one year period. Under the 2014 Credit Facility, the annual interest rate on revolving and term loan borrowings is equal to (i) in the case of base rate loans, the sum of a borrowing margin ranging from 0.50 percent to 1.00 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.00 percent, or (ii) in the case of Eurodollar rate loans, the sum of a borrowing margin ranging from 1.50 percent to 2.00 percent plus the Eurodollar rate for the selected interest period. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion, with the borrowing margin for these loans adjusted from time to time based on the Company’s total leverage ratio. Letters of credit issued bear interest equal to the borrowing margin for Eurodollar loans that ranges from 1.50 percent to 2.00 percent, with the commitment commission on the unused revolving loan commitment ranging from 0.20 percent to 0.35 percent. These letter of credit and commitment commission rates are adjusted from time to time based on the Company’s total leverage ratio. Under the 2014 Credit Facility, on September 30, 2014, the Company completed a draw-down of the $250.0 million term loan (the “2014 Term Loan”). The borrowings have been maintained as a Eurodollar loan. The 2014 Term Loan is subject to certain quarterly amortization payments. As of December 31, 2016 the remaining balance on the 2014 Term Loan was $218.7 million. The 2014 Term Loan will mature on July 23, 2019. As of December 31, 2016, the 2014 Term Loan bore interest at a rate of 1.625 percent plus the London Interbank Offered Rate (“LIBOR”), which was equivalent to a total interest rate of approximately 2.395 percent. For the year ended December 31, 2016, the weighted average interest rate was approximately 2.034 percent. On June 27, 2016, the Company entered into a $200.0 million Credit Agreement with various lenders that provides for a $200.0 million term loan (the “2016 Term Loan”) to Magellan Pharmacy Services, Inc. (the “2016 Credit Facility”). The 2016 Credit Facility is guaranteed by substantially all of the non-regulated subsidiaries of the Company and will mature on December 29, 2017. Under the 2016 Credit Facility, the annual interest rate on the term loan is equal to (i) in the case of base rate loans, the sum of a borrowing margin ranging from 0.25 percent to 0.75 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.00 percent, or (ii) in the case of Eurodollar rate loans, the sum of a borrowing margin ranging from 1.25 percent to 1.75 percent plus the Eurodollar rate for the selected interest period. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion, with the borrowing margin for these loans adjusted from time to time based on the Company’s total leverage ratio. The borrowings under the 2016 Term Loan have been maintained as a Eurodollar loan. As of December 31, 2016 the remaining balance on the 2016 Term Loan was $200.0 million and bore interest at a rate of approximately 1.375 percent plus the LIBOR, which was equivalent to a total interest rate of approximately 2.145 percent. During the period the term loan was outstanding, from June 27, 2016 through December 31, 2016, the weighted average interest rate was approximately 1.901 percent. As of December 30, 2016, the contractual maturities of the term loans under the 2014 Credit Facility and the 2016 Credit Facility (collectively the “Credit Facilities”) were as follows: 2017—$225.0 million; 2018—$25.0 million; and 2019—$168.7 million. The Company had $33.4 million and $33.7 million of letters of credit outstanding at December 31, 2015 and 2016, respectively. The Company had no revolving loan borrowings at December 31, 2015. Beginning in April 2016, due to the timing of working capital needs, the Company has borrowed from the revolving loan under the 2014 Credit Facility. The revolving loan borrowings have been in the form of Eurodollar rate loans and totaled $175.0 million at December 31, 2016. The Credit Facilities contains covenants that limit management’s discretion in operating the Company’s business by restricting or limiting the Company’s ability, among other things, to: · 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 or merge or consolidate with another company; and · enter into some types of transactions with affiliates. There were $24.4 million and $26.0 million of capital lease obligations at December 31, 2015 and December 31, 2016, respectively. The Company’s capital lease obligations represent amounts due under leases for certain properties and computer software and equipment. The recorded gross cost of capital leased assets was $39.3 million and $41.7 million at December 31, 2015 and 2016, respectively. |
Stockholders' Equity
Stockholders' Equity | 12 Months Ended |
Dec. 31, 2016 | |
Stockholders' Equity | |
Stockholders' Equity | 6. Stockholders’ Equity Stock Compensation At December 31, 2015 and 2016, the Company had equity-based employee incentive plans. Prior to May 18, 2011, the Company utilized the 2008 Management Incentive Plan (the “2008 MIP”), 2006 Management Incentive Plan (the “2006 MIP”), 2003 Management Incentive Plan (the “2003 MIP”) and 2006 Directors’ Equity Compensation Plan (collectively the “Preexisting Plans”) for grants of stock options, restricted stock, restricted stock units, and stock appreciation rights, to provide incentives to officers, employees and non-employee directors. On February 18, 2011, the board of directors of the Company approved the 2011 Management Incentive Plan (“2011 MIP”), and the 2011 MIP was approved by the Company’s shareholders at the 2011 Annual Meeting of Shareholders on May 18, 2011. The 2011 MIP provides for the delivery of up to a number of shares equal to (i) 5,000,000 shares of common stock, plus (ii) the number of shares subject to outstanding awards under the Preexisting Plans which become available after shareholder approval of the 2011 MIP as a result of forfeitures, expirations, and in other permitted ways under the share recapture provisions of the 2011 MIP. Delivery of shares under “full-value” awards (awards other than options or stock appreciation rights) will be counted for each share delivered as 2.29 shares against the total number of shares reserved under the 2011 MIP. Upon shareholder approval of the 2011 MIP, no further awards were made under the Preexisting Plans, and any shares that remained available for new awards (i.e., were not committed for outstanding awards) under the Preexisting Plans were not carried forward to the 2011 MIP. On February 25, 2016, the board of directors of the Company approved the 2016 Management Incentive Plan (“2016 MIP”), and the 2016 MIP was approved by the Company’s shareholders at the 2016 Annual Meeting of Shareholders on May 18, 2016. The 2016 MIP provides for the delivery of up to a number of shares equal to (i) 4,000,000 shares of common stock, plus (ii) the number of shares subject to outstanding awards under the 2011 MIP and Preexisting Plans which become available after shareholder approval of the 2016 MIP as a result of forfeitures, expirations, and in other permitted ways under the share recapture provisions of the 2016 MIP. Delivery of shares under “full-value” awards (awards other than options or stock appreciation rights) will be counted for each share delivered as 1.60 shares against the total number of shares reserved under the 2016 MIP. The 2011 MIP remains in effect and new awards will continue to be granted from the 2011 MIP for participants that are not covered officers under Section 162(m) if the Internal Revenue Code until all shares are depleted. The 2011 MIP and 2016 MIP provides for awards of stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), stock appreciation rights, cash‑denominated awards and any combination of the foregoing. A restricted stock unit is a notional account representing the right to receive a share of the Company’s Common Stock (or, at the Company’s option, cash in lieu thereof) at some future date. In general, stock options vest ratably on each anniversary over the three years subsequent to grant, and have a ten year life. With the exception of the shares received by the principal owners of Partners Rx and CDMI, RSAs generally vest on the anniversary of the grant. In general, RSUs vest ratably on each anniversary over the three years subsequent to grant, assuming that the associated performance hurdle(s) for that vesting year are met. Stock compensation expense is recognized using an accelerated method over the vesting period based upon the continued employment of the RSU holder and the probability of achievement of the performance hurdle(s). RSUs granted in 2013 and 2014 have performance thresholds based on EPS and return on equity (“ROE”). The PSUs vest over three years and are subject to market-based conditions. At December 31, 2016, 204,858 shares and 4,128,892 shares of the Company’s common stock remain available for future grant under the Company’s 2011 MIP and 2016 MIP, respectively. On February 27, 2014 the board of directors of the Company approved the 2014 Employee Stock Purchase Plan (“2014 ESPP”), and the 2014 ESPP was approved by the Company’s shareholders at the 2014 Annual Meeting of Shareholders on May 21, 2014. The 2014 ESPP provides for up to 200,000 shares of the Company’s ordinary common stock, plus the number of shares remaining under the 2011 Employee Stock Purchase Plan, to be issued. During the years ended December 31, 2015 and 2016, 39,673 and 48,815 shares of the Company’s common stock were issued under the employee stock purchase plans, respectively. At December 31, 2016, 128,613 shares of the Company’s common stock remain available for future grant under the Company’s 2014 ESPP. Stock Options Summarized information related to the Company’s stock options for the years ended December 31, 2014, 2015 and 2016 is as follows: 2014 2015 Weighted Weighted Average Average Exercise Exercise Options Price Options Price Outstanding, beginning of period $ $ Granted Forfeited Exercised Outstanding, end of period 2016 Weighted Average Weighted Remaining Aggregate Average Contractual Intrinsic Exercise Term Value Options Price (in years) (in thousands) Outstanding, beginning of period $ Granted Forfeited Exercised Outstanding, end of period $ $ Vested and expected to vest at end of period $ $ Exercisable, end of period $ $ The aggregate intrinsic value in the table above represents the total pre‑tax intrinsic value (based upon the difference between the Company’s closing stock price on the last trading day of 2016 of $75.25 and the exercise price) for all in‑the‑money options as of December 31, 2016. This amount changes based on the fair market value of the Company’s common stock. The total pre‑tax intrinsic value of options during the years ended December 31, 2014, 2015 and 2016 was $19.7 million, $21.8 million, and $9.3 million, respectively. The weighted average grant date fair value per share of substantially all stock options granted during the years ended December 31, 2014, 2015 and 2016 was $13.49, $13.69 and $15.05, respectively, as estimated using the Black‑Scholes‑Merton option pricing model based on the following weighted average assumptions: 2014 2015 2016 Risk-free interest rate % % % Expected life years years years Expected volatility % % % Expected dividend yield % % % For the years ended December 31, 2014, 2015 and 2016, expected volatility was based on the historical volatility of the Company’s stock price. As of December 31, 2016, there was $10.9 million of total unrecognized compensation expense related to nonvested stock options that is expected to be recognized over a weighted average remaining recognition period of 1.72 years. The total fair value of options vested during the year ended December 31, 2016 was $9.3 million. In the years ended December 31, 2014 and 2015, $3.2 million and $4.1 million , respectively, of benefits of tax deductions in excess of recognized stock compensation expense were realized and as such were reported as financing cash flows. For the year ended December 31, 2015, the net change to additional paid‑in capital related to tax benefits (deficiencies) was $3.5 million which primarily consists of the $4.1 million of excess tax benefits offset by $0.6 million of tax deficiencies. For the year ended December 31, 2014, the net change to additional paid‑in capital related to tax benefits (deficiencies) was $3.0 million which primarily consists of the $3.2 million of excess tax benefits offset by $0.3 million of tax deficiencies. These tax benefits were reported as a financing cash flow, rather than as an operating cash flow. In the year ended December 31, 2016, the net tax benefit from excess tax deductions was $0.8 million, which consists of $1.0 million of excess tax benefits offset by $0.2 million of tax deficiencies. Due to the adoption of ASU 2016-09 in 2016, this net tax benefit reduced income tax expense rather than being recorded as a change in additional paid-in-capital. Consistent with the adoption of this provision, the net tax benefit for the year ended December 31, 2016 is reported as an operating cash flow, rather than a financing cash flow. Restricted Stock Awards Summarized information related to the Company’s nonvested RSAs for the years ended December 31, 2014, 2015 and 2016 is as follows: 2014 2015 2016 Weighted Weighted Weighted Average Average Average Grant Date Grant Date Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Outstanding, beginning of period $ $ $ Awarded (1) Vested Forfeited — — — — — — Outstanding, ending of period (1) December 31, 2014 includes 1,433,946 shares associated with the CDMI acquisition. December 31, 2016 includes 60,069 shares associated with the AFSC acquisition. As of December 31, 2016, there was $18.1 million of unrecognized stock compensation expense related to nonvested restricted stock awards. This cost is expected to be recognized over a weighted‑average period of 0.93 years. Restricted Stock Units Summarized information related to the Company’s nonvested RSUs for the years ended December 31, 2014, 2015 and 2016 is as follows: 2014 2015 2016 Weighted Weighted Weighted Average Average Average Grant Date Grant Date Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Outstanding, beginning of period $ $ $ Awarded Vested Forfeited Outstanding, ending of period As of December 31, 2016, there was $5.8 million of unrecognized stock compensation expense related to nonvested restricted stock units. This cost is expected to be recognized over a weighted-average period of 1.52 years . Performance-Based Restricted Stock Units Summarized information related to the Company’s nonvested PSUs for the years ended December 31, 2015 and 2016 is as follows: 2015 2016 Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Outstanding, beginning of period — $ — $ Awarded Vested — — — — Forfeited Outstanding, end of period The weighted average estimated fair value of the PSUs granted in year ended December 31, 2015 was $85.00, which was derived from a Monte Carlo simulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of 1%, and expected volatility of 15% to 52% (average of 28%). The PSUs will entitle the grantee to receive a number of shares of the Company’s Common Stock determined over a three-year performance period ending on December 31, 2017 and vesting on March 4, 2018, the settlement date, provided the grantee remains in the service of the Company on the settlement date. The Company expenses the cost of these awards ratably over the requisite service period. The number of shares for which the PSUs will be settled will be a percentage of shares for which the award is targeted and will depend on the Company’s total shareholder return (as defined below), expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peer group (as defined below). The number of shares for which the PSUs will be settled vary from zero to 200 percent of the shares specified in the grant. Total shareholder return is determined by dividing the average share value of the Company’s Common Stock over the 30 trading days preceding January 1, 2018 by the average share value of the Company’s Common Stock over the 30 trading days beginning on January 1, 2015, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group includes 54 companies which comprise the S&P Health Care Services Industry Index, which was selected by the Compensation Committee of the Company’s Board of Directors and includes a range of healthcare companies operating in several business segments. The weighted average estimated fair value of the PSUs granted in the year ended December 31, 2016 was $97.22, which was derived from a Monte Carlo simulation. Significant assumptions utilized in estimating the value of the awards granted include an expected dividend yield of 0%, a risk free rate of 1%, and expected volatility of 16% to 81% (average of 32%). The PSUs granted in the year ended December 31, 2016, will entitle the grantee to receive a number of shares of the Company’s common stock determined over a three-year performance period ending on December 31, 2018 and vesting on March 3, 2019, the settlement date, provided the grantee remains in the service of the Company on the settlement date. The Company expenses the cost of these awards ratably over the requisite service period. The number of shares for which the PSUs will be settled will be a percentage of shares for which the award is targeted and will depend on the Company’s total shareholder return (as defined below), expressed as a percentile ranking of the Company’s total shareholder return as compared to the Company’s peer group (as defined below). The number of shares for which the PSUs will be settled vary from zero to 200 percent of the shares specified in the grant. Total shareholder return is determined by dividing the average share value of the Company’s common stock over the 30 trading days preceding January 1, 2019 by the average share value of the Company’s common stock over the 30 trading days beginning on January 1, 2016, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group includes 56 companies which comprise the S&P Health Care Services Industry Index, which was selected by the compensation committee of the Company’s board of directors and includes a range of healthcare companies operating in several business segments. As of December 31, 2016, there was $6.1 million of unrecognized stock compensation expense related to nonvested PSUs. This cost is expected to be recognized over a weighted‑average period of 1.97 years. Income per Common Share Attributable to Magellan Health, Inc. The following table reconciles income (numerator) and shares (denominator) used in the Company’s computations of net income per share for the years ended December 31, 2014, 2015 and 2016 (in thousands, except per share data): 2014 2015 2016 Numerator: Net income attributable to Magellan Health, Inc. $ $ $ Denominator: Weighted average number of common shares outstanding—basic Common stock equivalents—stock options Common stock equivalents—RSAs Common stock equivalents—RSUs Common stock equivalents—PSUs — Common stock equivalents—employee stock purchase plan Weighted average number of common shares outstanding—diluted Net income attributable to Magellan Health, Inc. per common share—basic $ $ $ Net income attributable to Magellan Health, Inc. per common share—diluted $ $ $ The weighted average number of common shares outstanding for the years ended December 31, 2014, 2015 and 2016 was calculated using outstanding shares of the Company’s common stock. Common stock equivalents included in the calculation of diluted weighted average common shares outstanding for the years ended December 31, 2014, 2015 and 2016 represent stock options to purchase shares of the Company’s common stock, restricted stock awards, restricted stock units and stock purchased under the ESPP. For the years ended December 31, 2014, 2015 and 2016, the Company had additional potential dilutive securities outstanding representing 0.7 million, 1.3 million and 1.5 million options, respectively, that were not included in the computation of dilutive securities because they were anti‑dilutive for such periods. Had these shares not been anti‑dilutive, all of these shares would not have been included in the net income per common share calculation as the Company uses the treasury stock method of calculating diluted shares. Stock Repurchases The Company’s board of directors has previously authorized a series of stock repurchase plans. Stock repurchases for each such plan could be executed through open market repurchases, privately negotiated transactions, accelerated share repurchases or other means. The board of directors authorized management to execute stock repurchase transactions from time to time and in such amounts and via such methods as management deemed appropriate. Each stock repurchase program could be limited or terminated at any time without prior notice. On October 25, 2011, the Company’s board of directors approved a new stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 25, 2013. On July 24, 2013 the Company’s board of directors approved an increase and extension of the stock repurchase plan which authorized the Company to purchase up to $300 million of its outstanding stock through October 25, 2015. On November 21, 2014, the Company reached aggregate purchases of $300 million and the program was completed. Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost November 11, 2011 - December 31, 2011 $ $ January 1, 2012 - December 31, 2012 January 1, 2013 - December 31, 2013 January 1, 2014 - November 21, 2014 $ On October 22, 2014, the Company’s board of directors approved a new stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 22, 2016. On October 21, 2015, the Company reached aggregate purchases of $200 million and the program was completed. Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost November 24, 2014 - December 31, 2014 $ $ January 1, 2015 - October 21, 2015 $ On October 26, 2015, the Company’s board of directors approved a stock repurchase plan which authorized the Company to purchase up to $200 million of its outstanding common stock through October 26, 2017. Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost October 26, 2015 - December 31, 2015 $ $ January 1, 2016 - December 31, 2016 $ The Company made no share repurchases from January 1, 2017 through February 22, 2017. Recent Sales of Unregistered Securities On March 31, 2014, the Company and CDMI, LLC entered into a purchase agreement pursuant to which on April 30, 2014 the sellers and key management of CDMI purchased 1,433,946 shares of the Company’s restricted stock for a total purchase price of $80.0 million. The aggregate number of shares issued was determined by dividing $80.0 million by the volume weighted average trading prices per share of Magellan’s ordinary common stock on the NASDAQ as reported by Bloomberg US L.P. using its “Volume at Price” function over the five trading days ended on the trading day prior to the closing of the purchase agreement. The shares received by such sellers and key management of CDMI are subject to vesting over 42 months with 25% vesting after 18 months and 75% vesting after 42 months, conditioned on continued employment. The shares were issued to the sellers and key management of CDMI in a private placement pursuant to Section 4(a)(2) of the Securities Act. On May 15, 2016, the Company and AFSC entered into a purchase agreement pursuant to which on July 1, 2016 the sellers and key management of AFSC purchased 60,069 shares of the Company’s restricted stock for a total purchase price of $4.0 million. The aggregate number of shares issued was determined by dividing $4.0 million by the average trading prices per share of Magellan’s ordinary common stock on the NASDAQ over the five trading days ended on the trading day prior to the execution of the purchase agreement. The shares received by such sellers and key management of AFSC are subject to vesting over two years with 50% vesting on the first anniversary of the acquisition and 50% vesting on the second anniversary of the acquisition, conditioned on continued employment with the Company on the applicable vesting dates.. The shares were issued to the sellers and key management of AFSC in a private placement pursuant to Section 4(a)(2) of the Securities Act. |
