Document and Entity Information
Document and Entity Information | 6 Months Ended |
Jun. 30, 2020$ / sharesshares | |
Cover [Abstract] | |
Entity Central Index Key | 0000019411 |
Document Type | 10-Q |
Document Quarterly Report | true |
Document Period End Date | Jun. 30, 2020 |
Document Transition Report | false |
Entity File Number | 1-6639 |
Entity Registrant Name | MAGELLAN HEALTH, INC. |
Entity Incorporation, State or Country Code | DE |
Entity Tax Identification Number | 58-1076937 |
Entity Address, Address Line One | 4801 E. Washington Street |
Entity Address, City or Town | Phoenix |
Entity Address, State or Province | AZ |
Entity Address, Postal Zip Code | 85034 |
City Area Code | 800 |
Local Phone Number | 642-1716 |
Entity Current Reporting Status | Yes |
Entity Interactive Data Current | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Small Business | false |
Entity Emerging Growth Company | false |
Entity Shell Company | false |
Entity Listing, Par Value Per Share | $ / shares | $ 0.01 |
Title of 12(b) Security | Common Stock, par value $0.01 per share |
Trading Symbol | MGLN |
Security Exchange Name | NASDAQ |
Entity Common Stock, Shares Outstanding | shares | 25,310,420 |
Current Fiscal Year End Date | --12-31 |
Document Fiscal Year Focus | 2020 |
Document Fiscal Period Focus | Q2 |
Amendment Flag | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Current Assets: | ||
Cash and cash equivalents ($51,253 and $28,237 restricted at December 31, 2019 and June 30, 2020, respectively) | $ 160,419 | $ 115,752 |
Accounts receivable, net | 753,065 | 680,569 |
Short-term investments ($82,772 and $46,315 restricted at December 31, 2019 and June 30, 2020, respectively) | 75,671 | 98,797 |
Pharmaceutical inventory | 36,694 | 44,962 |
Other current assets ($36,215 and $73,905 restricted at December 31, 2019 and June 30, 2020, respectively) | 80,375 | 69,687 |
Current portion of assets held for sale | 1,145,904 | 663,276 |
Total Current Assets | 2,252,128 | 1,673,043 |
Property and equipment, net | 141,035 | 131,712 |
Long-term investments ($2,307 restricted at December 31, 2019) | 2,864 | |
Deferred income taxes | 28,519 | 1,840 |
Other long-term assets | 60,770 | 58,905 |
Goodwill | 806,421 | 806,421 |
Other intangible assets, net | 62,330 | 81,675 |
Assets held for sale, less current portion | 335,713 | |
Total Assets | 3,351,203 | 3,092,173 |
Current Liabilities: | ||
Accounts payable | 99,199 | 83,790 |
Accrued liabilities | 187,286 | 191,854 |
Medical claims payable | 112,077 | 128,114 |
Other medical liabilities | 110,268 | 92,915 |
Current debt, finance lease and deferred financing obligations | 84,942 | 3,491 |
Current portion of liabilities held for sale | 504,459 | 409,983 |
Total Current Liabilities | 1,098,231 | 910,147 |
Long-term debt, finance lease and deferred financing obligations | 641,950 | 679,125 |
Deferred income taxes | 1,971 | |
Tax contingencies | 11,097 | 9,453 |
Deferred credits and other long-term liabilities | 56,956 | 56,393 |
Liabilities held for sale, less current portion | 37,301 | |
Total Liabilities | 1,808,234 | 1,694,390 |
STOCKHOLDERS' EQUITY | ||
Preferred stock, par value $.01 per share Authorized-10,000 shares at December 31, 2019 and June 30, 2020-Issued and outstanding-none | ||
Common stock, par value $.01 per share: Authorized-100,000 shares at December 31, 2019 and June 30, 2020-Issued and outstanding-54,285 and 24,623 shares at December 31, 2019, respectively, and 54,973 and 25,310 shares at June 30, 2020, respectively | 550 | 543 |
Other Stockholders' Equity: | ||
Additional paid-in capital | 1,429,995 | 1,386,616 |
Retained earnings | 1,576,549 | 1,475,207 |
Accumulated other comprehensive income | 602 | 144 |
Treasury stock, at cost, 29,662 and 29,662 shares at December 31, 2019 and June 30, 2020, respectively | (1,464,727) | (1,464,727) |
Total Stockholders' Equity | 1,542,969 | 1,397,783 |
Total Liabilities and Stockholders' Equity | $ 3,351,203 | $ 3,092,173 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Restricted cash and cash equivalents | ||
Restricted cash and cash equivalents | $ 28,237 | $ 51,253 |
Restricted investments, short-term and long-term | ||
Short-term restricted investments | 46,315 | 82,772 |
Long term restricted investments | 2,307 | |
Other current restricted assets | ||
Other current restricted assets | $ 73,905 | $ 36,215 |
Preferred stock | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, authorized (in shares) | 10,000 | 10,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Preferred stock, outstanding (in shares) | 0 | 0 |
Common stock | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized (in shares) | 100,000 | 100,000 |
Common stock, issued (in shares) | 54,972 | 54,285 |
Common stock, outstanding (in shares) | 25,310 | 24,623 |
Treasury stock | ||
Treasury stock (in shares) | 29,662 | 29,662 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Net revenue: | ||||
Net revenue | $ 1,100,075 | $ 1,154,289 | $ 2,222,454 | $ 2,273,295 |
Costs and expenses: | ||||
Cost of care | 321,831 | 408,911 | 670,939 | 778,008 |
Cost of goods sold | 528,067 | 501,081 | 1,061,308 | 1,027,395 |
Direct service costs and other operating expenses (1) | 199,756 | 195,907 | 403,997 | 398,207 |
Depreciation and amortization | 23,888 | 28,191 | 47,246 | 53,608 |
Interest expense | 7,995 | 9,070 | 16,953 | 18,107 |
Interest and other income | (551) | (1,821) | (1,770) | (3,580) |
Special charges | 8,309 | 8,309 | ||
Total costs and expenses | 1,089,295 | 1,141,339 | 2,206,982 | 2,271,745 |
Income from continuing operations before income taxes | 10,780 | 12,950 | 15,472 | 1,550 |
Provision (benefit) for income taxes | (36,328) | 5,735 | (30,566) | 2,526 |
Net income (loss) from continuing operations | 47,108 | 7,215 | 46,038 | (976) |
Income from discontinued operations, net of tax | 36,397 | 6,398 | 55,717 | 15,020 |
Net income | $ 83,505 | $ 13,613 | $ 101,755 | $ 14,044 |
Basic | ||||
Continuing operations (in dollars per share) | $ 1.88 | $ 0.30 | $ 1.85 | $ (0.04) |
Discontinued operations (in dollars per share) | 1.45 | 0.26 | 2.24 | 0.62 |
Consolidated operations (in dollars per share) | 3.33 | 0.56 | 4.09 | 0.58 |
Diluted | ||||
Continuing operations (in dollars per share) | 1.86 | 0.30 | 1.84 | (0.04) |
Discontinued operations (in dollars per share) | 1.44 | 0.26 | 2.22 | 0.62 |
Consolidated operations (in dollars per share) | $ 3.30 | $ 0.56 | $ 4.06 | $ 0.58 |
Other comprehensive income | ||||
Unrealized gains on available-for-sale securities | $ 659 | $ 419 | $ 458 | $ 739 |
Comprehensive income attributable to Magellan | 84,164 | 14,032 | 102,213 | 14,783 |
Managed care and other | ||||
Net revenue: | ||||
Net revenue | 548,711 | 608,614 | 1,101,879 | 1,175,162 |
PBM | ||||
Net revenue: | ||||
Net revenue | $ 551,364 | $ 545,675 | $ 1,120,575 | $ 1,098,133 |
CONSOLIDATED STATEMENTS OF CO_2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Stock compensation expense | $ 6,592 | $ 5,207 | $ 12,389 | $ 14,607 |
Net of income tax provision | $ 219 | $ 131 | $ 152 | $ 231 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands | Common Stock | Common Stock In Treasury | Additional Paid in Capital | Retained EarningsCumulative Effect, Period of Adoption, Adjustment | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Cumulative Effect, Period of Adoption, Adjustment | Total |
Balance at Dec. 31, 2018 | $ 535 | $ (1,461,002) | $ 1,326,645 | $ 1,419,449 | $ (324) | $ 1,285,303 | ||
Balance (in shares) at Dec. 31, 2018 | 53,536,000 | (29,601,000) | ||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Stock compensation expense | 15,021 | 15,021 | ||||||
Exercise of stock options | $ 5 | 23,474 | 23,479 | |||||
Exercise of stock options (in shares) | 389,000 | |||||||
Issuance of equity | $ 1 | (447) | (446) | |||||
Issuance of equity (in shares) | 138,000 | |||||||
Repurchase of stock | $ (3,725) | (3,725) | ||||||
Repurchase of stock (in shares) | (61,000) | |||||||
Net income | 14,044 | 14,044 | ||||||
Other comprehensive income (loss)-other | 739 | 739 | ||||||
Balance at Jun. 30, 2019 | $ 541 | $ (1,464,727) | 1,364,693 | $ (145) | 1,433,348 | 415 | $ (145) | 1,334,270 |
Balance (in shares) at Jun. 30, 2019 | 54,063,000 | (29,662,000) | ||||||
Balance at Mar. 31, 2019 | $ 537 | $ (1,464,727) | 1,337,849 | 1,419,735 | (4) | 1,293,390 | ||
Balance (in shares) at Mar. 31, 2019 | 53,695,000 | (29,662,000) | ||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Stock compensation expense | 5,414 | 5,414 | ||||||
Exercise of stock options | $ 4 | 21,430 | 21,434 | |||||
Exercise of stock options (in shares) | 348,000 | |||||||
Issuance of equity (in shares) | 20,000 | |||||||
Net income | 13,613 | 13,613 | ||||||
Other comprehensive income (loss)-other | 419 | 419 | ||||||
Balance at Jun. 30, 2019 | $ 541 | $ (1,464,727) | 1,364,693 | (145) | 1,433,348 | 415 | (145) | 1,334,270 |
Balance (in shares) at Jun. 30, 2019 | 54,063,000 | (29,662,000) | ||||||
Balance at Dec. 31, 2019 | $ 543 | $ (1,464,727) | 1,386,616 | 1,475,207 | 144 | $ 1,397,783 | ||