Income Taxes
Income Taxes | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Income Taxes | 7. Income Taxes Income Tax Expense The components of income tax expense (benefit) for the following years ended December 31 were as follows (in thousands): 2014 2015 2016 Income taxes currently payable: Federal $ $ $ State Deferred income taxes (benefits): Federal State Total income tax expense $ $ $ Total income tax expense for the years ended December 31 was different from the amount computed using the statutory federal income tax rate of 35 percent for the following reasons (in thousands): 2014 2015 2016 Income tax expense at federal statutory rate $ $ $ State income taxes, net of federal income tax benefit Tax contingencies reversed due to statute closings Change in valuation allowances Non-deductible HIF fees Other-net Total income tax expense $ $ $ Deferred Income Taxes The significant components of deferred tax assets and liabilities at December 31 were as follows (in thousands): 2015 2016 Deferred tax assets: Net operating loss carryforwards $ $ Share-based compensation Other accrued compensation Claims reserves Deferred revenue Other non-deductible accrued liabilities Amortization of goodwill and intangible assets Indirect tax benefits Other deferred tax assets Total deferred tax assets Valuation allowances Deferred tax assets after valuation allowances Deferred tax liabilities: Depreciation Other deferred tax liabilities Total deferred tax liabilities Net deferred tax assets (liabilities) $ $ The Company has $1.8 million of federal net operating loss carryforwards (“NOLs”) available to reduce its federal consolidated taxable income in 2017 and subsequent years. These NOLs will expire in 2018 and 2019 if not used and are subject to examination and adjustment by the IRS. AlphaCare has $41.0 million of federal NOLs available to reduce its consolidated taxable income in 2017 and subsequent years. These NOLs will expire in 2033 through 2036 if not used and are subject to examination and adjustment by the IRS. The Company and its subsidiaries also have $103.6 million of state NOLs available to reduce state taxable income at certain subsidiaries in 2016 and subsequent years. Most of these NOLs will expire in 2017 through 2035 if not used and are subject to examination and adjustment by the respective state tax authorities. The Company’s valuation allowances against deferred tax assets were $15.5 million and $17.1 million as of December 31, 2015 and 2016, respectively, mostly relating to uncertainties regarding the eventual realization of the AlphaCare federal NOLs and certain state NOLs. The $1.6 million increase in valuation allowance recorded to income tax expense in the current year mostly consists of an additional $3.3 million allowance for federal NOLs at AlphaCare, offset by a $1.8 million reversal for actual and projected utilization of state NOL carryovers due to improved operations. Reversals of valuation allowances are recorded in the period they occur, typically as reductions to income tax expense. Determination of the amount of deferred tax assets considered realizable requires significant judgment and estimation regarding the forecasts of future taxable income which are consistent with the plans and estimates the Company uses to manage the underlying businesses. Although consideration is also given to potential tax planning strategies which might be available to improve the realization of deferred tax assets, none were identified which were both prudent and reasonable. The Company believes taxable income expected to be generated in the future will be sufficient to support realization of the Company’s deferred tax assets, as reduced by valuation allowances. This determination is based upon earnings history and future earnings expectations. Because AlphaCare has no earnings history due to the NOLs incurred to date, a full valuation allowance is recorded on such NOLs. Other than deferred tax benefits attributable to operating loss carryforwards, there are no time constraints within which the Company’s deferred tax assets must be realized. Future changes in the estimated realizability of deferred tax assets could materially affect the Company’s financial condition and results of operations. Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands): 2014 2015 2016 Balance as of beginning of period $ $ $ Additions for current year tax positions Additions for tax positions of prior years Reductions for tax positions of prior years Reductions due to lapses of applicable statutes of limitations Reductions due to settlements with taxing authorities — — Balance as of end of period $ $ $ If these unrecognized tax benefits had been realized as of December 31, 2015 and 2016, $8.6 million and $9.1 million, respectively, would have reduced income tax expense. The Company continually performs a comprehensive review of its tax positions and accrues amounts for tax contingencies related to uncertain tax positions. Based upon these reviews, the status of ongoing tax audits and the expiration of applicable statutes of limitations, accruals are adjusted as necessary. The tax benefit from an uncertain tax position is recognized when it is more likely than not that, based on the technical merits, the position will be sustained upon examination, including resolution of any related appeals or litigation processes. The Company also adjusts these liabilities for unrecognized tax benefits when its judgment changes as a result of the evaluation of new information not previously available. However, the ultimate resolution of a disputed tax position following an examination by a taxing authority could result in a payment that is materially different from that accrued by the Company. These differences are reflected as increases or decreases to income tax expense in the period in which they are determined. However, reversals of unrecognized tax benefits related to deductions for stock compensation in excess of the related book are recorded as reductions to deferred tax assets, although prior to the adoption of ASU 2016-09 in 2016 were recorded as increases in additional paid‑in capital. The statutes of limitations regarding the assessment of federal and most state and local income taxes for 2012 expired during 2016. As a result, $2.2 million of tax contingency reserves recorded as of December 31, 2015 were reversed in 2016, of which $1.5 million was reflected as a reduction to income tax expense and $0.7 million as a decrease to deferred tax assets. Additionally, $0.1 million of accrued interest was reversed in 2016 and reflected as reductions to income tax expense due to the closing of statutes of limitations on tax assessments. The statutes of limitations regarding the assessment of federal and most state and local income taxes for 2011 expired during 2015. As a result, $3.1 million of tax contingency reserves recorded as of December 31, 2014 were reversed in 2015, of which $2.0 million was reflected as a reduction to income tax expense, $1.0 million as a decrease to deferred tax assets, and the remainder as an increase to additional paid-in capital. Additionally, $0.4 million of accrued interest and $0.7 million of unrecognized state tax benefits were reversed in 2015 and reflected as reductions to income tax expense due to the closing of statutes of limitations on tax assessments and the favorable settlement of state income tax examinations. The statutes of limitations regarding the assessment of federal and most state and local income taxes for 2010 expired during 2014. As a result, $19.5 million of tax contingency reserves recorded as of December 31, 2013 were reversed in 2014, of which $16.0 million was reflected as a reduction to income tax expense, $2.6 million as an increase to additional paid-in capital, and the remainder as a decrease to deferred tax assets. Additionally, $1.4 million of accrued interest was reversed in 2014 and reflected as a reduction to income tax expense due to the closing of statutes of limitations on tax assessments. With few exceptions, the Company is no longer subject to income tax assessments by tax authorities for years ended prior to 2013. Further, it is reasonably possible the statutes of limitations regarding the assessment of federal and most state and local income taxes for 2013 could expire during 2017. Up to $2.6 million of unrecognized tax benefits recorded as of December 31, 2016 could be reversed during 2017 as a result of statute expirations, of which $1.8 million would be reflected as a reduction to income tax expense and $0.8 million as a decrease to deferred tax assets. All reversals from statute expirations would be reflected as discrete adjustments during the quarter in which the respective event occurs. As of December 31, 2015 and 2016, the Company had accrued approximately $0.2 million and $0.3 million, respectively, for the potential payment of interest and penalties. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the years ended December 31, 2014, 2015 and 2016, the Company recorded approximately $(0.8) million, $(0.4) million and $0.1 million in interest and penalties. |
Supplemental Cash Flow Informat
Supplemental Cash Flow Information | 12 Months Ended |
Dec. 31, 2016 | |
Supplemental Cash Flow Information | |
Supplemental Cash Flow Information | 8. Supplemental Cash Flow Information Supplemental cash flow information for the years ended December 31, 2014, 2015 and 2016 is as follows (in thousands): 2014 2015 2016 Income taxes paid, net of refunds $ $ $ Interest paid $ $ $ Assets acquired through capital leases $ $ $ |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9. Commitments and Contingencies Insurance The Company maintains a program of insurance coverage for a broad range of risks in its business. The Company has renewed its general, professional and managed care liability insurance policies with unaffiliated insurers for a one-year period from June 17, 2016 to June 17, 2017. The general liability policy is written on an “occurrence” basis, subject to a $0.05 million per claim un‑aggregated self‑insured retention. The professional liability and managed care errors and omissions liability policies are written on a “claims‑made” basis, subject to a $1.0 million per claim ($10.0 million per class action claim) un‑aggregated self‑insured retention for managed care errors and omissions liability, and a $0.05 million per claim un‑aggregated self‑insured retention for professional liability. The Company maintains a separate general and professional liability insurance policy with an unaffiliated insurer for its specialty pharmaceutical dispensing operations. The specialty pharmaceutical dispensing operations insurance policy has a one-year term for the period June 17, 2016 to June 17, 2017. The general liability policy is written on an “occurrence” basis and the professional liability policy is written on a “claims‑made” basis, subject to a $0.05 million per claim and $0.25 million aggregated self‑insured retention. The Company is responsible for claims within its self-insured retentions, and for portions of claims reported after the expiration date of the policies if they are not renewed, or if policy limits are exceeded. The Company also purchases excess liability coverage in an amount that management believes to be reasonable for the size and profile of the organization. Regulatory Issues The managed healthcare industry is subject to numerous laws and regulations. The subjects of such laws and regulations cover, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirements, information privacy and security, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Over the past several years, government activity has increased with respect to investigations and/or allegations concerning possible violations of fraud and abuse and false claims statutes and/or regulations by healthcare organizations and insurers. Entities that are found to have violated these laws and regulations may be excluded from participating in government healthcare programs, subjected to fines or penalties or required to repay amounts received from the government for previously billed patient services. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time. In addition, regulators of certain of the Company’s subsidiaries may exercise certain discretionary rights under regulations including increasing their supervision of such entities, requiring additional restricted cash or other security or seizing or otherwise taking control of the assets and operations of such subsidiaries. Legal The Company’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, 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, the Company has recorded reserves that 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’s financial condition or results of operations; however, there can be no assurance in this regard. Operating Leases The Company leases certain of its operating facilities and equipment. The leases, which expire at various dates through January 2025, generally require the Company to pay all maintenance, property tax and insurance costs. At December 31, 2016, aggregate amounts of future minimum payments under operating leases were as follows: 2017—$17.1 million; 2018—$13.2 million; 2019—$12.3 million; 2020—$5.6 million; 2021—$4.1 million; 2022 and beyond—$3.1 million. Operating lease obligations include estimated future lease payments for both open and closed offices. At December 31, 2016, aggregate amounts of future minimum rentals to be received under operating subleases were as follows: 2017—$0.2 million; 2018—$0.1 million; and 2019—$0.2 million. Operating sublease rentals to be received relate to a portion of the Company’s former headquarters. Rent expense is recognized on a straight‑line basis over the terms of the leases. Rent expense was $17.4 million, $15.2 million and $16.2 million for the years ended December 31, 2014, 2015 and 2016, respectively. Capital Leases At December 31, 2016, aggregate future amounts of minimum payments under capital leases, net of leasehold improvement allowances, were as follows: 2017—$5.5 million; 2018—$3.8 million; 2019—$2.9 million; 2020—$3.5 million; 2021—$3.6 million; 2022 and beyond—$11.3 million. Included in the future amounts payable under capital lease commitments is imputed interest of $4.6 million. |
Business Segment Information
Business Segment Information | 12 Months Ended |
Dec. 31, 2016 | |
Business Segment Information | |
Business Segment Information | 10. Business Segment Information The accounting policies of the Company’s segments are the same as those described in Note 1—“General.” The Company evaluates performance of its segments based on profit or loss from operations before stock compensation expense, depreciation and amortization, interest expense, interest and other income, changes in the fair value of contingent consideration recorded in relation to acquisitions, gain on sale of assets, special charges or benefits, and income taxes (“Segment Profit”). Management uses Segment Profit information for internal reporting and control purposes and considers it important in making decisions regarding the allocation of capital and other resources, risk assessment and employee compensation, among other matters. Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits management services for certain of Healthcare’s customers. In addition, Pharmacy Management provides pharmacy benefits management for the Company’s employees covered under its medical plan. As such, revenue, cost of goods sold and direct service costs and other related to these arrangements are eliminated. The Company’s segments are defined above. The following tables summarize, for the periods indicated, operating results by business segment (in thousands): Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2014 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) Changes in fair value of contingent consideration (1) — Less: non-controlling interest segment profit (loss) (2) — — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ — $ $ Net accounts receivable Investments — Pharmaceutical inventory — — Goodwill — Other intangible assets, net — Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2015 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care — — Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) (4) Changes in fair value of contingent consideration (1) — Less: non-controlling interest segment profit (loss) (2) — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ — $ — $ Net accounts receivable Investments — Pharmaceutical inventory — — Goodwill — Other intangible assets, net — Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2016 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care — — Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) (4) Changes in fair value of contingent consideration (1) — Impairment of intangible assets (1) — — Less: non-controlling interest segment profit (loss) (2) — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ $ $ Net accounts receivable Investments Pharmaceutical inventory — — Goodwill — Other intangible assets, net — (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to the acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of Segment Profit. (2) The non-controlling interest portion of AlphaCare’s segment profit (loss) is excluded from the computation of Segment Profit. (3) Identifiable assets by business segment are those assets that are used in the operations of each segment. The remainder of the Company’s assets cannot be specifically identified by segment. (4) Effective January 1, 2016, the Company implemented changes related to the allocation of Corporate operational and support functions. These changes were applied retrospectively. The following tables summarize, for the periods indicated, the changes by business segment (in thousands): Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2014 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2015 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2016 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ The following table reconciles consolidated income before income taxes to Segment Profit for the years ended December 31, 2014, 2015 and 2016 (in thousands): 2014 2015 2016 Income before income taxes $ $ $ Stock compensation expense Changes in fair value of contingent consideration Impairment of intangible assets — — Non-controlling interest segment profit (loss) Depreciation and amortization Interest expense Interest and other income Segment Profit $ $ $ |
Selected Quarterly Financial Da
Selected Quarterly Financial Data (Unaudited) | 12 Months Ended |
Dec. 31, 2016 | |
Selected Quarterly Financial Data (Unaudited) | |
Selected Quarterly Financial Data (Unaudited) | 11. Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2015 and 2016 (in thousands, except per share amounts): For the Quarter Ended March 31, June 30, September 30, December 31, 2015 2015 2015 2015 Year Ended December 31, 2015 Net revenue: Managed care and other $ $ $ $ PBM and dispensing Total net revenue Costs and expenses: Cost of care Cost of goods sold Direct service costs and other operating expenses (1) (2) Depreciation and amortization Interest expense Interest and other income Total costs and expenses Income (loss) before income taxes Provision (benefit) for income taxes Net income (loss) Less: net income (loss) attributable to non-controlling interest Net income (loss) attributable to Magellan Health, Inc. $ $ $ $ Weighted average number of common shares outstanding—basic Weighted average number of common shares outstanding—diluted Net income (loss) per common share attributable to Magellan Health, Inc.: Net income (loss) per common share—basic: $ $ $ $ Net income (loss) per common share—diluted: $ $ $ $ For the Quarter Ended March 31, June 30, September 30, December 31, 2016 2016 2016 2016 Year Ended December 31, 2016 Net revenue: Managed care and other $ $ $ $ PBM and dispensing Total net revenue Costs and expenses: Cost of care Cost of goods sold Direct service costs and other operating expenses (3) (4) (5) Depreciation and amortization Interest expense Interest and other income Total costs and expenses Income before income taxes Provision for income taxes Net income Less: net income attributable to non-controlling interest Net income attributable to Magellan Health, Inc. $ $ $ $ Weighted average number of common shares outstanding—basic Weighted average number of common shares outstanding—diluted (6) Net income per common share attributable to Magellan Health, Inc.: Net income per common share—basic: $ $ $ $ Net income per common share—diluted: $ $ $ $ (1) Includes stock compensation expense of $13,901, $13,795, $12,897 and $9,791 for the quarters ended March 31, June 30, September 30 and December 31, 2015, respectively. (2) Includes changes in fair value of contingent consideration of $14,969, $2,567, $29,738 and $(3,017) for the quarters ended March 31, June 30, September 30 and December 31, 2015, respectively. (3) Includes stock compensation expense of $8,887, $ 9,510 , $ 9,176 and $ 9,849 for the quarters ended March 31, June 30, September 30 and December 31, 2016, respectively. (4) Includes changes in fair value of contingent consideration of $(266), $ 463 , $313 and $(614) for the quarters ended March 31, June 30, September 30 and December 31, 2016, respectively. (5) Includes impairment of intangible assets of $4,800 for the quarter ended June 30, 2016. (6) During the quarter ended December 31, 2016 the Company early adopted ASU 2016-09. As a result, the diluted weighted average shares outstanding as of March 31, June 30 and September 30, 2016 have been adjusted. There was no impact to the net income per common share – diluted. |
Subsequent Events
Subsequent Events | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events | |
Subsequent Events | 12. Subsequent Events 2017 Credit Facility On January 10, 2017, the Company entered into a Credit Agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd., Citigroup Global Markets Inc., Compass Bank (d/b/a BBVA Compass), JPMorgan Chase Bank, N.A., Suntrust Robinson Humphrey, Inc. and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners, that provides for a $200.0 million delayed draw term loan to Magellan Pharmacy Services, Inc., a wholly-owned subsidiary of the Company, as the borrower (the “2017 Credit Facility”). The 2017 Credit Facility is guaranteed by substantially all of the non-regulated subsidiaries of the Company and will mature on December 29, 2017. The proceeds of the 2017 Credit Facility will be used for working capital and general corporate purposes, including the funding of acquisitions not prohibited thereunder. Under the 2017 Credit Facility, the annual interest rate on the term loan borrowing is equal to (i) in the case of base rate loans, the sum of an initial borrowing margin of 0.625 percent plus the higher of the prime rate, one-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.00 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.625 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the leverage ratio of the Company. The Company, through Magellan Pharmacy Services, Inc., has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The commitment commission on the 2017 Credit Facility is 0.25 percent of the unused commitment, which rate shall be adjusted from time to time based on the Company's total leverage ratio. The 2017 Credit Facility contains certain affirmative and negative covenants and certain events of default customary for facilities of this type and substantially identical to those applicable to the 2016 Credit Facility. On January 10, 2017, the Company completed a $100.0 million draw of its available $200.0 million delayed draw term loan under the 2017 Credit Facility. Subsequent to December 31, 2016, the revolver borrowings under the 2014 Credit Facility have been settled. As of February 22, 2017, the Company had borrowing capacity of $222.3 million and $100.0 million under its 2014 Credit Facility and 2017 Credit Facility, respectively. Granite Alliance Insurance Company Acquisition Pursuant to the November 19, 2016 purchase agreement with Veridicus Health and Granite Alliance Insurance Company (“Granite”) (the “Granite Agreement”), on February 7, 2017 the Company acquired all of the issued and outstanding stock of Granite. Granite is a fully licensed insurance company which is contracted with CMS and serves members enrolled in the Medicare Part D Employer Group Waiver Plan (“EGWP”) program. As consideration for this transaction, the Company paid a base price of $2.0 million, subject to working capital adjustments. |
SCHEDULE II-VALUATION AND QUALI
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS | 12 Months Ended |
Dec. 31, 2016 | |
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS | |
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS | MAGELLAN HEALTH, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at Charged to Charged to Balance Beginning Costs and Other at End Classification of Period Expenses Accounts Addition Deduction of Period Year Ended December 31, 2014 Allowance for doubtful accounts $ $ (1) $ (2) $ (3) $ (4) $ Year Ended December 31, 2015 Allowance for doubtful accounts (1) (2) — (4) Year Ended December 31, 2016 Allowance for doubtful accounts (1) (2) — (4) (1) Bad debt expense. (2) Recoveries of accounts receivable previously written off. (3) To establish a reserve on pre‑acquisition balances. (4) Accounts written off. |
Summary of Significant Accoun23
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Summary of Significant Accounting Policies | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which is a new comprehensive revenue recognition standard that will supersede virtually all existing revenue guidance under GAAP. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which clarifies the performance obligations and licensing implementation guidance of ASU 2014-09. In July 2015, the FASB approved to defer the effective date of ASU 2014-09. In December 2016, the FASB issued ASU No. 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which amends various aspects of ASU 2014-09. The amendments in these ASUs are effective for annual and interim reporting periods of public entities beginning after December 15, 2017. The Company has identified its major revenue streams and is in the process of completing formal contract reviews. While the Company continues to assess all of the potential impacts of these ASUs, the Company does not expect implementation of these ASUs will have a significant impact on the Company’s consolidated results of operations, financial position and cash flows. The Company intends to adopt the new standard on a modified retrospective basis. In June 2014, the FASB issued ASU No. 2014‑12, “Compensation—Stock Compensation (Topic 718): Accounting for Share‑Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period” (“ASU 2014‑12”), which revises the accounting treatment for stock compensation tied to performance targets. The amendments in this ASU are effective for annual and interim reporting periods beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In August 2014, the FASB issued ASU No. 2014‑15, “Presentation of Financial Statements—Going Concern (Subtopic 205‑40)” (“ASU 2014‑ 15”), which provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This amendment should reduce diversity in the timing and content of footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, was adopted by the Company during the quarter ended December 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In February 2015, the FASB issued ASU No. 2015‑02, “Amendments to the Consolidation Analysis” (“ASU 2015‑02”), which amends certain requirements for determining whether a variable interest entity must be consolidated. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In April 2015, the FASB issued ASU No. 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” (“ASU 2015-05”), which provides guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company on a prospective basis during the quarter ended March 31, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In July 2015, the FASB issued ASU No. 2015‑11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU 2015‑11”). The amendment under this ASU requires that an entity measure inventory at the lower of cost or net realizable value. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2016. The guidance is not expected to materially impact the Company’s consolidated results of operations, financial position or cash flows. In September 2015, the FASB issued ASU No. 2015‑16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement Period Adjustments” (“ASU 2015‑16”). The amendment under this ASU requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this ASU are effective for annual and interim reporting periods of public entities beginning after December 15, 2015 and were adopted by the Company during the quarter ended March 31, 2016. The effect of this guidance is immaterial to the Company’s consolidated results of operations, financial position and cash flows. In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU 2016‑02”). This ASU amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. This guidance is effective for annual and interim reporting periods of public entities beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of adoption, but believes the effect of this ASU will have a material effect on the Company’s consolidated balance sheets. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial position and cash flows. In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718)” (“ASU 2016-09”). This ASU amends the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for annual and interim reporting period of public entities beginning after December 15, 2016, with early adoption permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. During the quarter ended December 31, 2016, the Company elected to early adopt this standard as of January 1, 2016. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This ASU amends the accounting on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 31, 2018. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). This ASU makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The ASU is required to be applied using a retrospective transition method to each period presented unless impractical. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). This ASU requires that the statement of cash flows explain the change during the period in total cash, cash equivalents, restricted cash and restricted equivalents. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The ASU is required to be applied using a retrospective transition method to each period presented. During the quarter ended December 31, 2016, the Company elected to early adopt this standard. Adoption of this standard resulted in a reduction to the Company’s operating cash flows of $21.4 million, $81.7 million and $51.8 million for the years ended December 31, 2014, 2015 and 2016, respectively. In December 2016, the FASB issued ASU 2016-19, “Technical Corrections and Improvements” (“ASU 2016-19”). The amendments in this ASU cover a wide range of Topics in the Accounting Standard Codification, including internal use software covered under Subtopic 350-40. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). The amendments in this ASU clarify whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in this ASU eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. This guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial positions and cash flows. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, contingent consideration, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates. |
Revenue Recognition | Managed Care and Other Revenue Managed Care Revenue. Managed care revenue, inclusive of revenue from the Company’s risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period in which terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $2.6 billion, $2.7 billion and $2.3 billion for the years ended December 31, 2014, 2015 and 2016, respectively. Fee‑For‑Service, Fixed Fee and Cost‑Plus Contracts. The Company has certain contracts with customers under which the Company recognizes revenue as services are performed and as costs are incurred. This includes revenues recorded in relation to the Patient Protection and Affordable Care Act health insurer fee (“HIF fee”) billed on a cost reimbursement basis. Revenues from these contracts approximated $290.9 million, $342.0 million and $503.2 million for the years ended December 31, 2014, 2015 and 2016, respectively. Rebate Revenue. The Company administers a rebate program for certain clients through which the Company coordinates the achievement, calculation and collection of rebates and administrative fees from pharmaceutical manufacturers on behalf of clients. Each period, the Company estimates the total rebates earned based on actual volumes of pharmaceutical purchases by the Company’s clients, as well as historical and/or anticipated sharing percentages. The Company earns fees based upon the volume of rebates generated for its clients. The Company does not record as rebate revenue any rebates that are passed through to its clients. Total rebate revenues for the years ended December 31, 2014, 2015 and 2016 approximated $43.6 million, $88.7 million and $85.4 million, respectively. In relation to the Company’s PBM business, the Company administers rebate programs through which it receives rebates from pharmaceutical manufacturers that are shared with its customers. The Company recognizes rebates when the Company is entitled to them and when the amounts of the rebates are determinable. The amount recorded for rebates earned by the Company from the pharmaceutical manufacturers is recorded as a reduction of cost of goods sold. PBM and Dispensing Revenue Pharmacy Benefit Management Revenue . The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co‑payments collected by the pharmacy and any associated administrative fees, when claims are adjudicated. The Company recognizes PBM revenue on a gross basis (i.e. including drug costs and co‑payments) as it is acting as the principal in the arrangement and is contractually obligated to its clients and network pharmacies, which is a primary indicator of gross reporting. In addition, the Company is solely responsible for the claims adjudication process, negotiating the prescription price for the pharmacy, collection of payments from the client for drugs dispensed by the pharmacy, and managing the total prescription drug relationship with the client’s members. If the Company enters into a contract where it is only an administrator, and does not assume any of the risks previously noted, revenue will be recognized on a net basis. PBM revenues approximated $575.7 million, $1.2 billion and $1.5 billion for the years ended December 31, 2014, 2015 and 2016, respectively. Dispensing Revenue. The Company recognizes dispensing revenue, which includes the co‑payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete, the obligation of the Company’s customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans approximated $216.0 million, $211.6 million and $221.8 million for the years ended December 31, 2014, 2015 and 2016, respectively. Medicare Part D. The Company is contracted with the Centers for Medicare and Medicaid (“CMS”) as a Prescription Drug Plan (“PDP”) to provide prescription drug benefits to Medicare beneficiaries. Net revenues include premiums earned by the PDP, which includes a direct premium paid by CMS and a beneficiary premium paid by the PDP member. In cases of low-income members, the beneficiary premium may be subsidized by CMS. The Company recognizes insurance premium revenues on a monthly basis on a per member basis for covered members. In addition to these premiums, net revenue includes certain payments from the members based on the members’ actual prescription claims, including co-payments, coverage gap benefits, deductibles and co-insurance (collectively, “Member Responsibilities”). The Company receives a prospective subsidy payment from CMS each month to subsidize a portion of the Member Responsibilities for low-income members. If the prospective subsidy differs from actual prescription claims, the difference is recorded as either a receivable or payable on the consolidated balance sheets. The Company assumes no risk for the Member Responsibilities, including the portion subsidized by CMS. The Company recognizes revenues for Member Responsibilities, including the portion subsidized by CMS, on a gross basis as claims are adjudicated. The CMS also provides an annual risk corridor adjustment which compares the Company’s actual drug costs incurred to the premiums received. Based on the risk corridor adjustment, the Company may receive additional premiums from CMS or may be required to refund CMS a portion of previously received premiums. The Company calculates the risk corridor adjustment on a quarterly basis and the amount is included in net revenues with a corresponding receivable or payable on the consolidated balance sheets. Medicare Part D revenues approximated $272.8 million for the year ended December 31, 2016, including co-payments, which are included in PBM revenues above, of $31.0 million. As of December 31, 2016, the Company had $117.5 million in net receivables associated with Medicare Part D from CMS and other parties related to this business. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company provides behavioral healthcare management and other related services to members in the state of Florida pursuant to contracts with the State of Florida (the “Florida Contracts”). The Company had behavioral healthcare contracts with various areas in the State of Florida (the “Florida Areas”) which were part of the Florida Medicaid program. The State of Florida implemented a new system of mandated managed care through which Medicaid enrollees receive integrated healthcare services, and in 2014 phased out the behavioral healthcare programs under which the Florida Areas’ contracts operated. The Company has a contract with the State of Florida to provide integrated healthcare services under the new program (“the Florida Medicaid Contract”). The Florida Medicaid Contract began on February 4, 2014 and extends through December 31, 2018, unless sooner terminated by the parties. The State of Florida has the right to terminate the Florida Medicaid Contract with cause, as defined, upon 24 hour notice and upon 30 days notice for any reason or no reason at all. The Florida Contracts generated net revenues of $253.7 million, $439.5 million and $548.7 million for the years ended December 31, 2014, 2015 and 2016, respectively. Through December 31, 2015, the Company provided behavioral healthcare management and other related services to members in the state of Iowa pursuant to contracts with the State of Iowa (the “Iowa Contracts”). The Iowa Contracts terminated on December 31, 2015. The Iowa Contracts generated net revenues of $465.0 million, $530.3 million and $13.5 million for the years ended December 31, 2014, 2015 and 2016, respectively. Customers exceeding ten percent of segment net revenues In addition to the Florida Contracts and 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, 2014, 2015 and 2016 (in thousands): Segment Term Date 2014 2015 2016 Healthcare None Pharmacy Management Customer A December 31, 2016 (1) $ $ $ Customer B December 31, 2018 * * * (1) A vast majority of this customer’s revenues were generated from drug acquisition costs related to PBM services which terminated on September 1, 2016. The Company continues to provide specialty drug formulary management services to the customer and is in negotiations with the customer to extend this contract. 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, with members under its contract with CMS and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $369.9 million, $395.7 million and $461.6 million for the years ended December 31, 2014, 2015 and 2016, respectively. Net revenues from members in relation to its contract with CMS in aggregate totaled $272.8 million for the year ended December 31, 2016. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $139.5 million, $164.3 million, and $252.5 million for the years ended December 31, 2014, 2015 and 2016, respectively. The Company’s contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer’s option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company’s contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company’s contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made. |
Income Taxes | Income Taxes The Company files a consolidated federal income tax return with most of its eighty-percent or more controlled subsidiaries. The Company files a separate consolidated federal income tax return for AlphaCare of New York, Inc. (“AlphaCare”) and its parent, AlphaCare Holdings, Inc. (“AlphaCare Holdings”). The Company and its subsidiaries also file income tax returns in various state and local jurisdictions. The Company estimates income taxes for each of the jurisdictions in which it operates. This process involves determining both permanent and temporary differences resulting from differing treatment for tax and book purposes. Deferred tax assets and/or liabilities are determined by multiplying the temporary differences between the financial reporting and tax reporting bases for assets and liabilities by the enacted tax rates expected to be in effect when such differences are recovered or settled. The Company then assesses the likelihood that the deferred tax assets will be recovered from the reversal of temporary differences, the implementation of feasible and prudent tax planning strategies, and future taxable income. To the extent the Company cannot conclude that recovery is more likely than not, it establishes a valuation allowance. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date. Reversals of both valuation allowances and unrecognized tax benefits are recorded in the period they occur, typically as reductions to income tax expense. However, reversals of unrecognized tax benefits related to deductions for stock compensation in excess of the related book expense are recorded as reductions to deferred tax assets, although prior to the adoption of ASU 2016-09 in 2016 were recorded as increases in additional paid‑in capital. The Company recognizes interim period income taxes by estimating an annual effective tax rate and applying it to year‑to‑date results. The estimated annual effective tax rate is periodically updated throughout the year based on actual results to date and an updated projection of full year income. Although the effective tax rate approach is generally used for interim periods, taxes on significant, unusual and infrequent items are recognized at the statutory tax rate entirely in the period the amounts are realized. |
Health Care Reform | Health Care Reform The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposes a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company has obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. To the extent the Company has such a customer that does not renew, there may be some impact due to taxes paid where the timing and amount of recoupment of these additional costs is uncertain. In the event the Company is unable to obtain rate adjustments to cover the financial impact of the annual fee, the fee may have a material impact on the Company. For 2014, 2015 and 2016, the HIF fees were $21.4 million, $26.5 million and $26.5 million, respectively, which have been paid and which are included in direct service costs and other operating expenses in the consolidated statements of income. The Company recorded revenues of $36.5 million, $45.4 million and $44.0 million in the years ended December 31, 2014, 2015 and 2016, respectively, associated with the accrual for the reimbursement of the economic impact of the HIF fees from its customers. As of December 31, 2016, the Company has a $13.3 million receivable related to a terminated contract that the customer has expressed their unwillingness to pay, however the Company believes the amount is collectible and has not established a reserve. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash equivalents are short‑term, highly liquid interest‑bearing investments with maturity dates of three months or less when purchased, consisting primarily of money market instruments. At December 31, 2016, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of $117.7 million are included in cash and cash equivalents. |
Restricted Assets | Restricted Assets The Company has certain assets which are considered restricted for: (i) the payment of claims under the terms of certain managed care contracts; (ii) regulatory purposes related to the payment of claims in certain jurisdictions; and (iii) the maintenance of minimum required tangible net equity levels for certain of the Company’s subsidiaries. Significant restricted assets of the Company as of December 31, 2015 and 2016 were as follows (in thousands): 2015 2016 Restricted cash and cash equivalents $ $ Restricted short-term investments Restricted deposits (included in other current assets) Restricted long-term investments Total $ $ |