Balance (in shares) at Dec. 31, 2019 | 54,285,000 | (29,662,000) | 24,623,000 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Stock compensation expense | 13,015 | $ 13,015 | ||||||
Exercise of stock options | $ 6 | 31,501 | $ 31,507 | |||||
Exercise of stock options (in shares) | 540,000 | 541,148 | ||||||
Issuance of equity | $ 1 | (1,137) | $ (1,136) | |||||
Issuance of equity (in shares) | 147,000 | |||||||
Net income | 101,755 | 101,755 | ||||||
Other comprehensive income (loss)-other | 458 | 458 | ||||||
Balance at Jun. 30, 2020 | $ 550 | $ (1,464,727) | 1,429,995 | (413) | 1,576,549 | 602 | (413) | $ 1,542,969 |
Balance (in shares) at Jun. 30, 2020 | 54,972,000 | (29,662,000) | 25,310,000 | |||||
Balance at Mar. 31, 2020 | $ 546 | $ (1,464,727) | 1,402,797 | 1,493,044 | (57) | $ 1,431,603 | ||
Balance (in shares) at Mar. 31, 2020 | 54,631,000 | (29,662,000) | ||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Stock compensation expense | 6,958 | 6,958 | ||||||
Exercise of stock options | $ 4 | 20,240 | 20,244 | |||||
Exercise of stock options (in shares) | 324,000 | |||||||
Issuance of equity (in shares) | 17,000 | |||||||
Net income | 83,505 | 83,505 | ||||||
Other comprehensive income (loss)-other | 659 | 659 | ||||||
Balance at Jun. 30, 2020 | $ 550 | $ (1,464,727) | $ 1,429,995 | $ (413) | $ 1,576,549 | $ 602 | $ (413) | $ 1,542,969 |
Balance (in shares) at Jun. 30, 2020 | 54,972,000 | (29,662,000) | 25,310,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Cash flows from operating activities: | ||
Net income | $ 101,755 | $ 14,044 |
Adjustments to reconcile net income to net cash from operating activities: | ||
Depreciation and amortization | 57,951 | 64,198 |
Special charges | 8,309 | |
Non-cash interest expense | 941 | 679 |
Non-cash stock compensation expense | 13,015 | 15,021 |
Non-cash income tax provision (benefit) | (29,443) | 1,026 |
Non-cash (amortization) accretion on investments | 907 | (327) |
Changes in assets and liabilities, net of effects from acquisitions of businesses: | ||
Accounts receivable, net | (24,535) | (51,544) |
Pharmaceutical inventory | 8,268 | (4,793) |
Other assets | (38,322) | (23,890) |
Accounts payable and accrued liabilities | 62,970 | 20,821 |
Medical claims payable and other medical liabilities | 10,510 | 4,329 |
Contingent consideration | (3,758) | |
Tax contingencies | 1,343 | 610 |
Deferred credits and other long-term liabilities | (2,537) | (7,429) |
Other | (289) | 372 |
Net cash provided by operating activities | 170,843 | 29,359 |
Net cash (used in) provided by operating activities from discontinued operations | 178,326 | (16,574) |
Net cash provided by (used in) operating activities from continuing operations | (7,483) | 45,933 |
Cash flows from investing activities: | ||
Capital expenditures | (38,305) | (27,804) |
Acquisitions and investments in businesses, net of cash acquired | (369) | (320) |
Purchases of investments | (417,688) | (295,768) |
Proceeds from maturities and sales of investments | 288,137 | 288,290 |
Net cash used in investing activities | (168,225) | (35,602) |
Net cash used in investing activities from discontinued operations | (156,800) | (3,210) |
Net cash used in investing activities from continuing operations | (11,425) | (32,392) |
Cash flows from financing activities: | ||
Proceeds from borrowings on revolving line of credit | 80,000 | |
Payments to acquire treasury stock | (4,124) | |
Proceeds from exercise of stock options | 29,825 | 20,647 |
Payments on debt, finance lease and deferred financing obligations | (40,264) | (15,543) |
Payments on contingent consideration | (6,247) | |
Other | (1,136) | (446) |
Net cash (used in) provided by financing activities | 68,425 | (5,713) |
Net cash provided by financing activities from discontinued operations | 4,850 | |
Net cash (used in) provided by financing activities from continuing operations | 63,575 | (5,713) |
Net increase in cash and cash equivalents from continuing operations | 44,667 | 7,828 |
Cash and cash equivalents at beginning of period | 115,752 | 86,923 |
Cash and cash equivalents at end of period | 160,419 | 94,751 |
Non-cash investing activities: | ||
Assets acquired under finance leases and deferred financing obligations | $ 3,599 | $ 3,302 |
General
General | 6 Months Ended |
Jun. 30, 2020 | |
General | |
General | NOTE A—General Basis of Presentation The accompanying unaudited consolidated financial statements of Magellan Health, Inc., a Delaware corporation (“Magellan”), include Magellan and its subsidiaries (together with Magellan, the “Company”). The financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. All significant intercompany accounts and transactions have been eliminated in consolidation. On April 30, 2020, the Company and Molina Healthcare, Inc. (“Molina”) entered into a Stock and Asset Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company has agreed to sell its Magellan Complete Care (“MCC”) business to Molina (the “MCC Sale”) for $850.0 million in cash, subject to certain adjustments, and Molina has agreed to assume liabilities of the MCC business. Accordingly, the accompanying consolidated financial statements for all periods presented reflect the MCC business as discontinued operations. See Note E—“Discontinued Operations” for additional information. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 28, 2020. Business Overview The Company provides managed care services for some of the most complex areas of healthcare. The Company offers innovative solutions that combine analytics, technology and clinical rigor to drive better decision making, positively impact members’ health outcomes and optimize the cost of care for the customers Magellan serves. The Company provides services to health plans and other managed care organizations (“MCOs”), employers, labor unions, various military and governmental agencies and third-party administrators (“TPAs”). Magellan operates three segments: Healthcare, Pharmacy Management and Corporate. Healthcare The Healthcare segment “Healthcare” previously consisted of two reporting units – Behavioral & Specialty Health and MCC. As a result of the MCC Sale, the Healthcare segment now only includes the Behavioral and Specialty Health reporting unit. The Behavioral & Specialty Health reporting unit’s customers include health plans, accountable care organizations (“ACOs”), employers, the United States military and various federal government agencies for whom Magellan provides carve-out management services for (i) behavioral health, (ii) employee assistance plans (“EAP”) and (iii) other areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac and physical medicine. These management services can be applied broadly across commercial, Medicaid and Medicare populations, or on a more targeted basis for our health plans and ACO customers. The Behavioral & Specialty Health unit also includes Magellan’s carve-out behavioral health contracts with various state Medicaid agencies. MCC, which is now reflected as discontinued operations, contracts with state Medicaid agencies and the Centers for Medicare and Medicaid Services (“CMS”) to manage care for beneficiaries under various Medicaid and Medicare programs. MCC manages a wide range of services from total medical cost to carve out long-term support services. MCC largely focuses on managing care for more acute special populations including individuals with serious mental illness (“SMI”), dual eligibles, aged, blind and disabled (“ABD”) and other populations with unique and often complex healthcare needs. The Company provides its Healthcare management services primarily through: (i) risk-based contractual arrangements, where the Company assumes all or a substantial portion of the responsibility for the cost of providing treatment services in exchange for a fixed PMPM fee, or (ii) administrative services only (“ASO”) contractual arrangements, where the Company provides services such as utilization review, claims administration and/or provider network management, but does not assume full responsibility for the cost of the treatment services, in exchange for an administrative fee and, in some instances, a gain share. Pharmacy Management The Pharmacy Management segment (“Pharmacy Management”) is comprised of services that provide clinical and financial management of pharmaceuticals paid under both the medical and the pharmacy benefit. Pharmacy Management’s customer solutions include: (i) pharmacy benefit management (“PBM”) services, including pharmaceutical dispensing operations; (ii) pharmacy benefit administration (“PBA”) for state Medicaid and other government sponsored programs; (iii) clinical and formulary management programs; (iv) medical pharmacy management programs; and (v) 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. These services are available individually, in combination, or in a fully integrated manner. The Company markets its pharmacy management services to managed care organizations, employers, third party administrators, state governments, Medicare Part D, and other government agencies, exchanges, brokers and consultants. In addition, the Company will continue to upsell its pharmacy services to its existing customers and market its pharmacy solutions to the Healthcare customer base. Pharmacy Management contracts with its customers for services using risk-based, gain share or ASO arrangements. In addition, Pharmacy Management provides services to the Healthcare segment for most of the MCC business. On May 11, 2020, the Company announced its decision to exit the Medicare Part D business at the end of 2020. The Company will retain its Medicare Employer Group Waiver Plan as well as full capabilities to serve the PBM needs of its existing and prospective Medicare 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. Summary of Significant Accounting Policies 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 can include, among other things, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “ Revenue Recognition Revenue Recognition Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and six months ended June 30, 2019 and 2020 by major service line, type of customer and timing of revenue recognition (in thousands): Three Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 400,591 $ — $ (65) $ 400,526 EAP risk-based 87,296 — — 87,296 ASO 58,226 10,327 (82) 68,471 PBM, including dispensing — 480,167 (4,335) 475,832 Medicare Part D — 69,843 — 69,843 PBA — 33,476 — 33,476 Formulary management — 18,426 — 18,426 Other — 419 — 419 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Type of Customer Government $ 236,014 $ 173,804 $ — $ 409,818 Non-government 310,099 438,854 (4,482) 744,471 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Timing of Revenue Recognition Transferred at a point in time $ — $ 550,010 $ (4,335) $ 545,675 Transferred over time 546,113 62,648 (147) 608,614 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Three Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 344,199 $ — $ (92) $ 344,107 EAP risk-based 77,419 — — 77,419 ASO 59,403 12,271 (85) 71,589 PBM, including dispensing — 499,484 (4,831) 494,653 Medicare Part D — 56,711 — 56,711 PBA — 30,811 — 30,811 Formulary management — 25,061 — 25,061 Other — (276) — (276) Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Type of Customer Government $ 222,393 $ 208,989 $ — $ 431,382 Non-government 258,628 415,073 (5,008) 668,693 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Timing of Revenue Recognition Transferred at a point in time $ — $ 556,195 $ (4,831) $ 551,364 Transferred over time 481,021 67,867 (177) 548,711 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Six Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 762,399 $ — $ (143) $ 762,256 EAP risk-based 176,913 — — 176,913 ASO 113,623 18,470 (173) 131,920 PBM, including dispensing — 973,391 (8,442) 964,949 Medicare Part D — 133,184 — 133,184 PBA — 67,453 — 67,453 Formulary management — 35,609 — 35,609 Other — 1,011 — 1,011 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Type of Customer Government $ 467,076 $ 401,852 $ — $ 868,928 Non-government 585,859 827,266 (8,758) 1,404,367 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,106,575 $ (8,442) $ 1,098,133 Transferred over time 1,052,935 122,543 (316) 1,175,162 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Six Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 694,044 $ — $ (182) $ 693,862 EAP risk-based 157,357 — — 157,357 ASO 118,526 23,805 (168) 142,163 PBM, including dispensing — 1,017,596 (9,398) 1,008,198 Medicare Part D — 112,377 — 112,377 PBA — 60,940 — 60,940 Formulary management — 47,222 — 47,222 Other — 335 — 335 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Type of Customer Government $ 449,495 $ 412,946 $ — $ 862,441 Non-government 520,432 849,329 (9,748) 1,360,013 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,129,973 $ (9,398) $ 1,120,575 Transferred over time 969,927 132,302 (350) 1,101,879 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Per Member Per Month (“PMPM”) Revenue. Under certain government contracts, our risk scores are compared with the overall average risk scores for the relevant state and market pool. Generally, if our risk score is below the average risk score, we are required to make a risk adjustment payment into the risk pool, and if our risk score is above the average risk score, we will receive a risk adjustment payment from the risk pool. Risk adjustments can have a positive or negative retroactive impact to rates. Pharmacy Benefit Management Revenue. The Company’s customers for PBM business, including pharmaceutical dispensing operations, are generally comprised of MCOs, employer groups and health plans. PBM relationships generally have an expected term of one year or longer. A master services arrangement (“MSA”) is executed by the Company and the customer, which outlines the terms and conditions of the PBM services to be provided. When a member in the customer’s organization submits a prescription, a claim is created which is presented for approval. The acceptance of each individual claim creates enforceable rights and obligations for each party and represents a separate contract. For each individual claim, the performance obligations are limited to the processing and adjudication of the claim, or dispensing of the products purchased. Generally, the transaction price for PBM services is explicitly listed in each contract and does not represent variable consideration. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co-payments and any associated administrative fees, when claims are adjudicated or the drugs are shipped. 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, controls the underlying service, 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, collecting 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. For dispensing, 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. Medicare Part D. st Pharmacy Benefit Administration Revenue. 2 Formulary Management Revenue. The Company administers formulary management programs 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. Formulary management contracts generally have a term of one year or longer. All formulary management contracts have a single performance obligation that constitutes a series for the provision of rebate services for a drug, with utilization measured and settled on a quarterly basis, for the duration of the arrangement. The Company retains its administrative fee and/or a percentage of rebates that is included in its contract with the client from collecting the rebate from the manufacturer. While the administrative fee and/or the percentage of rebates retained is fixed, there is an unknown quantity of pharmaceutical purchases (utilization) during each quarter; therefore the transaction price itself is variable. The Company uses the expected value methodology to estimate the total rebates earned each quarter based on estimated volumes of pharmaceutical purchases by the Company’s clients during the quarter, as well as historical and/or anticipated retained rebate percentages. The Company does not record as rebate revenue any rebates that are passed through to its clients. 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. Government EAP Risk-Based Revenue. The Company has certain contracts with federal customers for the provision of various managed care services, which are classified as EAP risk-based business. These contracts are generally multi-year arrangements. The Company’s federal contracts are reimbursed on either a fixed fee basis or a cost reimbursement basis. The performance obligation on a fixed fee contract is to stand ready to provide the staffing required for the contracted period. For fixed fee contracts, the Company believes the invoiced amount corresponds directly with the value to the customer of the Company’s performance completed to date; therefore, the Company is utilizing the “right to invoice” practical expedient, with revenue recognition in the amount for which the Company has the right to invoice. The performance obligation on a cost reimbursement contract is to stand ready to provide the activity or services purchased by the customer, such as the operation of a counseling services group or call center. The performance obligation represents a series for the duration of the arrangement. The reimbursement rate is fixed per the contract; however, the level of activity (e.g., number of hours, number of counselors or number of units) is variable. A majority of the Company’s cost reimbursement transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided (i.e. as the Company provides hours, counselors or units of service). In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the contracts in the Company’s PBM and Part D business, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts primarily includes net PMPM fees associated with unspecified membership that fluctuates throughout the contract. Accounts Receivable, Contract Assets and Contract Liabilities Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages): December 31, June 30, 2019 2020 $ Change % Change Accounts receivable $ 717,455 $ 837,710 $ 120,255 16.8% Contract assets 2,162 7,151 4,989 230.8% Contract liabilities - current 6,728 25,769 19,041 283.0% Contract liabilities - long-term 11,099 11,022 (77) (0.7%) Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $120.3 million, mainly due to timing of receipts and HIF accrual. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $5.0 million, mainly due to the timing of accrual of certain performance incentives and annual settlements. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $19.0 million, mainly due to the HIF recognition in the current year period. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, are consistent with prior year. During the three months ended June 30 2020, the Company recognized revenue of $2.0 million that was included in current contract liabilities at March 31, 2020. During the six months ended June 30, 2020, the Company recognized revenue of $4.0 million that was included in current contract liabilities as December 31, 2019. The estimated timing of recognition of amounts included in contract liabilities at June 30, 2020 are as follows: 2020 —$24.0 million; 2021 —$3.6 million; 2022 —$3.1 million; 2023 and beyond —$6.1 million. During the three and six months ended June 30, 2020, the revenue the Company recognized related to performance obligations that were satisfied, or partially satisfied, in previous periods was not material. The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generates contract assets or contract liabilities; however, these amounts are immaterial. The Company’s accounts receivable is net of an allowance for credit losses. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each platform given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type. The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company’s customers. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company had no customers that exceeded ten percent of the Company’s net revenues from continuing operations. The following MCC customers, which are included in discontinued operations, previously exceeded ten percent of the Company’s consolidated net revenues. The Company has contracts with the Commonwealth of Virginia (the “Virginia Contracts”). The Company began providing Medicaid managed long-term services and supports to enrollees in the Commonwealth Coordinated Care Plus (“CCC Plus”) program on August 1, 2017. The CCC Plus contract expires annually on December 31 and automatically renews annually on January 1 for a period of five The Company had a contract with the State of New York (the “New York Contract”) to provide integrated managed care services to Medicaid and Medicare enrollees in the State of New York. The Company’s New York Contract terminated on December 31, 2016; however, the Company, along with other participating managed care plans in the state, continues to provide services while a new contract is being finalized. The New York Contracts generated net revenues of $400.6 million and $411.7 million for the six months ended June 30, 2019 and 2020, respectively, which are reported as discontinued operations. The Company has contracts with the Commonwealth of Massachusetts and CMS (the “Massachusetts Contracts”) to provide integrated managed care services to Medicaid and Medicare enrollees in the Commonwealth of Massachusetts. Medicaid services are provided under a Senior Care Options contract (“SCO Contract”) which began on January 1, 2016 and extends through December 31, 2021, with the potential for up to five additional one-year extensions. The Commonwealth of Massachusetts may terminate the contract with cause without prior notice and upon 180 days ’ notice without cause. Medicare services are provided under a one-year contract with CMS. The CMS contract currently extends through December 31, 2020. The Company began recognizing revenue in relation to the Massachusetts Contracts on November 1, 2017 as a result of the acquisition of SWH Holdings, Inc. The Massachusetts Contracts generated net revenues of $360.9 million and $359.7 million for the six months ended June 30, 2019 and 2020, respectively, which are reported within discontinued operations. Customers exceeding ten percent of segment net revenues The following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2019 and 2020 (in thousands): Segment Term Date 2019 2020 Healthcare Customer A December 31, 2021 $ 161,887 $ 175,107 Pharmacy Management Customer B March 31, 2021 $ 174,535 $ 195,930 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 $271.4 million and $272.2 million for the six months ended June 30, 2019 and 2020, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $133.2 million and $112.3 million for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, the Company had $117.4 million and $114.3 million, respectively, in net receivables associated with Medicare Part D from CMS and other parties related to this business. In May 2020, the Company announced its decision to exit the Part D business at the end of 2020. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $156.7 million and $136.1 million for the six months ended June 30, 2019 and 2020, respectively. The Company’s contracts with customers typically have stated terms of one one Leases The Company leases certain office space, distribution centers, land and equipment. We assess our contracts to determine if it contains a lease. This assessment is based on (i) the right to control the use of an identified asset; (ii) the right to obtain substantially all of the economic benefits from the use of the identified asset; and (iii) the right to use the identified asset. The Company elected the short-term lease practical expedient; thus, leases with an initial term of twelve months or less are not capitalized and the expense is recognized on a straight-line basis. Most leases include one or more options to renew, with renewal terms that can extend the lease from one Operating leases are included in other long-term assets, accrued liabilities and deferred credits and other long-term liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current debt, finance lease deferred financing obligations and long-term debt, finance lease and deferred financing obligations in the consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments per the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. As the rate implicit in most of our leases is not readily determinable, the Company used its incremental borrowing rate to determine the present value of lease payments. The following table shows the components of lease expenses for the three and six months ended June 30, 2020 (in thousands): Three Months Ended Six Months Ended Operating lease cost $ 2,503 $ 4,604 Finance lease cost: Amortization of right-of-use asset 1,046 2,378 Interest on lease liabilities 213 427 Total finance lease cost 1,259 2,805 Short-term lease cost 80 204 Variable lease cost 505 1,011 Total lease cost 4,347 8,624 Sublease income (66) (179) Net lease cost $ 4,281 $ 8,445 The following table shows the components of the lease assets and liabilities as of June 30, 2020 (in thousands): June 30, 2020 Operating leases: Other long-term assets $ 20,832 Accrued liabilities $ 23,959 Deferred credits and other long-term liabilities 9,661 Total operating lease liabilities $ 33,620 Finance leases: Property and equipment, net $ 13,489 Current debt, finance lease and deferred financing obligations $ 4,989 Long-term debt, finance lease and deferred financing obligations 14,024 Total finance lease liabilities $ 19,013 The maturity dates of the Company’s leases as of June 30, 2020 are summarized below (in thousands): June 30, 2020 2020 $ 8,201 2021 13,819 2022 12,518 2023 9,295 2024 7,927 2025 and beyond 2,581 Total lease payments 54,341 Less interest (1,708) Present value of lease liabilities $ 52,633 The following table shows the weighted average remaining lease term and discount rate as of June 30, 2020: June 30, 2020 Weighted average remaining lease term Operating leases 3.96 Finance leases 4.08 Weighted average discount rate Operating leases 4.79% Finance leases 4.39% Six months ended June 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,196 Operating cash flows from finance leases 2,815 Financing cash flows from finance leases 427 Right-of-use asset obtained in exchange for new lease obligation Operating leases 902 Finance leases 3,599 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 |
Net Income per Common Share Att
Net Income per Common Share Attributable to Magellan Health, Inc. | 6 Months Ended |
Jun. 30, 2020 | |
Net Income per Common Share Attributable to Magellan Health, Inc. | |