Fair Value Measurements | Fair Value Measurements The Company has certain assets and liabilities that are required to be measured at fair value on a recurring basis. These assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows: Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). Level 3—Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company’s data. In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of December 31, 2015 and 2016 (in thousands): December 31, 2015 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (2) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ December 31, 2016 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (3) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (4) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ (1) Excludes $160.2 million of cash held in bank accounts by the Company. (2) Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks. (3) Excludes $ 127.0 million of cash held in bank accounts by the Company. (4) Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association. For the years ended December 31, 2015 and 2016, the Company did not transfer any assets between fair value measurement levels. The carrying values of financial instruments, including accounts receivable and accounts payable, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s term loans of $418.8 million as of December 31, 2016 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future. All of the Company’s investments are classified as “available-for-sale” and are carried at fair value. The contingent consideration liability reflects the fair value of potential future payments related to the Cobalt Therapeutics, LLC (“Cobalt”), 4D Pharmacy Management Systems, Inc. (“4D”), The Management Group, LLC (“TMG”) and Armed Forces Services Corporation (“AFSC”) acquisitions. The CDMI, LLC (“CDMI”) purchase agreement provided for potential contingent payments up to a maximum aggregate amount of $165.0 million. The potential future payments were contingent upon CDMI meeting certain client retention, client conversion and gross profit milestones through December 31, 2016. The CDMI contingent payments were finalized in 2016 and no future potential payments remain outstanding. The 4D purchase agreement provided for potential contingent payments up to a maximum aggregate amount of $30.0 million. The potential future payments were contingent upon the achievement of certain growth targets in the underlying dual eligible membership served by 4D during calendar year 2015 and the retention of certain business. The 4D contingent payments were finalized in 2016 and no future potential payments remain outstanding. The Cobalt, TMG and AFSC purchase agreements also provide for potential contingent payments of up to a maximum of $6.0 million, $15.0 million and $10.0 million, respectively. As of December 31, 2016, there are remaining potential future payments of $5.0 million, $15.0 million and $10.0 million for Cobalt, TMG and AFSC, respectively. As of the balance sheet date, the fair value of contingent consideration is determined based on probabilities of payment, projected payment dates, discount rates, projected revenues, gross profits, client base, member engagement and new contract execution. The projected revenues, gross profits, client base, member engagement and new contract execution are derived from the Company’s latest internal operational forecasts. The Company used a probability weighted discounted cash flow method to arrive at the fair value of the contingent consideration. Changes in the operational forecasts, probabilities of payment, discount rates or projected payment dates may result in a change in the fair value measurement. Any changes in the fair value measurement are reflected as income or expense in the consolidated statements of income. As the fair value measurement for the contingent consideration is based on inputs not observed in the market, these measurements are classified as Level 3 measurements as defined by fair value measurement guidance. For CDMI, the Company estimated undiscounted future contingent payments of $90.1 million as of December 31, 2015, which the Company settled in June 2016. For 4D, the Company estimated net undiscounted future contingent payments of $1.0 million as of December 31, 2015, which the Company settled in February 2016. For Cobalt, TMG and AFSC the unobservable inputs used in the fair value measurement include the discount rate, probabilities of payment and projected payment dates. For Cobalt, the Company estimated undiscounted future contingent payments of $1.7 million and $0.9 million as of December 31, 2015 and 2016, respectively. As of December 31, 2016, the fair value of the short-term contingent consideration for Cobalt was $0.9 million. For TMG the Company estimated undiscounted future contingent payments of $3.8 million and $2.8 million at the acquisition date and December 31, 2016, respectively. The decrease is mainly a result of changes in operational forecasts and probabilities of payment. As of December 31, 2016, the fair value of the long-term contingent consideration for TMG was $1.8 million. For AFSC the Company estimated undiscounted future contingent payments of $9.0 million at the acquisition date and December 31, 2016. As of December 31, 2016, the fair value of the short-term contingent consideration for AFSC was $8.5 million. As of December 31, 2016, the aggregate amounts and projected dates of future potential contingent consideration payments were $9.9 million in 2017 and $2.8 million in 2020. As of December 31, 2015, the fair value of the short-term and long-term contingent consideration was $91.6 million and $0.8 million, respectively, and is included in short-term contingent consideration and long-term contingent consideration, respectively, in the consolidated balance sheets. As of December 31, 2016, the fair value of the short-term and long-term contingent consideration was $9.4 million and $1.8 million, respectively, and is included in short-term contingent consideration and long-term contingent consideration, respectively, in the consolidated balance sheets. The change in the fair value of the contingent consideration was $9.3 million for the year ended December 31, 2014, $6.2 million and $3.1 million of which was recorded in the consolidated statements of income as direct service costs and other operating expenses, and as interest expense, respectively. The change in the fair value of the contingent consideration was $44.3 million for the year ended December 31, 2015, which was recorded as direct service costs and other operating expenses in the consolidated statements of income. The increase was mainly a result of changes in the present value and estimated undiscounted liability. The change in the fair value of the contingent consideration was $(0.1) million for the year ended December 31, 2016, which was recorded as direct service costs and other operating expenses in the consolidated statements of income. The decrease was mainly a result of net changes in present value and estimated undiscounted liability. The following table summarizes the Company’s liability for contingent consideration (in thousands): December 31, December 31, 2015 2016 Balance as of beginning of period $ $ Acquisition of 4D — Acquisition of TMG — Acquisition of AFSC — Changes in fair value Payments Balance as of end of period $ $ |
Investments | Investments All of the Company’s investments are classified as “available‑for‑sale” and are carried at fair value. Securities which have been classified as Level 1 are measured using quoted market prices in active markets for identical assets or liabilities while those which have been classified as Level 2 are measured using quoted prices for identical assets and liabilities in markets that are not active. The Company’s policy is to classify all investments with contractual maturities within one year as current. Investment income is recognized when earned and reported net of investment expenses. Net unrealized holding gains or losses are excluded from earnings and are reported, net of tax, as “accumulated other comprehensive income (loss)” in the accompanying consolidated balance sheets and consolidated statements of comprehensive income until realized, unless the losses are deemed to be other‑than‑temporary. Realized gains or losses, including any provision for other‑than‑temporary declines in value, are included in the consolidated statements of income. If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other‑than‑temporary and is recorded to other‑than‑temporary impairment losses recognized in income in the consolidated statements of income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other‑than‑temporary impairment is recognized in other‑than‑temporary impairment losses recognized in income in the consolidated statements of income and the non‑credit component of the other‑than‑temporary impairment is recognized in other comprehensive income. The credit component of an other‑than‑temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the best estimate of projected future cash flows at the effective interest rate implicit in the debt security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. Furthermore, unrealized losses entirely caused by non‑credit related factors related to debt securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income. As of December 31, 2015 and 2016, there were no unrealized losses that the Company believed to be other‑than‑temporary. No realized gains or losses were recorded for the years ended December 31, 2014, 2015, or 2016. The following is a summary of short-term and long-term investments at December 31, 2015 and 2016 (in thousands): December 31, 2015 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ $ — $ $ Obligations of government-sponsored enterprises (1) Corporate debt securities — Certificates of deposit — — Total investments at December 31, 2015 $ $ $ $ December 31, 2016 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ $ — $ $ Obligations of government-sponsored enterprises (2) Corporate debt securities Certificates of deposit — — Total investments at December 31, 2016 $ $ $ $ (1) Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks. (2) Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks. The maturity dates of the Company’s investments as of December 31, 2016 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2017 $ $ 2018 Total investments at December 31, 2016 $ $ |
Accounts Receivable | Accounts Receivable The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Management believes the allowance for doubtful accounts is adequate to provide for normal credit losses. |
Concentration of Credit Risk | Concentration of Credit Risk Accounts receivable subjects the Company to a concentration of credit risk with third party payors that include health insurance companies, managed healthcare organizations, healthcare providers and governmental entities. The Company maintains cash and cash equivalents balances at financial institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, balances in certain bank accounts may exceed the FDIC insured limits. |
Pharmaceutical Inventory | Pharmaceutical Inventory Pharmaceutical inventory consists solely of finished goods (primarily prescription drugs) and is stated at the lower of first‑in first‑out cost or market. |
Long-lived Assets | Long‑lived Assets Long‑lived assets, including property and equipment and intangible assets to be held and used, are currently reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We group and evaluate these long-lived assets for impairment at the lowest level at which individual cash flows can be identified. Impairment is determined by comparing the carrying value of these long‑lived assets to management’s best estimate of the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The cash flow projections used to make this assessment are consistent with the cash flow projections that management uses internally in making key decisions. In the event an impairment exists, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset, which is generally determined by using quoted market prices or the discounted present value of expected future cash flows. |
Property and Equipment | Property and Equipment Property and equipment is stated at cost, except for assets that have been impaired, for which the carrying amount has been reduced to estimated fair value. Expenditures for renewals and improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. The Company capitalizes costs incurred to develop internal‑use software during the application development stage. Capitalization of software development costs occurs after the preliminary project stage is complete, management authorizes the project, and it is probable that the project will be completed and the software will be used for the function intended. Amortization of capital lease assets is included in depreciation expense and is included in accumulated depreciation as reflected in the table below. Depreciation is provided on a straight‑line basis over the estimated useful lives of the assets, which is generally two to ten years for building improvements (or the lease term, if shorter), three to fifteen years for equipment and three to five years for capitalized internal‑use software. The net capitalized internal use software as of December 31, 2015 and 2016 was $84.8 million and $88.2 million, respectively. Depreciation expense was $68.3 million, $73.4 million and $75.3 million for the years ended December 31, 2014, 2015 and 2016, respectively. Included in depreciation expense for the years ended December 31, 2014, 2015 and 2016 was $40.9 million, $45.6 million and $47.6 million, respectively, related to capitalized internal use software. Property and equipment, net, consisted of the following at December 31, 2015 and 2016 (in thousands): 2015 2016 Building improvements $ $ Equipment Capital leases - property Capital leases - equipment Capitalized internal-use software Accumulated depreciation Property and equipment, net $ $ |
Goodwill | Goodwill The Company is required to test its goodwill for impairment on at least an annual basis. The Company has selected October 1 as the date of its annual impairment test. The goodwill impairment test is a two‑step process that requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit with goodwill based on various valuation techniques, with the primary technique being a discounted cash flow analysis, which requires the input of various assumptions with respect to revenues, operating margins, growth rates and discount rates. The estimated fair value for each reporting unit is compared to the carrying value of the reporting unit, which includes goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of a reporting unit’s “implied fair value” of goodwill requires the Company to allocate the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to its corresponding carrying value. Goodwill is tested for impairment at a level referred to as a reporting unit, which is one level below the operating segment. The Company’s three reporting units are comprised of Commercial, Government and Pharmacy Management. The fair values of the Commercial (a component of the Healthcare segment) and Pharmacy Management reporting units were determined using a discounted cash flow method. This method involves estimating the present value of estimated future cash flows utilizing a risk adjusted discount rate. Key assumptions for this method include cash flow projections, terminal growth rates and discount rates. The fair value of the Government (a component of the Healthcare segment) reporting unit was determined using the discounted cash flow and guideline company methods. Key assumptions for the discounted cash flow method are consistent with those described above. For the guideline company method, revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples for guideline companies were applied to the reporting units pro forma revenue and EBITDA for 2016, which represents actual results for the nine-month period ended September 30, 2016 and projected results for the three-month period ended December 31, 2016, and the reporting unit’s projected revenue and EBITDA for 2017. The weighting applied to the fair values determined using the discounted cash flow and guideline company methods to determine an overall fair value for the Government reporting unit was 75 percent and 25 percent, respectively. The weighting of each of the methods described above was based on the relevance of the approach. A change in the weighting would not change the outcome of the first step of the impairment test. Goodwill for each of the Company’s reporting units with goodwill at December 31, 2015 and 2016 were as follows (in thousands): 2015 2016 Commercial $ $ Government Pharmacy Management Total $ $ The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2016 are reflected in the table below (in thousands): 2015 2016 Balance as of beginning of period $ $ Acquisition of 4D — Acquisition of AFSC — Acquisition of Veridicus — Other acquisitions and measurement period adjustments Balance as of end of period $ $ |
Intangible Assets | Intangible Assets The Company reviews other intangible assets for impairment when events or changes in circumstances occur which may potentially impact the estimated useful life of the intangible assets. During the second quarter of 2016, the Company recognized $4.8 million in impairment charges, which are reflected in direct service costs and other operating expenses in the consolidated statements of income and reported within the Healthcare segment. The fair value of the impairment was determined using the income method, which resulted in the full impairment of the customer agreement intangible asset recorded in conjunction with the AlphaCare acquisition. The following is a summary of intangible assets at December 31, 2015 and 2016, and the estimated useful lives for such assets (in thousands): December 31, 2015 Weighted Avg Gross Net Original Remaining Carrying Accumulated Carrying Asset Useful Life Useful Life Amount Amortization Amount Customer agreements and lists 2.5 to 18 years 6.8 years $ $ $ Provider networks and other 1 to 16 years 4.7 years $ $ $ December 31, 2016 Weighted Avg Gross Net Original Remaining Carrying Accumulated Carrying Asset Useful Life Useful Life Amount Amortization Amount Customer agreements and lists 2.5 to 18 years 6.4 years $ $ $ Provider networks and other 1 to 16 years 4.3 years AFSC trade name indefinite indefinite — $ $ $ Amortization expense was $22.8 million, $29.4 million and $30.7 million for the years ended December 31, 2014, 2015 and 2016, respectively. The Company estimates amortization expense will be $35.1 million, $30.6 million, $28.5 million, $27.4 million and $26.8 million for the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively. |
Cost of Care, Medical Claims Payable and Other Medical Liabilities | Cost of Care, Medical Claims Payable and Other Medical Liabilities Cost of care is recognized in the period in which members receive managed healthcare services. In addition to actual benefits paid, cost of care in a period also includes the impact of accruals for estimates of medical claims payable. Medical claims payable represents the liability for healthcare claims reported but not yet paid and claims incurred but not yet reported (“IBNR”) related to the Company’s managed healthcare businesses. Such liabilities are determined by employing actuarial methods that are commonly used by health insurance actuaries and that meet actuarial standards of practice. Cost of care for the Company’s EAP contracts, which are mainly with the United States federal government, pertain to the costs to employ licensed behavioral health counselors to deliver non-medical counseling for these contracts. The IBNR portion of medical claims payable is estimated based on past claims payment experience for member groups, enrollment data, utilization statistics, authorized healthcare services and other factors. This data is incorporated into contract‑specific actuarial reserve models and is further analyzed to create “completion factors” that represent the average percentage of total incurred claims that have been paid through a given date after being incurred. Factors that affect estimated completion factors include benefit changes, enrollment changes, shifts in product mix, seasonality influences, provider reimbursement changes, changes in claims inventory levels, the speed of claims processing and changes in paid claim levels. Completion factors are applied to claims paid through the financial statement date to estimate the ultimate claim expense incurred for the current period. Actuarial estimates of claim liabilities are then determined by subtracting the actual paid claims from the estimate of the ultimate incurred claims. For the most recent incurred months (generally the most recent two months), the percentage of claims paid for claims incurred in those months is generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for any month with a completion factor that is less than 70 percent are generally not projected from historical completion and payment patterns; rather they are projected by estimating claims expense based on recent monthly estimated cost incurred per member per month times membership, taking into account seasonality influences, benefit changes and healthcare trend levels, collectively considered to be “trend factors.” Medical claims payable balances are continually monitored and reviewed. If it is determined that the Company’s assumptions in estimating such liabilities are significantly different than actual results, the Company’s results of operations and financial position could be impacted in future periods. Adjustments of prior period estimates may result in additional cost of care or a reduction of cost of care in the period an adjustment is made. Further, due to the considerable variability of healthcare costs, adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income recorded in that period. Prior period development is recognized immediately upon the actuary’s judgment that a portion of the prior period liability is no longer needed or that additional liability should have been accrued. The following table presents the components of the change in medical claims payable for the years ended December 31, 2014, 2015 and 2016 (in thousands): 2014 2015 2016 Claims payable and IBNR, beginning of period $ $ $ Cost of care: Current year Prior years(3) Total cost of care Claim payments and transfers to other medical liabilities(1): Current year Prior years Total claim payments and transfers to other medical liabilities Claims payable and IBNR, end of period Withhold receivables, end of period(2) Medical claims payable, end of period $ $ $ (1) For any given period, a portion of unpaid medical claims payable could be covered by reinvestment liability (discussed below) and may not impact the Company’s results of operations for such periods. (2) Medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred. (3) Favorable development in 2014, 2015 and 2016 was $8.8 million, $22.5 million and $10.3 million, respectively, and was mainly related to lower medical trends and faster claims completion than originally assumed. Actuarial standards of practice require that claim liabilities be adequate under moderately adverse circumstances. Adverse circumstances are situations in which the actual claims experience could be higher than the otherwise estimated value of such claims. In many situations, the claims paid amount experienced will be less than the estimate that satisfies the actuarial standards of practice. Any prior period favorable cost of care development related to a lack of moderately adverse conditions is excluded from “Cost of Care – Prior Years” adjustments, as a similar provision for moderately adverse conditions is established for current year cost of care liabilities and therefore does not generally impact net income. Due to the existence of risk sharing and reinvestment provisions in certain customer contracts, principally in the Government contracts, a change in the estimate for medical claims payable does not necessarily result in an equivalent impact on cost of care. The Company believes that the amount of medical claims payable is adequate to cover its ultimate liability for unpaid claims as of December 31, 2016; however, actual claims payments may differ from established estimates. Other medical liabilities consist primarily of amounts payable to pharmacies for claims that have been adjudicated by the Company but not yet paid. Other medical liabilities also include “reinvestment” payables under certain managed healthcare contracts with Medicaid customers and “profit share” payables under certain risk-based contracts. Under a contract with reinvestment features, if the cost of care is less than certain minimum amounts specified in the contract (usually as a percentage of revenue), the Company is required to “reinvest” such difference in behavioral healthcare programs when and as specified by the customer or to pay the difference to the customer for their use in funding such programs. Under a contract with profit share provisions, if the cost of care is below certain specified levels, the Company will “share” the cost savings with the customer at the percentages set forth in the contract. In addition, certain contracts include provisions to provide the Company additional funding if the cost of care is above the specified levels. |
Advertising Costs | Advertising Costs Advertising costs consist primarily of printed media services, event sponsorships, and promotional items, which are expensed as incurred. Advertising expense was approximately $2.7 million, $2.5 million, and $2.0 million for the fiscal years ended December 31, 2014, 2015, and 2016, respectively. |
Accrued Liabilities | Accrued Liabilities As of December 31, 2015 and 2016, the only individual current liability that exceeded five percent of total current liabilities related to accrued employee compensation liabilities of $37.6 million and $76.1 million, respectively. |
Net Income per Common Share attributable to Magellan Health, Inc. | Net Income per Common Share attributable to Magellan Health, Inc. Net income per common share attributable to Magellan Health, Inc. is computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period (see Note 6—“Stockholders’ Equity”). |
Redeemable Non-Controlling Interest | Redeemable Non‑Controlling Interest As of December 31, 2016 the Company held an 84% equity interest in AlphaCare Holdings. The other shareholders of AlphaCare Holdings have the right to exercise put options, requiring the Company to purchase up to 50% of the remaining shares prior to January 1, 2017 provided certain membership levels are attained. After December 31, 2016 the other shareholders of AlphaCare Holdings have the right to exercise put options requiring the Company to purchase all or any portion of the remaining shares. In addition, after December 31, 2016 the Company has the right to purchase all remaining shares. Non-controlling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable non-controlling interests. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders’ equity on the Company’s consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of net income or loss or its redemption value. The carrying value of the non-controlling interest as of December 31, 2015 and December 31, 2016 was $5.9 million and $4.8 million, respectively. The $1.1 million decrease in carrying value is a result of operating losses, partially offset by the impact of additional capital provided by the Company. The Company evaluates the redemption value on a quarterly basis. If the redemption value is greater than the carrying value, the Company adjusts the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share (“EPS”) calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of December 31, 2016, the carrying value of the non-controlling interest exceeded the redemption value and therefore no adjustment to the carrying value was required. |
Stock Compensation | Stock Compensation At December 31, 2015 and 2016, the Company had equity-based employee incentive plans, which are described more fully in Note 6—“Stockholders’ Equity”. In addition, the Company issued restricted stock awards associated with the Partners Rx Management LLC (“Partners Rx”), CDMI and AFSC acquisitions, which are also described more fully in Note 6—“Stockholders’ Equity”. The Company uses the Black‑Scholes‑Merton formula to estimate the fair value of substantially all stock options granted to employees, and recorded stock compensation expense of $40.6 million, $50.4 million and $37.4 million for the years ended December 31, 2014, 2015 and 2016, respectively. As stock compensation expense recognized in the consolidated statements of income for the years ended December 31, 2014, 2015 and 2016 is based on awards ultimately expected to vest, it has been reduced for annual estimated forfeitures of zero to four percent. If the actual number of forfeitures differs from those estimated, additional adjustments to compensation expense may be required in future periods. If vesting of an award is conditioned upon the achievement of performance goals, compensation expense during the performance period is estimated using the most probable outcome of the performance goals, and adjusted as the expected outcome changes. The Company recognizes compensation costs for awards that do not contain performance conditions on a straight‑line basis over the requisite service period, which is generally the vesting term of three years. For restricted stock units that include performance conditions, stock compensation is recognized using an accelerated method over the vesting period. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. In order to better represent the operations of the Company’s segments, effective January 1, 2016, the Company began allocating operational and corporate support costs to the Healthcare and Pharmacy Management segments. For comparative presentation, the Company applied the allocation methodology retrospectively and reclassified direct service costs and other between segments for the years ended December 31, 2014 and 2015. The impact of these reclassifications are disclosed in Note 10—“Business Segment Information”. The Company elected to early adopt ASU 2016-18 effective for the fiscal year ended December 31, 2016 and applied it retrospectively. See Note—2 “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” for the impact to the Company’s financial statements. |
Summary of Significant Accoun24
Summary of Significant Accounting Policies (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Summary of Significant Accounting Policies | |
Schedule of customers generating in excess of ten percent of net revenues for respective segment | In addition to the Florida Contracts and 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, 2014, 2015 and 2016 (in thousands): Segment Term Date 2014 2015 2016 Healthcare None Pharmacy Management Customer A December 31, 2016 (1) $ $ $ Customer B December 31, 2018 * * * A vast majority of this customer’s revenues were generated from drug acquisition costs related to PBM services which terminated on September 1, 2016. The Company continues to provide specialty drug formulary management services to the customer and is in negotiations with the customer to extend this contract. |
Schedule of significant restricted assets | Significant restricted assets of the Company as of December 31, 2015 and 2016 were as follows (in thousands): 2015 2016 Restricted cash and cash equivalents $ $ Restricted short-term investments Restricted deposits (included in other current assets) Restricted long-term investments Total $ $ |
Schedule of fair value of financial assets and liabilities | In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company’s financial assets and liabilities that are required to be measured at fair value as of December 31, 2015 and 2016 (in thousands): December 31, 2015 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (2) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ December 31, 2016 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (3) $ — $ $ — $ Investments: U.S. Government and agency securities — — Obligations of government-sponsored enterprises (4) — — Corporate debt securities — — Certificates of deposit — — Total assets held at fair value $ $ $ — $ Liabilities Contingent consideration $ — $ — $ $ Total liabilities held at fair value $ — $ — $ $ (1) Excludes $160.2 million of cash held in bank accounts by the Company. (2) Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks. (3) Excludes $ 127.0 million of cash held in bank accounts by the Company. (4) Includes investments in notes issued by the Federal Home Loan Bank, Federal Farm Credit Banks and Federal National Mortgage Association. |
Summary of the Company's liability for contingent consideration | The following table summarizes the Company’s liability for contingent consideration (in thousands): December 31, December 31, 2015 2016 Balance as of beginning of period $ $ Acquisition of 4D — Acquisition of TMG — Acquisition of AFSC — Changes in fair value Payments Balance as of end of period $ $ |
Summary of short-term and long-term investments | The following is a summary of short-term and long-term investments at December 31, 2015 and 2016 (in thousands): December 31, 2015 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ $ — $ $ Obligations of government-sponsored enterprises (1) Corporate debt securities — Certificates of deposit — — Total investments at December 31, 2015 $ $ $ $ December 31, 2016 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ $ — $ $ Obligations of government-sponsored enterprises (2) Corporate debt securities Certificates of deposit — — Total investments at December 31, 2016 $ $ $ $ (1) Includes investments in notes issued by the Federal Home Loan Bank and Federal Farm Credit Banks. (2) Includes investments in notes issued by the Federal Home Loan Bank, Federal National Mortgage Association and Federal Farm Credit Banks. |
Summary of maturity dates of investments | The maturity dates of the Company’s investments as of December 31, 2016 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2017 $ $ 2018 Total investments at December 31, 2016 $ $ |
Schedule of net property and equipment | Property and equipment, net, consisted of the following at December 31, 2015 and 2016 (in thousands): 2015 2016 Building improvements $ $ Equipment Capital leases - property Capital leases - equipment Capitalized internal-use software Accumulated depreciation Property and equipment, net $ $ |
Schedule of allocation of goodwill by reporting units | Goodwill for each of the Company’s reporting units with goodwill at December 31, 2015 and 2016 were as follows (in thousands): 2015 2016 Commercial $ $ Government Pharmacy Management Total $ $ |
Summary changes in the carrying amount of goodwill | The changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2016 are reflected in the table below (in thousands): 2015 2016 Balance as of beginning of period $ $ Acquisition of 4D — Acquisition of AFSC — Acquisition of Veridicus — Other acquisitions and measurement period adjustments Balance as of end of period $ $ |
Schedule of intangible assets | The following is a summary of intangible assets at December 31, 2015 and 2016, and the estimated useful lives for such assets (in thousands): December 31, 2015 Weighted Avg Gross Net Original Remaining Carrying Accumulated Carrying Asset Useful Life Useful Life Amount Amortization Amount Customer agreements and lists 2.5 to 18 years 6.8 years $ $ $ Provider networks and other 1 to 16 years 4.7 years $ $ $ December 31, 2016 Weighted Avg Gross Net Original Remaining Carrying Accumulated Carrying Asset Useful Life Useful Life Amount Amortization Amount Customer agreements and lists 2.5 to 18 years 6.4 years $ $ $ Provider networks and other 1 to 16 years 4.3 years AFSC trade name indefinite indefinite — $ $ $ |
Schedule of changes in medical claims payable | The following table presents the components of the change in medical claims payable for the years ended December 31, 2014, 2015 and 2016 (in thousands): 2014 2015 2016 Claims payable and IBNR, beginning of period $ $ $ Cost of care: Current year Prior years(3) Total cost of care Claim payments and transfers to other medical liabilities(1): Current year Prior years Total claim payments and transfers to other medical liabilities Claims payable and IBNR, end of period Withhold receivables, end of period(2) Medical claims payable, end of period $ $ $ (1) For any given period, a portion of unpaid medical claims payable could be covered by reinvestment liability (discussed below) and may not impact the Company’s results of operations for such periods. (2) Medical claims payable is offset by customer withholds from capitation payments in situations in which the customer has the contractual requirement to pay providers for care incurred. Favorable development in 2014, 2015 and 2016 was $8.8 million, $22.5 million and $10.3 million, respectively, and was mainly related to lower medical trends and faster claims completion than originally assumed. |
Acquisitions (Tables)
Acquisitions (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Acquisitions | |
Schedule of AFSC pro forma information | Such pro forma information does not purport to be indicative of operating results that would have been reported had the acquisitions of AFSC, TMG and Veridicus occurred on January 1, 2015 and 2016 (in thousands, except per share amounts): Year Ended December 31, 2015 2016 (unaudited) (unaudited) Net revenue $ $ Net income attributable to Magellan Health, Inc. $ $ Income per common share attributable to Magellan Health, Inc.: Basic $ $ Diluted $ $ |
AFSC | |
Acquisitions | |
Summary of estimated fair values of assets acquired and liabilities assumed at the date of the acquisition | The estimated fair value of AFSC assets acquired and liabilities assumed at the date of the acquisition are summarized as follows (in thousands): Assets acquired: Current assets (includes $32,143 and $18,188 of accounts receivable and cash, respectively) $ Property and equipment, net Other assets Other identified intangible assets Goodwill Total assets acquired Liabilities assumed: Current liabilities Deferred tax liabilities Other liabilities Total liabilities assumed Net assets acquired $ |
Veridicus | |
Acquisitions | |
Summary of estimated fair values of assets acquired and liabilities assumed at the date of the acquisition | The estimated fair value of Veridicus assets acquired and liabilities assumed at the date of the acquisition are summarized as follows (in thousands): Assets acquired: Current assets (includes $5,625, $1,569 and $1,564 of accounts receivable, cash and inventory, respectively) $ Property and equipment, net Other assets Other identified intangible assets Goodwill Total assets acquired Liabilities assumed: Current liabilities Total liabilities assumed Net assets acquired $ |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Equity related disclosures | |
Schedule of stock option activity | 2014 2015 Weighted Weighted Average Average Exercise Exercise Options Price Options Price Outstanding, beginning of period $ $ Granted Forfeited Exercised Outstanding, end of period 2016 Weighted Average Weighted Remaining Aggregate Average Contractual Intrinsic Exercise Term Value Options Price (in years) (in thousands) Outstanding, beginning of period $ Granted Forfeited Exercised Outstanding, end of period $ $ Vested and expected to vest at end of period $ $ Exercisable, end of period $ $ |
Schedule of weighted average assumptions used to determine weighted average grant date fair value | 2014 2015 2016 Risk-free interest rate % % % Expected life years years years Expected volatility % % % Expected dividend yield % % % |
Schedule of nonvested restricted stock award activity | 2014 2015 2016 Weighted Weighted Weighted Average Average Average Grant Date Grant Date Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Outstanding, beginning of period $ $ $ Awarded (1) Vested Forfeited — — — — — — Outstanding, ending of period December 31, 2014 includes 1,433,946 shares associated with the CDMI acquisition. December 31, 2016 includes 60,069 shares associated with the AFSC acquisition. |
Schedule of nonvested restricted stock units | 2014 2015 2016 Weighted Weighted Weighted Average Average Average Grant Date Grant Date Grant Date Shares Fair Value Shares Fair Value Shares Fair Value Outstanding, beginning of period $ $ $ Awarded Vested Forfeited Outstanding, ending of period |
Summary of nonvested performance-based restricted stock units | Summarized information related to the Company’s nonvested PSUs for the years ended December 31, 2015 and 2016 is as follows: 2015 2016 Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value Outstanding, beginning of period — $ — $ Awarded Vested — — — — Forfeited Outstanding, end of period |
Computation of basic and diluted earnings per share | The following table reconciles income (numerator) and shares (denominator) used in the Company’s computations of net income per share for the years ended December 31, 2014, 2015 and 2016 (in thousands, except per share data): 2014 2015 2016 Numerator: Net income attributable to Magellan Health, Inc. $ $ $ Denominator: Weighted average number of common shares outstanding—basic Common stock equivalents—stock options Common stock equivalents—RSAs Common stock equivalents—RSUs Common stock equivalents—PSUs — Common stock equivalents—employee stock purchase plan Weighted average number of common shares outstanding—diluted Net income attributable to Magellan Health, Inc. per common share—basic $ $ $ Net income attributable to Magellan Health, Inc. per common share—diluted $ $ $ |
October 2011 Share Repurchase Program | |
Equity related disclosures | |
Schedule of stock repurchases made | Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost November 11, 2011 - December 31, 2011 $ $ January 1, 2012 - December 31, 2012 January 1, 2013 - December 31, 2013 January 1, 2014 - November 21, 2014 $ |
October 2014 Share Repurchase Program | |
Equity related disclosures | |
Schedule of stock repurchases made | and the program was completed. Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost November 24, 2014 - December 31, 2014 $ $ January 1, 2015 - October 21, 2015 $ |
October 2015 Share Repurchase Program | |
Equity related disclosures | |
Schedule of stock repurchases made | Pursuant to this program, the Company made purchases as follows (aggregate cost excludes broker commissions and is reflected in millions): Total Number Average of Shares Price Paid Aggregate Period Purchased per Share Cost October 26, 2015 - December 31, 2015 $ $ January 1, 2016 - December 31, 2016 $ |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
Schedule of components of income tax expense (benefit) | The components of income tax expense (benefit) for the following years ended December 31 were as follows (in thousands): 2014 2015 2016 Income taxes currently payable: Federal $ $ $ State Deferred income taxes (benefits): Federal State Total income tax expense $ $ $ |
Schedule of differences between total income tax expense and amount computed using the statutory federal income tax rate | Total income tax expense for the years ended December 31 was different from the amount computed using the statutory federal income tax rate of 35 percent for the following reasons (in thousands): 2014 2015 2016 Income tax expense at federal statutory rate $ $ $ State income taxes, net of federal income tax benefit Tax contingencies reversed due to statute closings Change in valuation allowances Non-deductible HIF fees Other-net Total income tax expense $ $ $ |
Schedule of components of deferred tax assets and liabilities | The significant components of deferred tax assets and liabilities at December 31 were as follows (in thousands): 2015 2016 Deferred tax assets: Net operating loss carryforwards $ $ Share-based compensation Other accrued compensation Claims reserves Deferred revenue Other non-deductible accrued liabilities Amortization of goodwill and intangible assets Indirect tax benefits Other deferred tax assets Total deferred tax assets Valuation allowances Deferred tax assets after valuation allowances Deferred tax liabilities: Depreciation Other deferred tax liabilities Total deferred tax liabilities Net deferred tax assets (liabilities) $ $ |
Schedule of reconciliation of the beginning and ending amount of gross unrecognized tax benefits | A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands): 2014 2015 2016 Balance as of beginning of period $ $ $ Additions for current year tax positions Additions for tax positions of prior years Reductions for tax positions of prior years Reductions due to lapses of applicable statutes of limitations Reductions due to settlements with taxing authorities — — Balance as of end of period $ $ $ |
Supplemental Cash Flow Inform28
Supplemental Cash Flow Information (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Supplemental Cash Flow Information | |
Schedule of supplemental cash flow information | Supplemental cash flow information for the years ended December 31, 2014, 2015 and 2016 is as follows (in thousands): 2014 2015 2016 Income taxes paid, net of refunds $ $ $ Interest paid $ $ $ Assets acquired through capital leases $ $ $ |
Business Segment Information (T
Business Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Business Segment Information | |
Schedule of operating results by business segment | The following tables summarize, for the periods indicated, operating results by business segment (in thousands): Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2014 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) Changes in fair value of contingent consideration (1) — Less: non-controlling interest segment profit (loss) (2) — — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ — $ $ Net accounts receivable Investments — Pharmaceutical inventory — — Goodwill — Other intangible assets, net — Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2015 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care — — Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) (4) Changes in fair value of contingent consideration (1) — Less: non-controlling interest segment profit (loss) (2) — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ — $ — $ Net accounts receivable Investments — Pharmaceutical inventory — — Goodwill — Other intangible assets, net — Corporate Pharmacy and Healthcare Management Elimination Consolidated Year Ended December 31, 2016 Managed care and other revenue $ $ $ $ PBM and dispensing revenue — Cost of care — — Cost of goods sold — Direct service costs and other (4) Stock compensation expense (1) (4) Changes in fair value of contingent consideration (1) — Impairment of intangible assets (1) — — Less: non-controlling interest segment profit (loss) (2) — Segment profit (loss) $ $ $ $ Identifiable assets by business segment (3) Restricted cash $ $ $ $ Net accounts receivable Investments Pharmaceutical inventory — — Goodwill — Other intangible assets, net — (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to the acquisitions and impairment of intangible assets are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of Segment Profit. (2) The non-controlling interest portion of AlphaCare’s segment profit (loss) is excluded from the computation of Segment Profit. (3) Identifiable assets by business segment are those assets that are used in the operations of each segment. The remainder of the Company’s assets cannot be specifically identified by segment. (4) Effective January 1, 2016, the Company implemented changes related to the allocation of Corporate operational and support functions. These changes were applied retrospectively. The following tables summarize, for the periods indicated, the changes by business segment (in thousands): Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2014 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2015 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ Pharmacy Corporate and Healthcare Management Elimination Consolidated Year Ended December 31, 2016 Segment profit (loss) before Corporate allocations $ $ $ $ Allocated Corporate costs — Allocated Corporate stock compensation expense — Segment profit (loss) $ $ $ $ |
Schedule of reconciliation of Segment Profit to income before income taxes | The following table reconciles consolidated income before income taxes to Segment Profit for the years ended December 31, 2014, 2015 and 2016 (in thousands): 2014 2015 2016 Income before income taxes $ $ $ Stock compensation expense Changes in fair value of contingent consideration Impairment of intangible assets — — Non-controlling interest segment profit (loss) Depreciation and amortization Interest expense Interest and other income Segment Profit $ $ $ |
Selected Quarterly Financial 30
Selected Quarterly Financial Data (Unaudited) (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Selected Quarterly Financial Data (Unaudited) | |
Schedule of Summary of unaudited quarterly results of operations | The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2015 and 2016 (in thousands, except per share amounts): For the Quarter Ended March 31, June 30, September 30, December 31, 2015 2015 2015 2015 Year Ended December 31, 2015 Net revenue: Managed care and other $ $ $ $ PBM and dispensing Total net revenue Costs and expenses: Cost of care Cost of goods sold Direct service costs and other operating expenses (1) (2) Depreciation and amortization Interest expense Interest and other income Total costs and expenses Income (loss) before income taxes Provision (benefit) for income taxes Net income (loss) Less: net income (loss) attributable to non-controlling interest Net income (loss) attributable to Magellan Health, Inc. $ $ $ $ Weighted average number of common shares outstanding—basic Weighted average number of common shares outstanding—diluted Net income (loss) per common share attributable to Magellan Health, Inc.: Net income (loss) per common share—basic: $ $ $ $ Net income (loss) per common share—diluted: $ $ $ $ For the Quarter Ended March 31, June 30, September 30, December 31, 2016 2016 2016 2016 Year Ended December 31, 2016 Net revenue: Managed care and other $ $ $ $ PBM and dispensing Total net revenue Costs and expenses: Cost of care Cost of goods sold Direct service costs and other operating expenses (3) (4) (5) Depreciation and amortization Interest expense Interest and other income Total costs and expenses Income before income taxes Provision for income taxes Net income Less: net income attributable to non-controlling interest Net income attributable to Magellan Health, Inc. $ $ $ $ Weighted average number of common shares outstanding—basic Weighted average number of common shares outstanding—diluted (6) Net income per common share attributable to Magellan Health, Inc.: Net income per common share—basic: $ $ $ $ Net income per common share—diluted: $ $ $ $ (1) Includes stock compensation expense of $13,901, $13,795, $12,897 and $9,791 for the quarters ended March 31, June 30, September 30 and December 31, 2015, respectively. (2) Includes changes in fair value of contingent consideration of $14,969, $2,567, $29,738 and $(3,017) for the quarters ended March 31, June 30, September 30 and December 31, 2015, respectively. (3) Includes stock compensation expense of $8,887, $ 9,510 , $ 9,176 and $ 9,849 for the quarters ended March 31, June 30, September 30 and December 31, 2016, respectively. (4) Includes changes in fair value of contingent consideration of $(266), $ 463 , $313 and $(614) for the quarters ended March 31, June 30, September 30 and December 31, 2016, respectively. (5) Includes impairment of intangible assets of $4,800 for the quarter ended June 30, 2016. During the quarter ended December 31, 2016 the Company early adopted ASU 2016-09. As a result, the diluted weighted average shares outstanding as of March 31, June 30 and September 30, 2016 have been adjusted. There was no impact to the net income per common share – diluted. |