Net Income per Common Share Attributable to Magellan Health, Inc. | NOTE B—Net Income per Common Share Attributable to Magellan Health, Inc. The following table reconciles income attributable to common shareholders (numerator) and shares (denominator) used in the computations of net income per share attributable to common shareholders (in thousands, except per share data) for the three and six months ended June 30: Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Numerator: Net income (loss) from continuing operations $ 7,215 $ 47,108 $ (976) $ 46,038 Income from discontinued operations, net of tax 6,398 36,397 15,020 55,717 Net income $ 13,613 $ 83,505 $ 14,044 $ 101,755 Denominator: Weighted average number of common shares outstanding—basic 24,101 25,054 24,024 24,891 Common stock equivalents—stock options 153 31 132 46 Common stock equivalents—RSAs 7 28 7 25 Common stock equivalents—RSUs 18 46 19 48 Common stock equivalents—PSUs 130 118 127 59 Common stock equivalents—employee stock purchase plan 7 1 6 5 Weighted average number of common shares outstanding—diluted 24,416 25,278 24,315 25,074 Net income (loss) per common share—basic: Continuing operations $ 0.30 $ 1.88 $ (0.04) $ 1.85 Discontinued operations 0.26 1.45 0.62 2.24 Consolidated operations $ 0.56 $ 3.33 $ 0.58 $ 4.09 Net income (loss) per common share—diluted: Continuing operations $ 0.30 $ 1.86 $ (0.04) $ 1.84 Discontinued operations 0.26 1.44 0.62 2.22 Consolidated operations $ 0.56 $ 3.30 $ 0.58 $ 4.06 The weighted average number of common shares outstanding for the three and six months ended June 30, 2019 and 2020 were 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 three and six months ended June 30, 2019 and 2020 represent stock options to purchase shares of the Company’s common stock, RSAs, RSUs, PSUs and stock purchased under the Employee Stock Purchase Plan. The Company had additional potential dilutive securities outstanding representing 1.1 million and 1.1 million options for the three and six months ended June 30, 2019, respectively, and 1.3 million and 1.4 million options for the three and six months ended June 30, 2020, respectively, that were not included in the computation of dilutive securities because they were anti-dilutive for the period. Had these shares not been anti-dilutive, all of these shares would not have been included in the net income attributable to common shareholder per common share calculation as the Company uses the treasury stock method of calculating diluted shares. |
Business Segment Information
Business Segment Information | 6 Months Ended |
Jun. 30, 2020 | |
Business Segment Information | |
Business Segment Information | NOTE C—Business Segment Information The accounting policies of the Company’s segments are the same as those described in Note A—“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 in Note A—“General.” The following tables summarize, for the periods indicated, operating results by business segment (in thousands): Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2019 Managed care and other revenue $ 546,113 $ 62,648 $ (147) $ 608,614 PBM revenue — 550,010 (4,335) 545,675 Cost of care (408,911) — — (408,911) Cost of goods sold — (505,203) 4,122 (501,081) Direct service costs and other (98,314) (78,776) (18,817) (195,907) Stock compensation expense (1) 2,237 2,124 846 5,207 Segment Profit (Loss) $ 41,125 $ 30,803 $ (18,331) $ 53,597 Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2020 Managed care and other revenue $ 481,021 $ 67,867 $ (177) $ 548,711 PBM revenue — 556,195 (4,831) 551,364 Cost of care (321,831) — — (321,831) Cost of goods sold — (532,685) 4,618 (528,067) Direct service costs and other (100,450) (80,082) (19,224) (199,756) Stock compensation expense (1) 2,102 1,939 2,551 6,592 Segment Profit (Loss) $ 60,842 $ 13,234 $ (17,063) $ 57,013 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2019 Managed care and other revenue $ 1,052,935 $ 122,543 $ (316) $ 1,175,162 PBM revenue — 1,106,575 (8,442) 1,098,133 Cost of care (778,008) — — (778,008) Cost of goods sold — (1,035,410) 8,015 (1,027,395) Direct service costs and other (1) (198,424) (158,411) (41,372) (398,207) Stock compensation expense (1) 3,780 3,796 7,031 14,607 Segment Profit (Loss) $ 80,283 $ 39,093 $ (35,084) $ 84,292 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2020 Managed care and other revenue $ 969,927 $ 132,302 $ (350) $ 1,101,879 PBM revenue — 1,129,973 (9,398) 1,120,575 Cost of care (670,939) — — (670,939) Cost of goods sold — (1,070,259) 8,951 (1,061,308) Direct service costs and other (1) (206,386) (161,948) (35,663) (403,997) Stock compensation expense (1) 3,863 4,046 4,480 12,389 Segment Profit (Loss) $ 96,465 $ 34,114 $ (31,980) $ 98,599 (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to 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. The following table reconciles income from continuing operations before income taxes to Segment Profit from continuing operations (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Income from continuing operations before income taxes $ 12,950 $ 10,780 $ 1,550 $ 15,472 Stock compensation expense 5,207 6,592 14,607 12,389 Depreciation and amortization 28,191 23,888 53,608 47,246 Interest expense 9,070 7,995 18,107 16,953 Interest and other income (1,821) (551) (3,580) (1,770) Special charges — 8,309 — 8,309 Segment Profit from continuing operations $ 53,597 $ 57,013 $ 84,292 $ 98,599 |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2020 | |
Commitments and Contingencies | |
Commitments and Contingencies | NOTE D—Commitments and Contingencies 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 for whom the Company provides managed care services. 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 including employment practices, and privacy and data protection. The Company maintains a program of insurance coverage against a broad range of risks in the Company’s business, including certain of the class actions and other litigation and claims asserted against the Company, subject to deductibles and self-insured retentions as is described more fully in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 28, 2020. The Company has recorded reserves that, in the opinion of management, are adequate to cover litigation, claims or assessments that have been or may be asserted against the Company, and for which the outcome is probable and reasonably estimable. Management believes that the resolution of such litigation and claims will not have a material adverse effect on the Company’s financial condition or results of operations; however, there can be no assurance in this regard. 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. The Company is subject to various federal, state and other laws and rules regarding the use, storage, protection and disclosure of confidential member and protected personal or health information, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”) and other applicable laws. The Company has experienced data security incidents resulting in disclosure of confidential or protected personal or health information. We have notified government agencies as appropriate and are cooperating with investigations and requests for information. Noncompliance with any applicable privacy or data security laws and regulations could result in enforcement actions, fines, penalties, and reputational and financial harm to the Company. 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. The Company is subject to certain federal laws and regulations in connection with its contracts with the federal government. These laws and regulations affect how the Company conducts business with its federal agency customers and may impose added costs on its business. The Company’s failure to comply with federal procurement laws and regulations could cause it to lose business, incur additional costs and subject it to a variety of civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, harm to reputation, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. The Company’s wholly owned subsidiary, Armed Forces Services Corporation (“AFSC”), conducts business with federal agency customers and federal contractors to such agencies. The Company is investigating, with the assistance of outside counsel, matters relating to compliance by AFSC with Small Business Administration ( “SBA”) regulations and other federal laws applicable to government contractors and has reported findings to the SBA and the Department of Defense, including facts indicating violations of SBA regulations and other federal laws, such as the Anti-Kickback Act, by former AFSC executives, none of which was disclosed to Magellan prior to its acquisition of AFSC. The Company is voluntarily responding to government requests for further information regarding the Company’s investigation. In June 2020, the United States Attorney’s Office for the Eastern District of Virginia informed the Company of a civil investigation regarding the Company and AFSC related to potential violations of the False Claims Act and/or the Anti-Kickback Act in connection with the matters self-disclosed by the Company. Contingencies, if any, arising from the results of these investigations and self-reporting could require us to record balance sheet liabilities or accrue expenses, the amount of which we are not able to currently estimate. While the Company believes that it has responded appropriately by self-reporting findings regarding matters that incepted prior to its acquisition of AFSC in order to mitigate the risk of adverse consequences, should the SBA, Department of Defense and/or other federal agencies seek to hold the Company or AFSC responsible for the reported conduct, we may be required to pay damages and/or penalties and AFSC could be suspended or debarred from government contracting. AFSC generated approximately 3.0% and 2.5% of the Company’s total revenue from continuing operations for the year ended December 31, 2019 and six months ended June 30, 2020, respectively. 