Summary of Significant Accoun31
Summary of Significant Accounting Policies - Recent Accounting Pronouncements and Revenues (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Operating cash flows | $ 66,699 | $ 157,457 | $ 189,673 |
Net revenues | |||
Managed Care Revenue | 2,300,000 | 2,700,000 | 2,600,000 |
Fee-For-Service, Fixed Fee and Cost-Plus Contracts Revenue | 503,200 | 342,000 | 290,900 |
Rebate Revenues | 85,400 | 88,700 | 43,600 |
PBM Revenue | 1,500,000 | 1,200,000 | 575,700 |
Dispensing Revenue | 221,800 | 211,600 | 216,000 |
Medicare Part D Revenues | 272,800 | ||
Co-payments | 31,000 | ||
Medicare Part D Receivables | 117,500 | ||
ASU 2016-18 | Early adoption | |||
Operating cash flows | $ (51,800) | $ (81,700) | $ (21,400) |
Summary of Significant Accoun32
Summary of Significant Accounting Policies - Significant Customers (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Significant customers | |||||||||||
Revenues | $ 1,263,385 | $ 1,292,132 | $ 1,164,345 | $ 1,117,022 | $ 1,268,743 | $ 1,190,082 | $ 1,157,607 | $ 980,968 | $ 4,836,884 | $ 4,597,400 | $ 3,760,118 |
Florida Contracts | |||||||||||
Significant customers | |||||||||||
Revenues | $ 548,700 | 439,500 | 253,700 | ||||||||
Florida Medicaid Contract | |||||||||||
Significant customers | |||||||||||
Termination notice | 1 day | ||||||||||
Termination notice period without cause | 30 days | ||||||||||
Iowa Contracts | |||||||||||
Significant customers | |||||||||||
Revenues | $ 13,500 | 530,300 | 465,000 | ||||||||
Pharmacy Management | Customer A | Service | |||||||||||
Significant customers | |||||||||||
Revenues | 264,152 | 324,809 | 171,936 | ||||||||
Pharmacy Management | Customer B | Service | |||||||||||
Significant customers | |||||||||||
Revenues | $ 139,273 | $ 130,200 | $ 123,812 |
Summary of Significant Accoun33
Summary of Significant Accounting Policies - Concentration Risk (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Concentration of Business | |||||||||||
Net revenue | $ 1,263,385 | $ 1,292,132 | $ 1,164,345 | $ 1,117,022 | $ 1,268,743 | $ 1,190,082 | $ 1,157,607 | $ 980,968 | $ 4,836,884 | $ 4,597,400 | $ 3,760,118 |
Minimum | |||||||||||
Concentration of Business | |||||||||||
Term of Contract | 1 year | ||||||||||
Term of renewed contract | 1 year | ||||||||||
Notice period for termination of contract | 60 days | ||||||||||
Maximum | |||||||||||
Concentration of Business | |||||||||||
Term of Contract | 3 years | ||||||||||
Term of renewed contract | 2 years | ||||||||||
Notice period for termination of contract | 180 days | ||||||||||
Pennsylvania Counties | |||||||||||
Concentration of Business | |||||||||||
Net revenue | $ 461,600 | 395,700 | 369,900 | ||||||||
Agencies and department of United States federal government | |||||||||||
Concentration of Business | |||||||||||
Net revenue | 252,500 | $ 164,300 | $ 139,500 | ||||||||
CMS | Pennsylvania Counties | |||||||||||
Concentration of Business | |||||||||||
Net revenue | $ 272,800 |
Summary of Significant Accoun34
Summary of Significant Accounting Policies - Taxes, Health Care Reform, Cash, Restricted Assets (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Health Care Reform | |||
Health Insurer Fee (HIF) fiscal year annual fees paid during the period | $ 26,500 | $ 26,500 | $ 21,400 |
Revenues recorded associated with the accrual for the reimbursement of the economic impact of the ACA fees from its customers | 44,000 | 45,400 | 36,500 |
Receivables related to terminated contract that customer has expressed their unwillingness to pay | $ 13,300 | ||
Cash and Cash Equivalents | |||
Maximum maturity period of short-term and highly liquid interest bearing investments at time of purchase | 3 months | ||
Excess capital and undistributed earnings for regulated subsidiaries included in cash and cash equivalents | $ 117,700 | ||
Restricted Assets | |||
Restricted cash and cash equivalents | 81,776 | 133,597 | $ 215,325 |
Restricted short-term investments | 227,795 | 277,556 | |
Restricted deposits (included in other current assets) | 38,785 | 27,752 | |
Restricted long-term investments | 6,306 | 3,826 | |
Total | $ 354,662 | $ 442,731 |
Summary of Significant Accoun35
Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Assets | |||
Restricted cash and cash equivalents | $ 81,776 | $ 133,597 | $ 215,325 |
Investments | 305,253 | 326,165 | |
Cash held in bank accounts | 127,000 | 160,200 | |
Liabilities | |||
Contingent consideration | 11,153 | 92,426 | $ 58,153 |
Level 2 | Term Loan | |||
Liabilities | |||
Fair value of debt | 418,800 | ||
Fair value measured on recurring basis | |||
Assets | |||
Total assets held at fair value | 482,748 | 414,982 | |
Liabilities | |||
Contingent consideration | 11,153 | 92,426 | |
Total liabilities held at fair value | 11,153 | 92,426 | |
Fair value measured on recurring basis | Other than cash held in bank accounts by Company | |||
Assets | |||
Cash and cash equivalents | 177,495 | 88,817 | |
Fair value measured on recurring basis | U.S. Government and agency securities | |||
Assets | |||
Investments | 5,817 | 5,514 | |
Fair value measured on recurring basis | Obligations of government-sponsored enterprises | |||
Assets | |||
Investments | 25,767 | 50,525 | |
Fair value measured on recurring basis | Corporate debt securities | |||
Assets | |||
Investments | 272,219 | 268,976 | |
Fair value measured on recurring basis | Certificates of deposit | |||
Assets | |||
Investments | 1,450 | 1,150 | |
Fair value measured on recurring basis | Level 1 | |||
Assets | |||
Total assets held at fair value | 5,817 | 5,514 | |
Fair value measured on recurring basis | Level 1 | U.S. Government and agency securities | |||
Assets | |||
Investments | 5,817 | 5,514 | |
Fair value measured on recurring basis | Level 2 | |||
Assets | |||
Total assets held at fair value | 476,931 | 409,468 | |
Fair value measured on recurring basis | Level 2 | Other than cash held in bank accounts by Company | |||
Assets | |||
Cash and cash equivalents | 177,495 | 88,817 | |
Fair value measured on recurring basis | Level 2 | Obligations of government-sponsored enterprises | |||
Assets | |||
Investments | 25,767 | 50,525 | |
Fair value measured on recurring basis | Level 2 | Corporate debt securities | |||
Assets | |||
Investments | 272,219 | 268,976 | |
Fair value measured on recurring basis | Level 2 | Certificates of deposit | |||
Assets | |||
Investments | 1,450 | 1,150 | |
Fair value measured on recurring basis | Level 3 | |||
Liabilities | |||
Contingent consideration | 11,153 | 92,426 | |
Total liabilities held at fair value | $ 11,153 | $ 92,426 |
Summary of Significant Accoun36
Summary of Significant Accounting Policies - Contingent Consideration (Details) - USD ($) $ in Thousands | 12 Months Ended | |||||||||
Dec. 31, 2020 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | Jul. 01, 2016 | Feb. 29, 2016 | Apr. 01, 2015 | Jul. 01, 2014 | Apr. 30, 2014 | |
Fair value measurement of contingent consideration | ||||||||||
Fair value of short-term contingent consideration | $ 9,354 | $ 91,623 | ||||||||
Fair value of long-term contingent consideration | 1,799 | 803 | ||||||||
Liability for contingent consideration | ||||||||||
Balance as of beginning of period | $ 11,153 | 92,426 | 58,153 | |||||||
Changes in fair value: Increase (Decrease) in contingent consideration | (104) | 44,257 | $ 9,300 | |||||||
Net payments | (91,660) | (29,274) | ||||||||
Balance as of end of period | 11,153 | 92,426 | 58,153 | |||||||
Forecast | ||||||||||
Liability for contingent consideration | ||||||||||
Changes in fair value: Increase (Decrease) in contingent consideration | $ (2,800) | $ (9,900) | ||||||||
Direct service costs and other operating expenses | ||||||||||
Liability for contingent consideration | ||||||||||
Changes in fair value: Increase (Decrease) in contingent consideration | 6,200 | |||||||||
Interest expense | ||||||||||
Liability for contingent consideration | ||||||||||
Changes in fair value: Increase (Decrease) in contingent consideration | $ 3,100 | |||||||||
CDMI | ||||||||||
Contingent consideration disclosures | ||||||||||
Maximum potential contingent payments | $ 165,000 | |||||||||
Remaining potential future payments | 0 | |||||||||
Fair value measurement of contingent consideration | ||||||||||
Estimated undiscounted future contingent payments | 90,100 | |||||||||
4D Pharmacy Management Systems, Inc. | ||||||||||
Contingent consideration disclosures | ||||||||||
Maximum potential contingent payments | $ 30,000 | |||||||||
Remaining potential future payments | 0 | |||||||||
Fair value measurement of contingent consideration | ||||||||||
Estimated net undiscounted future contingent payments | 1,000 | |||||||||
Liability for contingent consideration | ||||||||||
Acquisition | 19,290 | |||||||||
Cobalt | ||||||||||
Contingent consideration disclosures | ||||||||||
Maximum potential contingent payments | $ 6,000 | |||||||||
Remaining potential future payments | 5,000 | |||||||||
Fair value measurement of contingent consideration | ||||||||||
Estimated undiscounted future contingent payments | 900 | $ 1,700 | ||||||||
Fair value of short-term contingent consideration | 900 | |||||||||
TMG | ||||||||||
Contingent consideration disclosures | ||||||||||
Maximum potential contingent payments | $ 15,000 | |||||||||
Remaining potential future payments | 15,000 | |||||||||
Fair value measurement of contingent consideration | ||||||||||
Estimated undiscounted future contingent payments | 2,800 | $ 3,800 | ||||||||
Fair value of long-term contingent consideration | 1,800 | |||||||||
Liability for contingent consideration | ||||||||||
Acquisition | 2,244 | |||||||||
AFSC | ||||||||||
Contingent consideration disclosures | ||||||||||
Maximum potential contingent payments | $ 10,000 | |||||||||
Remaining potential future payments | 10,000 | |||||||||
Fair value measurement of contingent consideration | ||||||||||
Estimated undiscounted future contingent payments | 9,000 | $ 9,000 | ||||||||
Fair value of short-term contingent consideration | 8,500 | |||||||||
Liability for contingent consideration | ||||||||||
Acquisition | 8,247 | |||||||||
Changes in fair value: Increase (Decrease) in contingent consideration | $ 300 |
Summary of Significant Accoun37
Summary of Significant Accounting Policies - Short Term and Long Term Investments (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Short-term and long-term investments | |||
Other-than-temporary unrealized losses | $ 0 | $ 0 | |
Realized gains or losses | 0 | 0 | $ 0 |
Amortized Cost | 305,540 | 326,589 | |
Gross Unrealized Gains | 3 | 4 | |
Gross Unrealized Losses | (290) | (428) | |
Estimated Fair Value | 305,253 | 326,165 | |
U.S. Government and agency securities | |||
Short-term and long-term investments | |||
Amortized Cost | 5,832 | 5,524 | |
Gross Unrealized Losses | (15) | (10) | |
Estimated Fair Value | 5,817 | 5,514 | |
Obligations of government-sponsored enterprises | |||
Short-term and long-term investments | |||
Amortized Cost | 25,779 | 50,575 | |
Gross Unrealized Gains | 2 | 4 | |
Gross Unrealized Losses | (14) | (54) | |
Estimated Fair Value | 25,767 | 50,525 | |
Corporate debt securities | |||
Short-term and long-term investments | |||
Amortized Cost | 272,479 | 269,340 | |
Gross Unrealized Gains | 1 | ||
Gross Unrealized Losses | (261) | (364) | |
Estimated Fair Value | 272,219 | 268,976 | |
Certificates of deposit | |||
Short-term and long-term investments | |||
Amortized Cost | 1,450 | 1,150 | |
Estimated Fair Value | $ 1,450 | $ 1,150 |
Summary of Significant Accoun38
Summary of Significant Accounting Policies - Investments by Maturity Date (Details) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 |
Amortized Cost | ||
Investments amortized cost maturity dates 2017 | $ 297,748 | |
Investments amortized cost maturity dates 2018 | 7,792 | |
Amortized Cost | 305,540 | $ 326,589 |
Estimated Fair Value | ||
Investments fair value maturity dates 2017 | 297,493 | |
Investments fair value maturity dates 2018 | 7,760 | |
Estimated Fair Value | $ 305,253 | $ 326,165 |
Summary of Significant Accoun39
Summary of Significant Accounting Policies - PP&E (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Property and Equipment | |||
Depreciation expense | $ 75,300 | $ 73,400 | $ 68,300 |
Property and equipment, gross | 709,853 | 657,396 | |
Accumulated depreciation | (537,329) | (482,651) | |
Property and equipment, net | 172,524 | 174,745 | |
Building improvements | |||
Property and Equipment | |||
Property and equipment, gross | $ 16,817 | 13,655 | |
Building improvements | Minimum | |||
Property and Equipment | |||
Estimated useful lives of assets | 2 years | ||
Building improvements | Maximum | |||
Property and Equipment | |||
Estimated useful lives of assets | 10 years | ||
Equipment | |||
Property and Equipment | |||
Property and equipment, gross | $ 204,743 | 207,667 | |
Equipment | Minimum | |||
Property and Equipment | |||
Estimated useful lives of assets | 3 years | ||
Equipment | Maximum | |||
Property and Equipment | |||
Estimated useful lives of assets | 15 years | ||
Capital leases - property | |||
Property and Equipment | |||
Property and equipment, gross | $ 26,945 | 26,945 | |
Capital leases - equipment | |||
Property and Equipment | |||
Property and equipment, gross | 14,729 | 12,335 | |
Capitalized internal-use software | |||
Property and Equipment | |||
Depreciation expense | 47,600 | 45,600 | $ 40,900 |
Property and equipment, gross | 446,619 | 396,794 | |
Property and equipment, net | $ 88,200 | $ 84,800 | |
Capitalized internal-use software | Minimum | |||
Property and Equipment | |||
Estimated useful lives of assets | 3 years | ||
Capitalized internal-use software | Maximum | |||
Property and Equipment | |||
Estimated useful lives of assets | 5 years |
Summary of Significant Accoun40
Summary of Significant Accounting Policies - Goodwill (Details) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2016USD ($)item | Dec. 31, 2015USD ($) | Dec. 13, 2016USD ($) | Jul. 01, 2016USD ($) | |
Goodwill | ||||
Number of reporting units | item | 3 | |||
Goodwill | $ 621,390 | $ 566,106 | ||
Changes in goodwill | ||||
Balance as of beginning of period | 621,390 | 566,106 | ||
Other acquisitions and measurement period adjustments | 13,223 | 6,148 | ||
Balance as of end of period | 742,054 | 621,390 | ||
4D Pharmacy Management Systems, Inc. | ||||
Changes in goodwill | ||||
Acquisition | 49,136 | |||
AFSC | ||||
Goodwill | ||||
Goodwill | $ 76,736 | |||
Changes in goodwill | ||||
Acquisition | 76,736 | |||
Veridicus | ||||
Goodwill | ||||
Goodwill | $ 30,705 | |||
Changes in goodwill | ||||
Acquisition | 30,705 | |||
Commercial | ||||
Goodwill | ||||
Goodwill | 242,255 | 242,255 | ||
Changes in goodwill | ||||
Balance as of beginning of period | 242,255 | |||
Balance as of end of period | 242,255 | 242,255 | ||
Government | ||||
Goodwill | ||||
Goodwill | 18,363 | 18,363 | ||
Changes in goodwill | ||||
Balance as of beginning of period | 18,363 | |||
Balance as of end of period | $ 108,321 | 18,363 | ||
Government | Discounted cash flow | ||||
Goodwill | ||||
Weights applied to determine fair value of goodwill (as a percent) | 75.00% | |||
Government | Guideline Company | ||||
Goodwill | ||||
Weights applied to determine fair value of goodwill (as a percent) | 25.00% | |||
Pharmacy Management | ||||
Goodwill | ||||
Goodwill | $ 360,772 | 360,772 | ||
Changes in goodwill | ||||
Balance as of beginning of period | 360,772 | |||
Balance as of end of period | $ 391,478 | $ 360,772 |
Summary of Significant Accoun41
Summary of Significant Accounting Policies - Intangible Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | ||
Jun. 30, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Summary of intangible assets | ||||
Impairment of intangible assets | $ 4,800 | $ 4,800 | ||
Gross Carrying Amount | 379,828 | $ 291,453 | ||
Accumulated Amortization | (193,596) | (158,079) | ||
Net Carrying Amount | 186,232 | 133,374 | ||
Amortization expense | 30,700 | $ 29,400 | $ 22,800 | |
Estimated amortization expense in future | ||||
2,017 | 35,100 | |||
2,018 | 30,600 | |||
2,019 | 28,500 | |||
2,020 | 27,400 | |||
2,021 | $ 26,800 | |||
Customer agreements and lists | ||||
Summary of intangible assets | ||||
Weighted Avg, Remaining Useful Life | 6 years 4 months 24 days | 6 years 9 months 18 days | ||
Gross Carrying Amount | $ 357,708 | $ 274,790 | ||
Accumulated Amortization | (181,588) | (148,795) | ||
Net Carrying Amount | $ 176,120 | $ 125,995 | ||
Customer agreements and lists | Minimum | ||||
Summary of intangible assets | ||||
Period of amortization of intangible assets acquired | 2 years 6 months | 2 years 6 months | ||
Customer agreements and lists | Maximum | ||||
Summary of intangible assets | ||||
Period of amortization of intangible assets acquired | 18 years | 18 years | ||
Provider networks and other | ||||
Summary of intangible assets | ||||
Weighted Avg, Remaining Useful Life | 4 years 3 months 18 days | 4 years 8 months 12 days | ||
Gross Carrying Amount | $ 18,240 | $ 16,663 | ||
Accumulated Amortization | (12,008) | (9,284) | ||
Net Carrying Amount | $ 6,232 | $ 7,379 | ||
Provider networks and other | Minimum | ||||
Summary of intangible assets | ||||
Period of amortization of intangible assets acquired | 1 year | 1 year | ||
Provider networks and other | Maximum | ||||
Summary of intangible assets | ||||
Period of amortization of intangible assets acquired | 16 years | 16 years | ||
AFSC | Trade names | ||||
Summary of intangible assets | ||||
Carrying Amount | $ 3,880 |
Summary of Significant Accoun42
Summary of Significant Accounting Policies - Medical Costs, Advertising, and Accrued Liabilities (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Cost of Care, Medical Claims Payable and Other Medical Liabilities | |||||||||||
Period considered for comparing medical claims trend | 2 months | ||||||||||
Minimum completion factor of insured claims to make projection from historical completion and payment patterns (as a percent) | 70.00% | ||||||||||
Changes in medical claims payable | |||||||||||
Claims payable and IBNR, beginning of period | $ 253,299 | $ 278,803 | $ 253,299 | $ 278,803 | $ 242,229 | ||||||
Cost of care: | |||||||||||
Current year | 1,892,914 | 2,297,255 | 2,097,395 | ||||||||
Prior years | (10,300) | (22,500) | (8,800) | ||||||||
Total cost of care | $ 472,211 | $ 480,243 | $ 472,529 | $ 457,631 | $ 587,816 | $ 596,323 | $ 568,288 | $ 522,328 | 1,882,614 | 2,274,755 | 2,088,595 |
Claim payments and transfers to other medical liabilities: | |||||||||||
Current year | 1,733,310 | 2,077,729 | 1,845,325 | ||||||||
Prior years | 213,985 | 222,530 | 206,696 | ||||||||
Total claim payments and transfers to other medical liabilities | 1,947,295 | 2,300,259 | 2,052,021 | ||||||||
Claims payable and IBNR, end of period | 188,618 | 253,299 | 188,618 | 253,299 | 278,803 | ||||||
Withhold receivables, end of period | (4,482) | (2,850) | (4,482) | (2,850) | (321) | ||||||
Medical claims payable, end of period | 184,136 | 250,449 | 184,136 | 250,449 | 278,482 | ||||||
Advertising Costs | |||||||||||
Advertising expense | 2,000 | 2,500 | $ 2,700 | ||||||||
Accrued Liabilities | |||||||||||
Accrued employee compensation liabilities | $ 76,100 | $ 37,600 | $ 76,100 | $ 37,600 |
Summary of Significant Accoun43
Summary of Significant Accounting Policies - Redeemable non-Controlling Interest (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Redeemable Non-Controlling Interest disclosures | ||
Redeemable non-controlling interest | $ 4,770 | $ 5,937 |
Alpha Care Holdings Inc. | ||
Redeemable Non-Controlling Interest disclosures | ||
Percentage of ownership held by reporting entity | 84.00% | |
Percentage of remaining shares which the entity may be required to purchase in the event of exercise of put options by other shareholders | 50.00% | |
Redeemable non-controlling interest | $ 4,800 | $ 5,900 |
Increase (Reduction) in carrying value as a result of operating losses (income) | $ (1,100) |
Summary of Significant Accoun44
Summary of Significant Accounting Policies - Share Based Compensation (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Share-based compensation | |||||||||||
Stock compensation expense | $ 9,849 | $ 9,176 | $ 9,510 | $ 8,887 | $ 9,791 | $ 12,897 | $ 13,795 | $ 13,901 | $ 37,422 | $ 50,384 | $ 40,584 |
Vesting period | 3 years | ||||||||||
Minimum | |||||||||||
Share-based compensation | |||||||||||
Estimated forfeitures (as a percent) | 0.00% | 0.00% | 0.00% | ||||||||
Maximum | |||||||||||
Share-based compensation | |||||||||||
Estimated forfeitures (as a percent) | 4.00% | 4.00% | 4.00% |
Acquisitions - Acquisition Of A
Acquisitions - Acquisition Of AFSC (Details) - USD ($) $ in Thousands | Dec. 13, 2016 | Jul. 01, 2016 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Acquisitions | ||||||||||||||
Total revenues | $ 1,263,385 | $ 1,292,132 | $ 1,164,345 | $ 1,117,022 | $ 1,268,743 | $ 1,190,082 | $ 1,157,607 | $ 980,968 | $ 4,836,884 | $ 4,597,400 | $ 3,760,118 | |||
Segment profit | 301,793 | 275,651 | 266,919 | |||||||||||
Assets acquired: | ||||||||||||||
Goodwill | 742,054 | 621,390 | $ 742,054 | 742,054 | 621,390 | 566,106 | ||||||||
Liabilities assumed: | ||||||||||||||
Fair value of long-term contingent consideration | 1,799 | 803 | 1,799 | 1,799 | 803 | |||||||||
Fair value of short-term contingent consideration | 9,354 | $ 91,623 | 9,354 | 9,354 | 91,623 | |||||||||
Change in present value of contingent consideration | (104) | 44,257 | $ 9,300 | |||||||||||
AFSC | ||||||||||||||
Acquisitions | ||||||||||||||
Base purchase price | $ 117,500 | |||||||||||||
Restricted common stock issued | 4,000 | |||||||||||||
Amount of consideration paid in cash | 113,500 | |||||||||||||
Maximum potential contingent payments | 10,000 | |||||||||||||
Total revenues | 88,100 | |||||||||||||
Segment profit | 14,500 | |||||||||||||
Accrual for estimated contingent consideration | 8,200 | |||||||||||||
Assets acquired: | ||||||||||||||
Current assets (includes $32,143 and $18,188 of accounts receivable and cash, respectively) | 54,255 | |||||||||||||
Accounts receivable | 32,143,000 | |||||||||||||
Cash | 18,188,000 | |||||||||||||
Property and equipment, net | 945 | |||||||||||||
Other assets | 25 | |||||||||||||
Other identified intangible assets | 51,721 | |||||||||||||
Goodwill | 76,736 | |||||||||||||
Total assets acquired | 183,682 | |||||||||||||
Liabilities assumed: | ||||||||||||||
Current liabilities | 23,690 | |||||||||||||
Deferred tax liabilities | 19,569 | |||||||||||||
Other liabilities | 64 | |||||||||||||
Total liabilities assumed | 43,323 | |||||||||||||
Net assets acquired | 140,359 | |||||||||||||
Working capital receivable | 3,200 | 3,200 | 3,200 | |||||||||||
Estimated undiscounted future contingent payments | 9,000 | 9,000 | 9,000 | 9,000 | ||||||||||
Fair value of short-term contingent consideration | 8,500 | 8,500 | 8,500 | |||||||||||
Change in present value of contingent consideration | 300 | |||||||||||||
Acquisition related costs | 1,900 | |||||||||||||
AFSC | Trade names | ||||||||||||||
Acquisitions | ||||||||||||||
Indefinite-lived intangible assets acquired | 3,900 | |||||||||||||
AFSC | Customer contracts | ||||||||||||||
Acquisitions | ||||||||||||||
Finite-live intangible assets acquired | $ 47,700 | |||||||||||||
Period of amortization of intangible assets acquired | 7 years | |||||||||||||
AFSC | Non-compete agreements | ||||||||||||||
Acquisitions | ||||||||||||||
Finite-live intangible assets acquired | $ 100 | |||||||||||||
Period of amortization of intangible assets acquired | 4 years | |||||||||||||
AFSC | Restricted Common Stock | ||||||||||||||
Acquisitions | ||||||||||||||
Restricted common stock issued | $ 4,000 | |||||||||||||
Restricted common stock issued, vesting period | 2 years | |||||||||||||
Veridicus | ||||||||||||||
Acquisitions | ||||||||||||||
Base purchase price | $ 72,500 | |||||||||||||
Assets acquired: | ||||||||||||||
Current assets (includes $32,143 and $18,188 of accounts receivable and cash, respectively) | 8,961 | |||||||||||||
Accounts receivable | 5,625 | |||||||||||||
Cash | 1,569 | |||||||||||||
Inventory | 1,564 | |||||||||||||
Property and equipment, net | 6,323 | |||||||||||||
Other assets | 42 | |||||||||||||
Other identified intangible assets | 34,440 | |||||||||||||
Goodwill | 30,705 | |||||||||||||
Total assets acquired | 80,471 | |||||||||||||
Liabilities assumed: | ||||||||||||||
Current liabilities | 6,083 | |||||||||||||
Total liabilities assumed | 6,083 | |||||||||||||
Net assets acquired | 74,388 | |||||||||||||
Working capital receivable | $ 100 | $ 100 | 100 | |||||||||||
Acquisition related costs | 500 | $ 300 | $ 200 | |||||||||||
Veridicus | Trade names | ||||||||||||||
Acquisitions | ||||||||||||||
Indefinite-lived intangible assets acquired | $ 400 | |||||||||||||
Veridicus | Trade names | Minimum | ||||||||||||||
Acquisitions | ||||||||||||||
Period of amortization of intangible assets acquired | 1 year | |||||||||||||
Veridicus | Customer contracts | ||||||||||||||
Acquisitions | ||||||||||||||
Finite-live intangible assets acquired | $ 33,800 | |||||||||||||
Veridicus | Customer contracts | Minimum | ||||||||||||||
Acquisitions | ||||||||||||||
Period of amortization of intangible assets acquired | 6 years | |||||||||||||
Veridicus | Customer contracts | Maximum | ||||||||||||||
Acquisitions | ||||||||||||||
Period of amortization of intangible assets acquired | 8 years | |||||||||||||
Veridicus | Non-compete agreements | ||||||||||||||
Acquisitions | ||||||||||||||
Finite-live intangible assets acquired | $ 300 | |||||||||||||
Period of amortization of intangible assets acquired | 5 years |
Acquisitions - Other Acquisitio
Acquisitions - Other Acquisitions (Details) - USD ($) $ / shares in Units, $ in Thousands | Feb. 29, 2016 | Apr. 01, 2015 | Jan. 31, 2015 | Jul. 01, 2014 | Apr. 30, 2014 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2013 |
Pro Forma Financial Information | ||||||||
Net revenue | $ 5,084 | $ 4,912 | ||||||
Net income attributable to Magellan Health, Inc. | $ 80 | $ 37 | ||||||
Income per common share attributable to Magellan Health, Inc.: | ||||||||
Basic (in dollars per share) | $ 3.45 | $ 1.48 | ||||||
Diluted (in dollars per share) | $ 3.31 | $ 1.42 | ||||||
4D Pharmacy Management Systems, Inc. | ||||||||
Acquisitions | ||||||||
Base purchase price | $ 54,700 | |||||||
working capital adjustments | 300 | |||||||
Maximum potential contingent payments | 30,000 | |||||||
4D Pharmacy Management Systems, Inc. | Retention of Certain Business | ||||||||
Acquisitions | ||||||||
Maximum potential contingent payments | $ 20,000 | |||||||
Alpha Care Holdings Inc. | ||||||||
Acquisitions | ||||||||
Percentage of equity interest acquired | 65.00% | |||||||
Percentage of ownership held | 84.00% | |||||||
Voting interest of remaining shareholders | 16.00% | |||||||
Alpha Care Holdings Inc. | Series B Preferred Stock And Series C Preferred Stock | ||||||||
Acquisitions | ||||||||
Amount of additional Preferred Shares purchased | $ 23,600 | |||||||
Alpha Care Holdings Inc. | Series C Preferred Stock | ||||||||
Acquisitions | ||||||||
Amount of additional Preferred Shares purchased | $ 7,500 | |||||||
CDMI | ||||||||
Acquisitions | ||||||||
working capital adjustments | $ 201,000 | |||||||
Maximum potential contingent payments | 165,000 | |||||||
Consideration paid due to net receipts received for working capital adjustments | 4,000 | |||||||
CDMI | Retention of Certain Business | ||||||||
Acquisitions | ||||||||
Maximum potential contingent payments | $ 100,000 | |||||||
TMG | ||||||||
Acquisitions | ||||||||
Length of expertise in community-based long-term care services and supports | 30 years | |||||||
working capital adjustments | $ 14,800 | |||||||
Maximum potential contingent payments | 15,000 | |||||||
Consideration paid due to net receipts received for working capital adjustments | $ 200 | |||||||
HSM | ||||||||
Acquisitions | ||||||||
Base purchase price | $ 13,600 | |||||||
working capital adjustments | $ 100 | |||||||
Cobalt | ||||||||
Acquisitions | ||||||||
Base purchase price | $ 7,800 | |||||||
working capital adjustments | 200 | |||||||
Maximum potential contingent payments | $ 6,000 |
Benefit Plans (Details)
Benefit Plans (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Benefit Plans | |||
Maximum contribution to defined contribution retirement plan by employee, as a percentage of compensation | 75.00% | ||
Employer's matching contribution as a percentage of employee's contribution | 50.00% | ||
Expense recognized | $ 11.1 | $ 9.6 | $ 8.7 |
Maximum | |||
Benefit Plans | |||
Maximum employer matching contribution to defined contribution retirement plan, as a percentage of compensation | 6.00% |
Long-Term Debt and Capital Le48
Long-Term Debt and Capital Lease Obligations (Details) - USD ($) $ in Thousands | Jan. 10, 2017 | Sep. 30, 2014 | Jul. 23, 2014 | Dec. 31, 2016 | Dec. 31, 2014 | Feb. 22, 2017 | Jun. 27, 2016 | Dec. 31, 2015 |
Long-term Debt and Capital Lease Obligations | ||||||||
Proceeds from issuance of debt | $ 375,000 | $ 250,000 | ||||||
Capital lease obligations | 26,000 | $ 24,400 | ||||||
Gross cost of capital leased assets | 41,700 | 39,300 | ||||||
Revolving Loan borrowings | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Revolving borrowings outstanding | 0 | |||||||
Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Available borrowing capacity | 218,700 | |||||||
Long-term Debt, Fiscal Year Maturity | ||||||||
2,017 | 225,000 | |||||||
2,018 | 25,000 | |||||||
2,019 | 168,700 | |||||||
Term Loan | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Commitment commission (as a percent) | 0.25% | |||||||
Letter of Credit | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Letters of credit outstanding | 33,700 | $ 33,400 | ||||||
Eurodollar denominated loans | Revolving Loan borrowings | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Revolving borrowings outstanding | $ 175,000 | |||||||
Eurodollar denominated loans | Eurodollar rate for selected interest period | Revolving and Term Loan Borrowings | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 1.50% | |||||||
Eurodollar denominated loans | Eurodollar rate for selected interest period | Revolving and Term Loan Borrowings | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 2.00% | |||||||
2014 Credit Facility | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Maximum borrowing capacity | $ 500,000 | |||||||
Term of option to extend credit facility | 1 year | |||||||
2014 Credit Facility | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Available borrowing capacity | $ 222,300 | |||||||
2014 Credit Facility | Revolving Loan borrowings | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Maximum borrowing capacity | $ 250,000 | |||||||
2014 Credit Facility | Revolving Loan borrowings | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Commitment commission (as a percent) | 0.20% | |||||||
2014 Credit Facility | Revolving Loan borrowings | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Commitment commission (as a percent) | 0.35% | |||||||
2014 Credit Facility | Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Maximum borrowing capacity | 250,000 | |||||||
2014 Credit Facility | Letter of Credit | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Maximum borrowing capacity | $ 70,000 | |||||||
2014 Credit Facility | Letter of Credit | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Stated interest rate (as a percent) | 1.50% | |||||||
2014 Credit Facility | Letter of Credit | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Stated interest rate (as a percent) | 2.00% | |||||||
2014 Credit Facility | Overnight Federal Funds rate | Revolving and Term Loan Borrowings | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 0.50% | |||||||
2014 Credit Facility | Overnight Federal Funds rate | Revolving and Term Loan Borrowings | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 1.00% | |||||||
2014 Credit Facility | Eurodollar rate for one month | Revolving and Term Loan Borrowings | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Basis spread on variable rate (as a percent) | 1.00% | |||||||
2014 Credit Facility | Eurodollar denominated loans | Eurodollar rate for selected interest period | Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Proceeds from issuance of debt | $ 250,000 | |||||||
Effective borrowing margin (as a percent) | 1.625% | |||||||
Effective interest rate (as a percent) | 2.395% | |||||||
Weighted average interest rate (as a percent) | 2.034% | |||||||
2016 Credit Facility | 2016 Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Maximum borrowing capacity | $ 200,000 | |||||||
2016 Credit Facility | Overnight Federal Funds rate | Term Loan | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 0.25% | |||||||
2016 Credit Facility | Overnight Federal Funds rate | Term Loan | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 0.75% | |||||||
2016 Credit Facility | Eurodollar rate for one month | Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Basis spread on variable rate (as a percent) | 1.00% | |||||||
2016 Credit Facility | Eurodollar denominated loans | Eurodollar rate for selected interest period | Term Loan | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Effective borrowing margin (as a percent) | 1.375% | |||||||
Effective interest rate (as a percent) | 2.145% | |||||||
Weighted average interest rate (as a percent) | 1.901% | |||||||
2016 Credit Facility | Eurodollar denominated loans | Eurodollar rate for selected interest period | Term Loan | Minimum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 1.25% | |||||||
2016 Credit Facility | Eurodollar denominated loans | Eurodollar rate for selected interest period | Term Loan | Maximum | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 1.75% | |||||||
2017 Credit Facility | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Available borrowing capacity | $ 100,000 | |||||||
2017 Credit Facility | Overnight Federal Funds rate | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Basis spread on variable rate (as a percent) | 0.50% | |||||||
2017 Credit Facility | Overnight Federal Funds rate | Term Loan | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Basis spread on variable rate (as a percent) | 0.625% | |||||||
2017 Credit Facility | Eurodollar rate for one month | Term Loan | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Basis spread on variable rate (as a percent) | 1.00% | |||||||
2017 Credit Facility | Eurodollar rate for selected interest period | Term Loan | Subsequent event | ||||||||
Long-term Debt and Capital Lease Obligations | ||||||||
Borrowing margin (as a percent) | 1.625% |
Stockholders' Equity - Compensa
Stockholders' Equity - Compensation Plans (Details) $ / shares in Units, $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016USD ($)multiplier$ / sharesshares | Dec. 31, 2015USD ($)$ / sharesshares | Dec. 31, 2014USD ($)$ / sharesshares | |
Share-based compensation | |||
Vesting period | 3 years | ||
Tax benefit from exercise of stock options and vesting of stock awards - financing cash flow | $ | $ 4,073 | $ 3,218 | |
Tax benefit from exercise of stock options and vesting of stock awards | $ | $ 800 | 3,530 | 2,980 |
Excess tax benefits of tax deductions in recognized stock compensation expenses | $ | 1,000 | 4,100 | 3,200 |
Deficiency of tax deductions in recognized stock compensation expenses | $ | $ 200 | $ 600 | $ 300 |
Stock option activity | |||
Granted (in shares) | 48,815 | 39,673 | |
Stock options | |||
Share-based compensation | |||
Vesting period | 3 years | ||
Life of options (Expiration period) | 10 years | ||
Stock option activity | |||
Outstanding, beginning of period (in shares) | 2,939,840 | 3,321,063 | 4,010,146 |
Granted (in shares) | 501,960 | 1,004,321 | 769,636 |
Forfeited (in shares) | (104,680) | (244,658) | (267,028) |
Exercised (in shares) | (493,943) | (1,140,886) | (1,191,691) |
Outstanding, end of period (in shares) | 2,843,177 | 2,939,840 | 3,321,063 |
Vested and expected to vest end of period (in shares) | 2,821,794 | ||
Exercisable, end of period (in shares) | 1,612,850 | ||
Weighted average exercise price of stock options | |||
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 55.13 | $ 50.58 | $ 47.23 |
Granted (in dollars per share) | $ / shares | 64.10 | 62.65 | 59.62 |
Forfeited (in dollars per share) | $ / shares | 57.23 | 60.25 | 53.74 |
Exercised (in dollars per share) | $ / shares | 50.60 | 47.41 | 44.45 |
Outstanding, end of period (in dollars per share) | $ / shares | 57.42 | $ 55.13 | $ 50.58 |
Vested and expected to vest end of period (in dollars per share) | $ / shares | 57.38 | ||
Exercisable, end of period (in dollars per share) | $ / shares | $ 53.76 | ||
Weighted average remaining contractual term | |||
Outstanding | 6 years 9 months 18 days | ||
Vested and expected to vest | 6 years 9 months 15 days | ||
Exercisable | 5 years 6 months 18 days | ||
Aggregate intrinsic value | |||
Outstanding | $ | $ 50,684 | ||
Vested and expected to vest end of period | $ | 50,417 | ||
Exercisable, end of period | $ | $ 34,658 | ||
Closing stock price (in dollars per share) | $ / shares | $ 75.25 | ||
Total pre-tax intrinsic value of options exercised | $ | $ 9,300 | $ 21,800 | $ 19,700 |
Grants in period, weighted average grant date fair value (in dollars per share) | $ / shares | $ 15.05 | $ 13.69 | $ 13.49 |
Assumptions used for estimating value of awards granted | |||
Risk-free interest rate (as a percent) | 1.16% | 1.28% | 1.16% |
Expected life | 4 years | 4 years | 4 years |
Expected volatility (as a percent) | 27.75% | 25.03% | 26.20% |
Expected dividend yield (as a percent) | 0.00% | 0.00% | 0.00% |
Unrecognized compensation expense | $ | $ 10,900 | ||
Unrecognized compensation expense, period of recognition | 1 year 8 months 19 days | ||
Aggregate fair value of options vested | $ | $ 9,300 | ||
Restricted Stock Units (RSUs) | |||
Share-based compensation | |||
Vesting period | 3 years | ||
Assumptions used for estimating value of awards granted | |||
Unrecognized compensation expense | $ | $ 5,800 | ||
Unrecognized compensation expense, period of recognition | 1 year 6 months 7 days | ||
Performance Based Restricted Stock Units (“PSUs”) | |||
Share-based compensation | |||
Vesting period | 3 years | 3 years | |
Assumptions used for estimating value of awards granted | |||
Risk-free interest rate (as a percent) | 1.00% | 1.00% | |
Expected dividend yield (as a percent) | 0.00% | 0.00% | |
Unrecognized compensation expense | $ | $ 6,100 | ||
Unrecognized compensation expense, period of recognition | 1 year 11 months 19 days | ||
2011 Management Incentive Plan | |||
Share-based compensation | |||
Maximum number of shares available | 5,000,000 | ||
Multiplier for delivery of shares under full-value awards | multiplier | 2.29 | ||
Number of shares available for grant | 204,858 | ||
2014 Employee Stock Purchase Plan | |||
Share-based compensation | |||
Maximum number of shares available | 200,000 | ||
Number of shares available for grant | 128,613 | ||
2016 Management Incentive Plan | |||
Share-based compensation | |||
Maximum number of shares available | 4,000,000 | ||
Multiplier for delivery of shares under full-value awards | multiplier | 1.60 | ||
Number of shares available for grant | 4,128,892 |
Stockholders' Equity - Nonveste
Stockholders' Equity - Nonvested Restricted Stock Awards (Details) - USD ($) $ / shares in Units, $ in Millions | Apr. 30, 2014 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
CDMI | ||||
Nonvested restricted stock awards and units | ||||
Number of restricted stock purchased by certain principal owners of the acquiree | 1,433,946 | |||
AFSC | ||||
Nonvested restricted stock awards and units | ||||
Number of restricted stock purchased by certain principal owners of the acquiree | 60,069 | |||
Restricted stock awards | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | 1,109,622 | 1,626,827 | 192,165 | |
Awarded (in shares) | 77,744 | 20,115 | 1,451,231 | |
Vested (in shares) | (571,894) | (537,320) | (16,569) | |
Outstanding, end of period (in shares) | 615,472 | 1,109,622 | 1,626,827 | |
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $ 57.88 | $ 57.66 | $ 56.59 | |
Awarded (in dollars per share) | 65.52 | 67.12 | 57.75 | |
Vested (in dollars per share) | 58.03 | 57.56 | 52.82 | |
Outstanding, end of period (in dollars per share) | $ 58.71 | $ 57.88 | $ 57.66 | |
Unrecognized compensation expense | $ 18.1 | |||
Unrecognized compensation expense, period of recognition | 11 months 5 days | |||
Restricted stock awards | CDMI | ||||
Nonvested restricted stock awards and units | ||||
Number of restricted stock purchased by certain principal owners of the acquiree | 1,433,946 | |||
Restricted stock awards | AFSC | ||||
Nonvested restricted stock awards and units | ||||
Number of restricted stock purchased by certain principal owners of the acquiree | 60,069 | |||
Restricted Stock Units (RSUs) | ||||
Nonvested restricted stock awards and units | ||||
Outstanding, beginning of period (in shares) | 231,088 | 156,695 | 194,913 | |
Awarded (in shares) | 51,521 | 187,272 | 76,306 | |
Vested (in shares) | (53,839) | (79,036) | (91,510) | |
Forfeited (in shares) | (28,592) | (33,843) | (23,014) | |
Outstanding, end of period (in shares) | 200,178 | 231,088 | 156,695 | |
Weighted average exercise price of nonvested restricted stock award and units | ||||
Outstanding, beginning of period (in dollars per share) | $ 61.53 | $ 54.88 | $ 50.21 | |
Awarded (in dollars per share) | 64.87 | 63.42 | 60.39 | |
Vested (in dollars per share) | 63.32 | 52.82 | 49.53 | |
Forfeited (in dollars per share) | 63.34 | 61.54 | 54.86 | |
Outstanding, end of period (in dollars per share) | $ 61.65 | $ 61.53 | $ 54.88 | |
Unrecognized compensation expense | $ 5.8 | |||
Unrecognized compensation expense, period of recognition | 1 year 6 months 7 days |
Stockholders' Equity - Performa
Stockholders' Equity - Performance-Based Restricted Stock Units (Details) | 12 Months Ended | |
Dec. 31, 2016USD ($)company$ / sharesshares | Dec. 31, 2015USD ($)company$ / sharesshares | |
Weighted average exercise price of nonvested restricted stock award and units | ||
Vesting period | 3 years | |
Performance Based Restricted Stock Units (“PSUs”) | ||
Assumptions used for estimating value of awards granted | ||
Outstanding, beginning of period (in shares) | shares | 36,938 | |
Awarded (in shares) | shares | 69,691 | 43,900 |
Forfeited (in shares) | shares | (3,652) | (6,962) |
Outstanding, end of period (in shares) | shares | 102,977 | 36,938 |
Estimated fair value | $ | $ 97.22 | $ 85 |
Weighted average exercise price of nonvested restricted stock award and units | ||
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 85 | |
Awarded (in dollars per share) | $ / shares | 97.22 | $ 85 |
Forfeited (in dollars per share) | $ / shares | 91.89 | 85 |
Outstanding, end of period (in dollars per share) | $ / shares | $ 93.03 | $ 85 |
Unrecognized compensation expense | $ | $ 6,100,000 | |
Unrecognized compensation expense, period of recognition | 1 year 11 months 19 days | |
Expected dividend yield (as a percent) | 0.00% | 0.00% |
Risk-free interest rate (as a percent) | 1.00% | 1.00% |
Expected volatility, minimum (as a percent) | 16.00% | 15.00% |
Expected volatility, maximum (as a percent) | 81.00% | 52.00% |
Expected volatility, average (as a percent) | 32.00% | 28.00% |
Vesting period | 3 years | 3 years |
Number of trading days considered for average share value | 30 | 30 |
Number of companies in peer group | company | 56 | 54 |
Nonvested restricted stock awards and units | ||
Unrecognized compensation expense | $ | $ 6,100,000 | |
Unrecognized compensation expense, period of recognition | 1 year 11 months 19 days | |
Performance Based Restricted Stock Units (“PSUs”) | Minimum | ||
Weighted average exercise price of nonvested restricted stock award and units | ||
Percentage of shares to be settled | 0.00% | 0.00% |
Performance Based Restricted Stock Units (“PSUs”) | Maximum | ||
Weighted average exercise price of nonvested restricted stock award and units | ||
Percentage of shares to be settled | 200.00% | 200.00% |
Stockholders' Equity - Calculat
Stockholders' Equity - Calculation of Net Income per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Numerator: | |||||||||||
Net income attributable to Magellan Health, Inc. | $ 35,175 | $ 25,509 | $ 3,958 | $ 13,237 | $ 27,290 | $ (7,808) | $ 4,643 | $ 7,288 | $ 77,879 | $ 31,413 | $ 79,404 |
Denominator: | |||||||||||
Weighted average number of common shares outstanding-basic | 22,556 | 23,052 | 23,516 | 23,631 | 23,582 | 24,892 | 25,684 | 25,319 | 23,181 | 24,865 | 26,689 |
Common stock equivalents-stock options (in shares) | 289 | 316 | 495 | ||||||||
Common stock equivalents-RSA (in shares) | 593 | 626 | 155 | ||||||||
Common stock equivalents-RSUs (in shares) | 45 | 33 | 14 | ||||||||
Common stock equivalents-PSUs (in shares) | 45 | 35 | |||||||||
Common stock equivalents-employee stock purchase plan (in shares) | 3 | 2 | 2 | ||||||||
Weighted average number of common shares outstanding-diluted (in shares) | 23,493 | 24,009 | 24,643 | 24,511 | 24,402 | 24,892 | 26,776 | 26,399 | 24,156 | 25,877 | 27,355 |
Net (loss) income attributable to Magellan Health, Inc. per common share-basic (in dollars per share) | $ 1.56 | $ 1.11 | $ 0.17 | $ 0.56 | $ 1.16 | $ (0.31) | $ 0.18 | $ 0.29 | $ 3.36 | $ 1.26 | $ 2.98 |
Net (loss) income attributable to Magellan Health, Inc. per common share-diluted (in dollars per share) | $ 1.50 | $ 1.06 | $ 0.16 | $ 0.54 | $ 1.12 | $ (0.31) | $ 0.17 | $ 0.28 | $ 3.22 | $ 1.21 | $ 2.90 |
Potential dilutive securities excluded from computation of dilutive securities (in shares) | 1,500 | 1,300 | 700 |
Stockholders' Equity - Stock Re
Stockholders' Equity - Stock Repurchases, Merger Agreement (Details) - USD ($) $ / shares in Units, $ in Millions | Apr. 30, 2014 | Dec. 31, 2014 | Feb. 22, 2017 | Dec. 31, 2015 | Dec. 31, 2011 | Oct. 21, 2015 | Nov. 21, 2014 | Dec. 31, 2016 | Oct. 31, 2015 | Oct. 14, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2016 | Nov. 30, 2014 | Oct. 26, 2015 | Oct. 22, 2014 | Jul. 24, 2013 | Oct. 25, 2011 |
Stock Repurchases | ||||||||||||||||||
Total number of Shares Purchased | 345,044 | 1,828,183 | 2,173,227 | |||||||||||||||
Average Price Paid per Share (in dollars per share) | $ 53.46 | $ 58.40 | ||||||||||||||||
Aggregate Cost | $ 18.4 | $ 106.8 | $ 125.2 | |||||||||||||||
Merger Agreement and Purchase Agreement | ||||||||||||||||||
Vesting period | 3 years | |||||||||||||||||
CDMI | ||||||||||||||||||
Merger Agreement and Purchase Agreement | ||||||||||||||||||
Number of restricted stock purchased by certain principal owners of the acquiree | 1,433,946 | |||||||||||||||||
Restricted common stock issued | $ 80 | |||||||||||||||||
Trading day period to calculate average of the closing prices of the company's stock | 5 days | |||||||||||||||||
Vesting period of restricted stock issued | 42 months | |||||||||||||||||
CDMI | 25% vesting | ||||||||||||||||||
Merger Agreement and Purchase Agreement | ||||||||||||||||||
Vested and expected to vest for the period (as a percent) | 25.00% | |||||||||||||||||
Vesting period | 18 months | |||||||||||||||||