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 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 (the “2015 Repurchase Program”). On July 26, 2017, the Company’s board of directors approved an extension of the 2015 Repurchase Program through October 22, 2018. On May 24, 2018, the Company’s board of directors approved an increase of $200 million to the current $200 million stock repurchase plan which will now authorize the Company to purchase up to $400 million of its outstanding common stock under the 2015 Repurchase Program. As of June 30, 2020, the remaining capacity under the 2015 Repurchase Program was $186.3 million. The board also extended the program from October 22, 2018 to October 22, 2020. Stock repurchases under the programs may be carried out from time to time in open market transactions (including blocks) or in privately negotiated transactions. The timing of repurchases and the actual amount purchased will depend on a variety of factors including the market price of the Company’s shares, general market and economic conditions, and other corporate considerations. Repurchases may be made pursuant to plans intended to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, which could allow the Company to purchase its shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are expected to be funded from working capital and anticipated cash from operations. The repurchase authorization does not require the purchase of a specific number of shares and is subject to suspension or termination by the Company’s board of directors at any time. Pursuant to the 2015 Stock Repurchase 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 345,044 $ 53.46 $ 18.4 January 1, 2016 - December 31, 2016 1,828,183 58.40 106.8 January 1, 2017 - December 31, 2017 280,140 77.67 21.8 January 1, 2018 - December 31, 2018 844,872 74.59 63.0 January 1, 2019 - December 31, 2019 60,901 61.15 3.7 January 1, 2020 - June 30, 2020 — — — 3,359,140 $ 213.7 The Company made no share repurchases from July 1, 2020 through July 24, 2020. |
Discontinued Operations
Discontinued Operations | 6 Months Ended |
Jun. 30, 2020 | |
Discontinued Operations | |
Discontinued Operations | NOTE E—Discontinued Operations Magellan Complete Care – Stock and Asset Purchase Agreement As discussed in Note A — The consummation of the MCC Sale is subject to customary closing conditions, including: (i) the expiration of the waiting period applicable to the Purchase Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any law or governmental order prohibiting the MCC Sale, (iii) obtaining all required consents, authorizations, permits and approvals under Health Regulatory Laws (as defined in the Purchase Agreement), (iv) no material adverse effect on the Company having occurred since the signing of the Purchase Agreement, and (v) the accuracy of the representations and warranties of each party (subject to materiality qualifiers) in the Purchase Agreement and the compliance by each party with its covenants in all material respects. The consummation of the MCC Sale is not subject to any financing contingency. In connection with the MCC Sale, the Company and Molina are entering into commercial agreements for certain behavioral health, utilization management and related services to be provided by the Company to Molina and the MCC business. In addition, the parties will enter into a transition services agreement pursuant to which the Company and certain of its affiliates will provide, or cause third parties to provide, certain services to accommodate the transition of the MCC business to Molina. The foregoing description of the Purchase Agreement and the MCC Sale does not purport to be complete and is qualified in its entirety by the terms and conditions of the Purchase Agreement, which was filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q which was filed with the SEC on May 11, 2020, and any related agreements. The accounting requirements for reporting a business to be divested as a discontinued operation were met during the second quarter of 2020. Accordingly, the accompanying consolidated financial statements for all periods presented reflect the MCC business as a discontinued operation. The following table summarizes the major classes of assets and liabilities held for sale that were included in the Company’s consolidated balance sheets as of December 31, 2019 and June 30, 2020 (in thousands): December 31, June 30, 2019 2020 Assets Held For Sale Cash and cash equivalents ($95,202 and $69,971 restricted at December 31, 2019 and June 30, 2020, respectively) $ 209,497 $ 235,873 Accounts receivable, net 209,496 163,216 Short-term and long-term investments ($243,496 and $343,348 restricted at December 31, 2019 and June 30, 2020, respectively) 243,496 398,741 Property and equipment, net 6,710 7,477 Goodwill 211,735 211,735 Other intangible assets, net 85,669 76,628 Other current and long-term assets ($2,387 and $2,387 restricted at December 31, 2019 and June 30, 2020, respectively) 32,386 52,234 Total Assets Held For Sale 998,989 1,145,904 Less: current portion 663,276 1,145,904 Total Assets Held For Sale, Less Current Portion $ 335,713 $ — Liabilities Held For Sale Accounts payable $ 4,625 $ 3,449 Accrued liabilities 92,170 145,558 Medical claims payable 281,419 271,998 Other medical liabilities 31,769 50,384 Deferred income taxes 15,063 13,910 Tax contingencies 5,388 5,462 Deferred credits and other long-term liabilities 16,850 13,698 Total Liabilities Held For Sale 447,284 504,459 Less: current portion 409,983 504,459 Total Liabilities Held For Sale, Less Current Portion $ 37,301 $ — The following table summarizes the components of income from discontinued operations that is included in the Company’s consolidated income statements for the three and six months ended June 30, 2019 and 2020 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Managed care and other revenue $ 674,760 $ 735,357 $ 1,332,385 $ 1,455,391 Costs and expenses: Cost of care 592,975 573,374 1,165,839 1,175,908 Direct service costs and other operating expenses (1)(2)(3) 71,346 92,078 141,591 176,575 Depreciation and amortization 5,299 5,379 10,590 10,705 Interest expense 71 18 141 89 Interest and other income (3,200) (1,478) (6,415) (4,018) Total costs and expenses 666,491 669,371 1,311,746 1,359,259 Income from discontinued operation before income taxes 8,269 65,986 20,639 96,132 Provision for income taxes 1,871 29,589 5,619 40,415 Net income from discontinued operations $ 6,398 $ 36,397 $ 15,020 $ 55,717 (1) Includes stock compensation expense of $207 and $366 for the three months ended June 30, 2019 and 2020, respectively, and $414 and $626 for the six months ended June 30, 2019 and 2020, respectively. (2) Includes changes in fair value of contingent consideration of $(2,149) and $(2,005) for the three and six months ended June 30, 2019, respectively. (3) Includes divestiture related expenses of $3,353 and $3,958 for the three and six months ended June 30, 2020, respectively. The Company has retained corporate overhead expenses previously allocated to MCC of $8.5 million and $7.0 million for the three months ended June 30, 2019 and 2020, respectively, and $17.5 million and $13.7 million for the six months ended June 30, 2019 and 2020, respectively. At June 30, 2020, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries is approximately $160 million which are included in assets held for sale. |
Special Charges
Special Charges | 6 Months Ended |
Jun. 30, 2020 | |
Special Charges | |
Special Charges | NOTE F—Special Charges |
General (Policies)
General (Policies) | 6 Months Ended |
Jun. 30, 2020 | |
General | |
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 can include, among other things, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. In addition, the Company also makes estimates in relation to revenue recognition under Accounting Standard Codification 606 (“ASC 606”) which are explained in more detail in “ Revenue Recognition |