CDMI | 75% vesting | ||||||||||||||||||
Merger Agreement and Purchase Agreement | ||||||||||||||||||
Vested and expected to vest for the period (as a percent) | 75.00% | |||||||||||||||||
Vesting period | 42 months | |||||||||||||||||
AFSC | ||||||||||||||||||
Merger Agreement and Purchase Agreement | ||||||||||||||||||
Number of restricted stock purchased by certain principal owners of the acquiree | 60,069 | |||||||||||||||||
Restricted common stock issued | $ 4 | |||||||||||||||||
Trading day period to calculate average of the closing prices of the company's stock | 5 years | |||||||||||||||||
Vesting period of restricted stock issued | 2 years | |||||||||||||||||
Vesting percentage on the first anniversary of the acquisition | 50.00% | |||||||||||||||||
Vesting percentage on the second anniversary of the acquisition | 50.00% | |||||||||||||||||
October 2011 Share Repurchase Program | ||||||||||||||||||
Stock Repurchases | ||||||||||||||||||
Amount authorized under stock repurchase plan | $ 300 | $ 200 | ||||||||||||||||
Total number of Shares Purchased | 671,776 | 3,183,306 | 1,159,871 | 459,252 | 5,474,205 | |||||||||||||
Average Price Paid per Share (in dollars per share) | $ 48.72 | $ 57.82 | $ 51.83 | $ 50.27 | ||||||||||||||
Aggregate Cost | $ 32.7 | $ 184.1 | $ 60.1 | $ 23.1 | $ 300 | |||||||||||||
October 2014 Share Repurchase Program | ||||||||||||||||||
Stock Repurchases | ||||||||||||||||||
Amount authorized under stock repurchase plan | $ 200 | |||||||||||||||||
Total number of Shares Purchased | 232,170 | 3,385,326 | 3,153,156 | |||||||||||||||
Average Price Paid per Share (in dollars per share) | $ 60.65 | $ 58.96 | ||||||||||||||||
Aggregate Cost | $ 14.1 | $ 185.9 | $ 200 | |||||||||||||||
October 2015 Share Repurchase Program | ||||||||||||||||||
Stock Repurchases | ||||||||||||||||||
Amount authorized under stock repurchase plan | $ 200 | |||||||||||||||||
October 2015 Share Repurchase Program | Subsequent event | ||||||||||||||||||
Stock Repurchases | ||||||||||||||||||
Total number of Shares Purchased | 0 |
Income Taxes - Components of In
Income Taxes - Components of Income Tax Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Income taxes currently payable: | |||||||||||
Federal | $ 59,343 | $ 64,227 | $ 42,674 | ||||||||
State | 5,675 | 5,181 | 5,306 | ||||||||
Aggregate income taxes currently payable | 65,018 | 69,408 | 47,980 | ||||||||
Deferred income taxes (benefits): | |||||||||||
Federal | 3,830 | (26,573) | (3,236) | ||||||||
State | 880 | (426) | (1,055) | ||||||||
Aggregate deferred income taxes | 4,710 | (26,999) | (4,291) | ||||||||
Total income tax expense | $ 26,469 | $ 18,631 | $ 12,615 | $ 12,013 | $ 39,543 | $ (7,254) | $ 5,987 | $ 4,133 | $ 69,728 | $ 42,409 | $ 43,689 |
Statutory federal income tax rate (as a percent) | 35.00% | 35.00% | 35.00% | ||||||||
Differences between total income tax expense and amount computed using the statutory federal income tax rate | |||||||||||
Income tax expense at federal statutory rate | $ 50,931 | $ 24,891 | $ 41,272 | ||||||||
State income taxes, net of federal income tax benefit | 5,799 | 2,158 | 2,738 | ||||||||
Tax contingencies reversed due to statute closings | (1,632) | (2,223) | (17,318) | ||||||||
Change in valuation allowances | 2,130 | 5,174 | 4,999 | ||||||||
Non-deductible HIF fees | 10,204 | 9,953 | 8,205 | ||||||||
Other-net | 2,296 | 2,456 | 3,793 | ||||||||
Total income tax expense | 26,469 | $ 18,631 | $ 12,615 | $ 12,013 | 39,543 | $ (7,254) | $ 5,987 | $ 4,133 | 69,728 | 42,409 | $ 43,689 |
Deferred tax assets: | |||||||||||
Net operating loss carryforwards | 19,727 | 20,686 | 19,727 | 20,686 | |||||||
Share-based compensation | 14,704 | 12,320 | 14,704 | 12,320 | |||||||
Other accrued compensation | 9,313 | 7,745 | 9,313 | 7,745 | |||||||
Claims reserves | 6,251 | 8,243 | 6,251 | 8,243 | |||||||
Deferred revenue | 4,986 | 3,644 | 4,986 | 3,644 | |||||||
Other non-deductible accrued liabilities | 3,460 | 10,536 | 3,460 | 10,536 | |||||||
Amortization of goodwill and intangible assets | 444 | 17,394 | 444 | 17,394 | |||||||
Indirect tax benefits | 4,396 | 3,909 | 4,396 | 3,909 | |||||||
Other deferred tax assets | 3,858 | 1,041 | 3,858 | 1,041 | |||||||
Total deferred tax assets | 67,139 | 85,518 | 67,139 | 85,518 | |||||||
Valuation allowances | (17,117) | (15,458) | (17,117) | (15,458) | |||||||
Deferred tax assets after valuation allowances | 50,022 | 70,060 | 50,022 | 70,060 | |||||||
Deferred tax liabilities: | |||||||||||
Depreciation | (41,311) | (39,843) | (41,311) | (39,843) | |||||||
Other deferred tax liabilities | (5,586) | (3,381) | (5,586) | (3,381) | |||||||
Total deferred tax liabilities | (46,897) | (43,224) | (46,897) | (43,224) | |||||||
Net deferred tax assets | $ 3,125 | $ 26,836 | $ 3,125 | $ 26,836 |
Income Taxes - Operating Loss C
Income Taxes - Operating Loss Carryforwards (Details) - USD ($) $ in Thousands | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Operating loss carryforwards | ||
Valuation allowances | $ (17,117) | $ (15,458) |
Increase in valuation allowance | 1,600 | |
Additional valuation allowance for federal net operating loss carryforwards | 3,300 | |
Amount of reversal of operating loss carryforwards due to improved operations. | 1,800 | |
Federal | ||
Operating loss carryforwards | ||
Operating Loss Carryforwards | 1,800 | |
Federal | AlphaCare | ||
Operating loss carryforwards | ||
Operating Loss Carryforwards | 41,000 | |
State | ||
Operating loss carryforwards | ||
Operating Loss Carryforwards | $ 103,600 |
Income Taxes - Gross Unrecogniz
Income Taxes - Gross Unrecognized Tax Benefits Reconciliation (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Reconciliation of the beginning and ending amount of gross unrecognized tax benefits | |||
Balance as of beginning of period | $ 12,597 | $ 13,528 | $ 30,176 |
Additions for current year tax positions | 3,274 | 3,371 | 2,734 |
Additions for tax positions of prior years | 141 | 949 | 118 |
Reductions for tax positions of prior years | (173) | (1,807) | (35) |
Reductions due to lapses of applicable statutes of limitations | (2,235) | (3,071) | (19,465) |
Reductions due to settlements with taxing authorities | (373) | ||
Balance as of end of period | 13,604 | 12,597 | $ 13,528 |
Unrecognized tax benefits realized that would have reduced income tax expense | $ 9,100 | $ 8,600 |
Income Taxes - Income Tax Conti
Income Taxes - Income Tax Contingencies (Details) - USD ($) $ in Thousands | 12 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | $ 2,235 | $ 3,071 | $ 19,465 | |
Accrued interest and penalties related to unrecognized tax benefits | 300 | 200 | ||
Interest and penalties recorded | 100 | (400) | (800) | |
Forecast | Subsequent event | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | $ 2,600 | |||
Additional Paid in Capital | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | 2,600 | |||
Deferred tax assets | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | 700 | 1,000 | ||
Deferred tax assets | Forecast | Subsequent event | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | 800 | |||
Income Tax Expense | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | 1,500 | 2,000 | 16,000 | |
Interest expense related to unrecognized tax benefits | $ (100) | (400) | $ (1,400) | |
Income Tax Expense | Forecast | Subsequent event | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | $ 1,800 | |||
Income Tax Expense | State | ||||
Income tax contingency disclosures | ||||
Unrecognized tax benefits: Changes due to lapses of statutes of limitations | $ 700 |
Supplemental Cash Flow Inform58
Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Supplemental Cash Flow Information | |||
Income taxes paid, net of refunds | $ 54,442 | $ 63,899 | $ 57,728 |
Interest paid | 9,378 | 6,181 | 3,389 |
Assets acquired through capital leases | $ 4,491 | $ 4,212 | $ 2,810 |
Commitments and Contingencies -
Commitments and Contingencies - Insurance (Details) $ in Thousands | 12 Months Ended |
Dec. 31, 2016USD ($) | |
Specialty Pharmaceutical Management | |
Insurance | |
Period for which insurance policies have been renewed | 1 year |
General liability | |
Insurance | |
Period for which insurance policies have been renewed | 1 year |
Per claim un-aggregated self-insured retention | $ 50 |
General liability | Specialty Pharmaceutical Management | |
Insurance | |
Per claim self-insured retention | 50 |
Aggregated self-insured retention | $ 250 |
Professional liability | |
Insurance | |
Period for which insurance policies have been renewed | 1 year |
Per claim un-aggregated self-insured retention | $ 50 |
Professional liability | Specialty Pharmaceutical Management | |
Insurance | |
Per claim self-insured retention | 50 |
Aggregated self-insured retention | $ 250 |
Managed care liability | |
Insurance | |
Period for which insurance policies have been renewed | 1 year |
Per claim un-aggregated self-insured retention | $ 1,000 |
Per class action claim un-aggregated self-insured retention | $ 10,000 |
Commitments and Contingencies60
Commitments and Contingencies - Operating and Capital Leases (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Future minimum payments under operating leases | |||
2,017 | $ 17.1 | ||
2,018 | 13.2 | ||
2,019 | 12.3 | ||
2,020 | 5.6 | ||
2,021 | 4.1 | ||
2022 and beyond | 3.1 | ||
Future minimum rentals to be received under operating subleases | |||
2,017 | 0.2 | ||
2,018 | 0.1 | ||
2,019 | 0.2 | ||
Rent expense | 16.2 | $ 15.2 | $ 17.4 |
Future minimum payments under capital leases net of leasehold improvement allowances | |||
2,017 | 5.5 | ||
2,018 | 3.8 | ||
2,019 | 2.9 | ||
2,020 | 3.5 | ||
2,021 | 3.6 | ||
2022 and beyond | 11.3 | ||
Capital lease obligations imputed interest | $ 4.6 |
Business Segment Information -
Business Segment Information - Operating Results by Business Segment (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Operating results by business segment | ||||||||||||||
Managed care and other revenue | $ 775,031 | $ 751,589 | $ 699,861 | $ 676,461 | $ 863,506 | $ 809,249 | $ 776,240 | $ 748,650 | $ 2,902,942 | $ 3,197,645 | $ 2,968,374 | |||
PBM and dispensing | 488,354 | 540,543 | 464,484 | 440,561 | 405,237 | 380,833 | 381,367 | 232,318 | 1,933,942 | 1,399,755 | 791,744 | |||
Cost of care | (472,211) | (480,243) | (472,529) | (457,631) | (587,816) | (596,323) | (568,288) | (522,328) | (1,882,614) | (2,274,755) | (2,088,595) | |||
Cost of goods sold | (456,658) | (509,673) | (436,930) | (415,459) | (381,817) | (360,444) | (361,409) | (218,207) | (1,818,720) | (1,321,877) | (732,949) | |||
Direct service costs and other | $ (240,985) | $ (229,094) | $ (214,077) | $ (192,456) | $ (205,901) | $ (220,586) | $ (191,455) | $ (204,450) | (876,612) | [1],[2],[3] | (822,392) | [1],[2],[3] | (723,498) | [1],[2],[3] |
Stock compensation expense | 37,422 | 50,384 | 40,584 | |||||||||||
Changes in fair value of contingent consideration | (104) | 44,257 | 6,172 | |||||||||||
Impairment of intangible assets | 4,800 | |||||||||||||
Less: non-controlling interest segment profit (loss) | (737) | (2,634) | (5,087) | |||||||||||
Segment profit (loss) | 301,793 | 275,651 | 266,919 | |||||||||||
Operating segments | Healthcare | ||||||||||||||
Operating results by business segment | ||||||||||||||
Managed care and other revenue | 2,659,685 | 2,959,252 | 2,780,905 | |||||||||||
Cost of care | (1,882,614) | (2,274,755) | (2,090,352) | |||||||||||
Direct service costs and other | (573,706) | (510,811) | (485,388) | |||||||||||
Stock compensation expense | 4,440 | 8,502 | 6,654 | |||||||||||
Changes in fair value of contingent consideration | (231) | (1,404) | 38 | |||||||||||
Impairment of intangible assets | 4,800 | |||||||||||||
Less: non-controlling interest segment profit (loss) | (567) | (2,439) | (5,087) | |||||||||||
Segment profit (loss) | 212,941 | 183,223 | 216,944 | |||||||||||
Operating segments | Pharmacy Management | ||||||||||||||
Operating results by business segment | ||||||||||||||
Managed care and other revenue | 243,561 | 238,456 | 205,524 | |||||||||||
PBM and dispensing | 2,053,188 | 1,510,180 | 844,512 | |||||||||||
Cost of care | (16,298) | |||||||||||||
Cost of goods sold | (1,933,086) | (1,427,680) | (784,758) | |||||||||||
Direct service costs and other | (261,570) | (284,968) | (200,198) | |||||||||||
Stock compensation expense | 20,509 | 36,351 | 29,767 | |||||||||||
Changes in fair value of contingent consideration | 127 | 45,661 | 6,134 | |||||||||||
Segment profit (loss) | 122,729 | 118,000 | 84,683 | |||||||||||
Corporate and Elimination | ||||||||||||||
Operating results by business segment | ||||||||||||||
Managed care and other revenue | (304) | (63) | (18,055) | |||||||||||
PBM and dispensing | (119,246) | (110,425) | (52,768) | |||||||||||
Cost of care | 18,055 | |||||||||||||
Cost of goods sold | 114,366 | 105,803 | 51,809 | |||||||||||
Direct service costs and other | (41,336) | (26,613) | (37,912) | |||||||||||
Stock compensation expense | 12,473 | 5,531 | 4,163 | |||||||||||
Less: non-controlling interest segment profit (loss) | (170) | (195) | ||||||||||||
Segment profit (loss) | $ (33,877) | $ (25,572) | $ (34,708) | |||||||||||
[1] | Includes changes in fair value of contingent consideration of $6,172, $44,257 and $(104) for the years ended December 31, 2014, 2015 and 2016, respectively. | |||||||||||||
[2] | Includes impairment of intangible assets of $4,800 for the year ended December 31, 2016. | |||||||||||||
[3] | Includes stock compensation expense of $40,584, $50,384 and $37,422 for the years ended December 31, 2014, 2015 and 2016, respectively. |
Business Segment Information 62
Business Segment Information - Identifiable Assets by Business Segment (Details) - USD ($) $ in Thousands | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 |
Segment reporting information | |||
Restricted cash and cash equivalents | $ 81,776 | $ 133,597 | $ 215,325 |
Net accounts receivable | 606,764 | 428,644 | 353,713 |
Investments | 305,253 | 326,165 | 267,654 |
Pharmaceutical inventory | 58,995 | 50,749 | 39,375 |
Goodwill | 742,054 | 621,390 | 566,106 |
Other intangible assets, net | 186,232 | 133,374 | 133,718 |
Operating segments | Healthcare | |||
Segment reporting information | |||
Restricted cash and cash equivalents | 81,608 | 133,597 | 213,681 |
Net accounts receivable | 191,058 | 153,036 | 170,488 |
Investments | 293,034 | 313,045 | 142,957 |
Goodwill | 350,576 | 260,618 | 254,470 |
Other intangible assets, net | 55,756 | 12,227 | 10,840 |
Operating segments | Pharmacy Management | |||
Segment reporting information | |||
Restricted cash and cash equivalents | 1 | ||
Net accounts receivable | 405,611 | 270,975 | 180,535 |
Investments | 10,703 | ||
Pharmaceutical inventory | 58,995 | 50,749 | 39,375 |
Goodwill | 391,478 | 360,772 | 311,636 |
Other intangible assets, net | 130,476 | 121,147 | 122,878 |
Corporate and Elimination | |||
Segment reporting information | |||
Restricted cash and cash equivalents | 167 | 1,644 | |
Net accounts receivable | 10,095 | 4,633 | 2,690 |
Investments | $ 1,516 | $ 13,120 | $ 124,697 |
Business Segment Information 63
Business Segment Information - Changes Related to Allocation of Corporate Operational Support Functions (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Summary of changes by business segment | |||
Segment profit (loss) before Corporate allocations | $ 301,793 | $ 275,651 | $ 266,919 |
Segment profit (loss) | 301,793 | 275,651 | 266,919 |
Operating segments | Healthcare | |||
Summary of changes by business segment | |||
Segment profit (loss) before Corporate allocations | 282,421 | 250,069 | 278,485 |
Allocated Corporate costs | (74,498) | (72,792) | (65,296) |
Allocated Corporate stock compensation expense | 5,018 | 5,946 | 3,755 |
Segment profit (loss) | 212,941 | 183,223 | 216,944 |
Operating segments | Pharmacy Management | |||
Summary of changes by business segment | |||
Segment profit (loss) before Corporate allocations | 140,625 | 135,820 | 101,110 |
Allocated Corporate costs | (19,150) | (19,307) | (17,365) |
Allocated Corporate stock compensation expense | 1,254 | 1,487 | 938 |
Segment profit (loss) | 122,729 | 118,000 | 84,683 |
Corporate and Elimination | |||
Summary of changes by business segment | |||
Segment profit (loss) before Corporate allocations | (121,253) | (110,238) | (112,676) |
Allocated Corporate costs | 93,648 | 92,099 | 82,661 |
Allocated Corporate stock compensation expense | (6,272) | (7,433) | (4,693) |
Segment profit (loss) | $ (33,877) | $ (25,572) | $ (34,708) |
Business Segment Information 64
Business Segment Information - Reconciliation of Segment Profit to Income Before Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Reconciliation of segment profit to income before income taxes | |||||||||||
Income before income taxes | $ 62,246 | $ 43,940 | $ 13,927 | $ 25,404 | $ 64,524 | $ (15,015) | $ 10,280 | $ 11,327 | $ 145,517 | $ 71,116 | $ 117,920 |
Stock compensation expense | 9,849 | 9,176 | 9,510 | 8,887 | 9,791 | 12,897 | 13,795 | 13,901 | 37,422 | 50,384 | 40,584 |
Changes in fair value of contingent consideration | (614) | 313 | 463 | (266) | (3,017) | 29,738 | 2,567 | 14,969 | (104) | 44,257 | 6,172 |
Impairment of intangible assets | 4,800 | 4,800 | |||||||||
Non-controlling interest segment profit (loss) | 737 | 2,634 | 5,087 | ||||||||
Depreciation and amortization | 28,574 | 26,885 | 25,580 | 25,007 | 27,605 | 26,721 | 25,022 | 23,496 | 106,046 | 102,844 | 91,070 |
Interest expense | 3,413 | 3,038 | 1,994 | 1,748 | 1,648 | 1,654 | 1,653 | 1,626 | 10,193 | 6,581 | 7,387 |
Interest and other income | $ (702) | $ (741) | $ (692) | $ (683) | $ (568) | $ (631) | $ (500) | $ (466) | (2,818) | (2,165) | (1,301) |
Segment profit (loss) | $ 301,793 | $ 275,651 | $ 266,919 |
Selected Quarterly Financial 65
Selected Quarterly Financial Data (Unaudited) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 12 Months Ended | ||||||||||||
Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Net revenue: | ||||||||||||||
Managed care and other | $ 775,031 | $ 751,589 | $ 699,861 | $ 676,461 | $ 863,506 | $ 809,249 | $ 776,240 | $ 748,650 | $ 2,902,942 | $ 3,197,645 | $ 2,968,374 | |||
PBM and dispensing | 488,354 | 540,543 | 464,484 | 440,561 | 405,237 | 380,833 | 381,367 | 232,318 | 1,933,942 | 1,399,755 | 791,744 | |||
Total net revenue | 1,263,385 | 1,292,132 | 1,164,345 | 1,117,022 | 1,268,743 | 1,190,082 | 1,157,607 | 980,968 | 4,836,884 | 4,597,400 | 3,760,118 | |||
Costs and expenses: | ||||||||||||||
Cost of care | 472,211 | 480,243 | 472,529 | 457,631 | 587,816 | 596,323 | 568,288 | 522,328 | 1,882,614 | 2,274,755 | 2,088,595 | |||
Cost of goods sold | 456,658 | 509,673 | 436,930 | 415,459 | 381,817 | 360,444 | 361,409 | 218,207 | 1,818,720 | 1,321,877 | 732,949 | |||
Direct service costs and other operating expenses | 240,985 | 229,094 | 214,077 | 192,456 | 205,901 | 220,586 | 191,455 | 204,450 | 876,612 | [1],[2],[3] | 822,392 | [1],[2],[3] | 723,498 | [1],[2],[3] |
Depreciation and amortization | 28,574 | 26,885 | 25,580 | 25,007 | 27,605 | 26,721 | 25,022 | 23,496 | 106,046 | 102,844 | 91,070 | |||
Interest expense | 3,413 | 3,038 | 1,994 | 1,748 | 1,648 | 1,654 | 1,653 | 1,626 | 10,193 | 6,581 | 7,387 | |||
Interest and other income | (702) | (741) | (692) | (683) | (568) | (631) | (500) | (466) | (2,818) | (2,165) | (1,301) | |||
Total costs and expenses | 1,201,139 | 1,248,192 | 1,150,418 | 1,091,618 | 1,204,219 | 1,205,097 | 1,147,327 | 969,641 | 4,691,367 | 4,526,284 | 3,642,198 | |||
Income (loss) before income taxes | 62,246 | 43,940 | 13,927 | 25,404 | 64,524 | (15,015) | 10,280 | 11,327 | 145,517 | 71,116 | 117,920 | |||
Provision (benefit) for income taxes | 26,469 | 18,631 | 12,615 | 12,013 | 39,543 | (7,254) | 5,987 | 4,133 | 69,728 | 42,409 | 43,689 | |||
Net income (loss) | 35,777 | 25,309 | 1,312 | 13,391 | 24,981 | (7,761) | 4,293 | 7,194 | 75,789 | 28,707 | 74,231 | |||
Less: net income (loss) attributable to non-controlling interest | 602 | (200) | (2,646) | 154 | (2,309) | 47 | (350) | (94) | (2,090) | (2,706) | (5,173) | |||
Net income (loss) attributable to Magellan Health, Inc. | $ 35,175 | $ 25,509 | $ 3,958 | $ 13,237 | $ 27,290 | $ (7,808) | $ 4,643 | $ 7,288 | $ 77,879 | $ 31,413 | $ 79,404 | |||
Weighted average number of common shares outstanding-basic | 22,556 | 23,052 | 23,516 | 23,631 | 23,582 | 24,892 | 25,684 | 25,319 | 23,181 | 24,865 | 26,689 | |||
Weighted average number of common shares outstanding-diluted | 23,493 | 24,009 | 24,643 | 24,511 | 24,402 | 24,892 | 26,776 | 26,399 | 24,156 | 25,877 | 27,355 | |||
Net (loss) income attributable to Magellan Health, Inc. per common share-basic (in dollars per share) | $ 1.56 | $ 1.11 | $ 0.17 | $ 0.56 | $ 1.16 | $ (0.31) | $ 0.18 | $ 0.29 | $ 3.36 | $ 1.26 | $ 2.98 | |||
Net (loss) income attributable to Magellan Health, Inc. per common share-diluted (in dollars per share) | $ 1.50 | $ 1.06 | $ 0.16 | $ 0.54 | $ 1.12 | $ (0.31) | $ 0.17 | $ 0.28 | $ 3.22 | $ 1.21 | $ 2.90 | |||
Stock compensation expense | $ 9,849 | $ 9,176 | $ 9,510 | $ 8,887 | $ 9,791 | $ 12,897 | $ 13,795 | $ 13,901 | $ 37,422 | $ 50,384 | $ 40,584 | |||
Changes in fair value of contingent consideration | $ (614) | $ 313 | 463 | $ (266) | $ (3,017) | $ 29,738 | $ 2,567 | $ 14,969 | (104) | $ 44,257 | $ 6,172 | |||
Impairment of intangible assets | $ 4,800 | $ 4,800 | ||||||||||||
[1] | Includes changes in fair value of contingent consideration of $6,172, $44,257 and $(104) for the years ended December 31, 2014, 2015 and 2016, respectively. | |||||||||||||
[2] | Includes impairment of intangible assets of $4,800 for the year ended December 31, 2016. | |||||||||||||
[3] | Includes stock compensation expense of $40,584, $50,384 and $37,422 for the years ended December 31, 2014, 2015 and 2016, respectively. |
Subsequent Events (Details)
Subsequent Events (Details) - USD ($) $ in Millions | Feb. 07, 2017 | Jan. 10, 2017 | Feb. 22, 2017 | Dec. 31, 2016 | Jul. 23, 2014 |
Term Loan | |||||
Subsequent events | |||||
Available borrowing capacity | $ 218.7 | ||||
Term Loan | Subsequent event | |||||
Subsequent events | |||||
Commitment commission (as a percent) | 0.25% | ||||
2014 Credit Facility | |||||
Subsequent events | |||||
Maximum borrowing capacity | $ 500 | ||||
2014 Credit Facility | Subsequent event | |||||
Subsequent events | |||||
Available borrowing capacity | $ 222.3 | ||||
2014 Credit Facility | Term Loan | |||||
Subsequent events | |||||
Maximum borrowing capacity | $ 250 | ||||
2017 Credit Facility | Subsequent event | |||||
Subsequent events | |||||
Available borrowing capacity | $ 100 | ||||
2017 Credit Facility | Overnight Federal Funds rate | Subsequent event | |||||
Subsequent events | |||||
Basis spread on variable rate (as a percent) | 0.50% | ||||
2017 Credit Facility | Delayed draw term loan | Subsequent event | |||||
Subsequent events | |||||
Maximum borrowing capacity | $ 200 | ||||
Revolving borrowings outstanding | $ 100 | ||||
2017 Credit Facility | Term Loan | Overnight Federal Funds rate | Subsequent event | |||||
Subsequent events | |||||
Basis spread on variable rate (as a percent) | 0.625% | ||||
2017 Credit Facility | Term Loan | Eurodollar rate for one month | Subsequent event | |||||
Subsequent events | |||||
Basis spread on variable rate (as a percent) | 1.00% | ||||
Rate basis measurement duration | 1 month | ||||
2017 Credit Facility | Term Loan | Eurodollar rate for selected interest period | Subsequent event | |||||
Subsequent events | |||||
Borrowing Margin Percent | 1.625% | ||||
Granite Agreement | Subsequent event | |||||
Subsequent events | |||||
Base purchase price | $ 2 |
SCHEDULE II-VALUATION AND QUA67
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS (Details) - Allowance for doubtful accounts - USD ($) $ in Thousands | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Changes in valuation and qualifying accounts | |||
Balance at Beginning of Period | $ 3,246 | $ 4,047 | $ 5,447 |
Charged to Costs and Expenses | (150) | 764 | |
Reductions to Charges to Costs and Expenses | 2,498 | ||
Charged to Other Accounts | (67) | (11) | (1,934) |
Addition | 107 | ||
Deduction | (33) | (640) | (337) |
Balance at End of Period | $ 5,644 | $ 3,246 | $ 4,047 |