Revenue Recognition | Revenue Recognition Virtually all of the Company’s revenues are derived from business in North America. The following tables disaggregate our revenue for the three and six months ended June 30, 2019 and 2020 by major service line, type of customer and timing of revenue recognition (in thousands): Three Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 400,591 $ — $ (65) $ 400,526 EAP risk-based 87,296 — — 87,296 ASO 58,226 10,327 (82) 68,471 PBM, including dispensing — 480,167 (4,335) 475,832 Medicare Part D — 69,843 — 69,843 PBA — 33,476 — 33,476 Formulary management — 18,426 — 18,426 Other — 419 — 419 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Type of Customer Government $ 236,014 $ 173,804 $ — $ 409,818 Non-government 310,099 438,854 (4,482) 744,471 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Timing of Revenue Recognition Transferred at a point in time $ — $ 550,010 $ (4,335) $ 545,675 Transferred over time 546,113 62,648 (147) 608,614 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Three Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 344,199 $ — $ (92) $ 344,107 EAP risk-based 77,419 — — 77,419 ASO 59,403 12,271 (85) 71,589 PBM, including dispensing — 499,484 (4,831) 494,653 Medicare Part D — 56,711 — 56,711 PBA — 30,811 — 30,811 Formulary management — 25,061 — 25,061 Other — (276) — (276) Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Type of Customer Government $ 222,393 $ 208,989 $ — $ 431,382 Non-government 258,628 415,073 (5,008) 668,693 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Timing of Revenue Recognition Transferred at a point in time $ — $ 556,195 $ (4,831) $ 551,364 Transferred over time 481,021 67,867 (177) 548,711 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Six Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 762,399 $ — $ (143) $ 762,256 EAP risk-based 176,913 — — 176,913 ASO 113,623 18,470 (173) 131,920 PBM, including dispensing — 973,391 (8,442) 964,949 Medicare Part D — 133,184 — 133,184 PBA — 67,453 — 67,453 Formulary management — 35,609 — 35,609 Other — 1,011 — 1,011 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Type of Customer Government $ 467,076 $ 401,852 $ — $ 868,928 Non-government 585,859 827,266 (8,758) 1,404,367 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,106,575 $ (8,442) $ 1,098,133 Transferred over time 1,052,935 122,543 (316) 1,175,162 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Six Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 694,044 $ — $ (182) $ 693,862 EAP risk-based 157,357 — — 157,357 ASO 118,526 23,805 (168) 142,163 PBM, including dispensing — 1,017,596 (9,398) 1,008,198 Medicare Part D — 112,377 — 112,377 PBA — 60,940 — 60,940 Formulary management — 47,222 — 47,222 Other — 335 — 335 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Type of Customer Government $ 449,495 $ 412,946 $ — $ 862,441 Non-government 520,432 849,329 (9,748) 1,360,013 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,129,973 $ (9,398) $ 1,120,575 Transferred over time 969,927 132,302 (350) 1,101,879 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Per Member Per Month (“PMPM”) Revenue. Under certain government contracts, our risk scores are compared with the overall average risk scores for the relevant state and market pool. Generally, if our risk score is below the average risk score, we are required to make a risk adjustment payment into the risk pool, and if our risk score is above the average risk score, we will receive a risk adjustment payment from the risk pool. Risk adjustments can have a positive or negative retroactive impact to rates. Pharmacy Benefit Management Revenue. The Company’s customers for PBM business, including pharmaceutical dispensing operations, are generally comprised of MCOs, employer groups and health plans. PBM relationships generally have an expected term of one year or longer. A master services arrangement (“MSA”) is executed by the Company and the customer, which outlines the terms and conditions of the PBM services to be provided. When a member in the customer’s organization submits a prescription, a claim is created which is presented for approval. The acceptance of each individual claim creates enforceable rights and obligations for each party and represents a separate contract. For each individual claim, the performance obligations are limited to the processing and adjudication of the claim, or dispensing of the products purchased. Generally, the transaction price for PBM services is explicitly listed in each contract and does not represent variable consideration. The Company recognizes PBM revenue, which consists of a negotiated prescription price (ingredient cost plus dispensing fee), co-payments and any associated administrative fees, when claims are adjudicated or the drugs are shipped. 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, controls the underlying service, 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, collecting 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. For dispensing, 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. Medicare Part D. st Pharmacy Benefit Administration Revenue. 2 Formulary Management Revenue. The Company administers formulary management programs 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. Formulary management contracts generally have a term of one year or longer. All formulary management contracts have a single performance obligation that constitutes a series for the provision of rebate services for a drug, with utilization measured and settled on a quarterly basis, for the duration of the arrangement. The Company retains its administrative fee and/or a percentage of rebates that is included in its contract with the client from collecting the rebate from the manufacturer. While the administrative fee and/or the percentage of rebates retained is fixed, there is an unknown quantity of pharmaceutical purchases (utilization) during each quarter; therefore the transaction price itself is variable. The Company uses the expected value methodology to estimate the total rebates earned each quarter based on estimated volumes of pharmaceutical purchases by the Company’s clients during the quarter, as well as historical and/or anticipated retained rebate percentages. The Company does not record as rebate revenue any rebates that are passed through to its clients. 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. Government EAP Risk-Based Revenue. The Company has certain contracts with federal customers for the provision of various managed care services, which are classified as EAP risk-based business. These contracts are generally multi-year arrangements. The Company’s federal contracts are reimbursed on either a fixed fee basis or a cost reimbursement basis. The performance obligation on a fixed fee contract is to stand ready to provide the staffing required for the contracted period. For fixed fee contracts, the Company believes the invoiced amount corresponds directly with the value to the customer of the Company’s performance completed to date; therefore, the Company is utilizing the “right to invoice” practical expedient, with revenue recognition in the amount for which the Company has the right to invoice. The performance obligation on a cost reimbursement contract is to stand ready to provide the activity or services purchased by the customer, such as the operation of a counseling services group or call center. The performance obligation represents a series for the duration of the arrangement. The reimbursement rate is fixed per the contract; however, the level of activity (e.g., number of hours, number of counselors or number of units) is variable. A majority of the Company’s cost reimbursement transaction price relates specifically to its efforts to transfer the service for a distinct increment of the series (e.g. day or month) and is recognized as revenue when the portion of the series for which it relates has been provided (i.e. as the Company provides hours, counselors or units of service). In accordance with ASC 606-10-50-13, the Company is required to include disclosure on its remaining performance obligations as of the end of the current reporting period. Due to the nature of the contracts in the Company’s PBM and Part D business, these reporting requirements are not applicable. The majority of the Company’s remaining contracts meet certain exemptions as defined in ASC 606-10-50-14 through 606-10-50-14A, including (i) performance obligation is part of a contract that has an original expected duration of one year or less; (ii) the right to invoice practical expedient; and (iii) variable consideration related to unsatisfied performance obligations that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to our efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. For the Company’s contracts that pertain to these exemptions: (i) the remaining performance obligations primarily relate to the provision of managed healthcare services to the customers’ membership; (ii) the estimated remaining duration of these performance obligations ranges from the remainder of the current calendar year to three years; and (iii) variable consideration for these contracts primarily includes net PMPM fees associated with unspecified membership that fluctuates throughout the contract. Accounts Receivable, Contract Assets and Contract Liabilities Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages): December 31, June 30, 2019 2020 $ Change % Change Accounts receivable $ 717,455 $ 837,710 $ 120,255 16.8% Contract assets 2,162 7,151 4,989 230.8% Contract liabilities - current 6,728 25,769 19,041 283.0% Contract liabilities - long-term 11,099 11,022 (77) (0.7%) Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $120.3 million, mainly due to timing of receipts and HIF accrual. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $5.0 million, mainly due to the timing of accrual of certain performance incentives and annual settlements. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $19.0 million, mainly due to the HIF recognition in the current year period. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, are consistent with prior year. During the three months ended June 30 2020, the Company recognized revenue of $2.0 million that was included in current contract liabilities at March 31, 2020. During the six months ended June 30, 2020, the Company recognized revenue of $4.0 million that was included in current contract liabilities as December 31, 2019. The estimated timing of recognition of amounts included in contract liabilities at June 30, 2020 are as follows: 2020 —$24.0 million; 2021 —$3.6 million; 2022 —$3.1 million; 2023 and beyond —$6.1 million. During the three and six months ended June 30, 2020, the revenue the Company recognized related to performance obligations that were satisfied, or partially satisfied, in previous periods was not material. The Company’s accounts receivable consists of amounts due from customers throughout the United States. Collateral is generally not required. A majority of the Company’s contracts have payment terms in the month of service, or within a few months thereafter. The timing of payments from customers from time to time generates contract assets or contract liabilities; however, these amounts are immaterial. The Company’s accounts receivable is net of an allowance for credit losses. The estimate of current expected credit losses on trade receivables considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management elected to disaggregate trade receivables into business segments due to risk characteristics unique to each platform given the individual lines of business and market. Pooling was further disaggregated based on either geography or product type. The Company leveraged historical write offs over a defined lookback period in deriving a historical loss rate. The expected credit loss model further considers current conditions and reasonable and supportable forecasts through the use of an adjustment for current and projected macroeconomic factors. Management identified appropriate macroeconomic indicators based on tangible correlation to historical losses, giving consideration to the location and risks associated with the Company’s customers. Significant Customers Customers exceeding ten percent of the consolidated Company’s net revenues The Company had no customers that exceeded ten percent of the Company’s net revenues from continuing operations. The following MCC customers, which are included in discontinued operations, previously exceeded ten percent of the Company’s consolidated net revenues. The Company has contracts with the Commonwealth of Virginia (the “Virginia Contracts”). The Company began providing Medicaid managed long-term services and supports to enrollees in the Commonwealth Coordinated Care Plus (“CCC Plus”) program on August 1, 2017. The CCC Plus contract expires annually on December 31 and automatically renews annually on January 1 for a period of five The Company had a contract with the State of New York (the “New York Contract”) to provide integrated managed care services to Medicaid and Medicare enrollees in the State of New York. The Company’s New York Contract terminated on December 31, 2016; however, the Company, along with other participating managed care plans in the state, continues to provide services while a new contract is being finalized. The New York Contracts generated net revenues of $400.6 million and $411.7 million for the six months ended June 30, 2019 and 2020, respectively, which are reported as discontinued operations. The Company has contracts with the Commonwealth of Massachusetts and CMS (the “Massachusetts Contracts”) to provide integrated managed care services to Medicaid and Medicare enrollees in the Commonwealth of Massachusetts. Medicaid services are provided under a Senior Care Options contract (“SCO Contract”) which began on January 1, 2016 and extends through December 31, 2021, with the potential for up to five additional one-year extensions. The Commonwealth of Massachusetts may terminate the contract with cause without prior notice and upon 180 days ’ notice without cause. Medicare services are provided under a one-year contract with CMS. The CMS contract currently extends through December 31, 2020. The Company began recognizing revenue in relation to the Massachusetts Contracts on November 1, 2017 as a result of the acquisition of SWH Holdings, Inc. The Massachusetts Contracts generated net revenues of $360.9 million and $359.7 million for the six months ended June 30, 2019 and 2020, respectively, which are reported within discontinued operations. Customers exceeding ten percent of segment net revenues The following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2019 and 2020 (in thousands): Segment Term Date 2019 2020 Healthcare Customer A December 31, 2021 $ 161,887 $ 175,107 Pharmacy Management Customer B March 31, 2021 $ 174,535 $ 195,930 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 $271.4 million and $272.2 million for the six months ended June 30, 2019 and 2020, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $133.2 million and $112.3 million for the six months ended June 30, 2019 and 2020, respectively. As of December 31, 2019 and June 30, 2020, the Company had $117.4 million and $114.3 million, respectively, in net receivables associated with Medicare Part D from CMS and other parties related to this business. In May 2020, the Company announced its decision to exit the Part D business at the end of 2020. Net revenues from contracts with various agencies and departments of the United States federal government in aggregate totaled $156.7 million and $136.1 million for the six months ended June 30, 2019 and 2020, respectively. The Company’s contracts with customers typically have stated terms of one one |
Leases | Leases The Company leases certain office space, distribution centers, land and equipment. We assess our contracts to determine if it contains a lease. This assessment is based on (i) the right to control the use of an identified asset; (ii) the right to obtain substantially all of the economic benefits from the use of the identified asset; and (iii) the right to use the identified asset. The Company elected the short-term lease practical expedient; thus, leases with an initial term of twelve months or less are not capitalized and the expense is recognized on a straight-line basis. Most leases include one or more options to renew, with renewal terms that can extend the lease from one Operating leases are included in other long-term assets, accrued liabilities and deferred credits and other long-term liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current debt, finance lease deferred financing obligations and long-term debt, finance lease and deferred financing obligations in the consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments per the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. As the rate implicit in most of our leases is not readily determinable, the Company used its incremental borrowing rate to determine the present value of lease payments. The following table shows the components of lease expenses for the three and six months ended June 30, 2020 (in thousands): Three Months Ended Six Months Ended Operating lease cost $ 2,503 $ 4,604 Finance lease cost: Amortization of right-of-use asset 1,046 2,378 Interest on lease liabilities 213 427 Total finance lease cost 1,259 2,805 Short-term lease cost 80 204 Variable lease cost 505 1,011 Total lease cost 4,347 8,624 Sublease income (66) (179) Net lease cost $ 4,281 $ 8,445 The following table shows the components of the lease assets and liabilities as of June 30, 2020 (in thousands): June 30, 2020 Operating leases: Other long-term assets $ 20,832 Accrued liabilities $ 23,959 Deferred credits and other long-term liabilities 9,661 Total operating lease liabilities $ 33,620 Finance leases: Property and equipment, net $ 13,489 Current debt, finance lease and deferred financing obligations $ 4,989 Long-term debt, finance lease and deferred financing obligations 14,024 Total finance lease liabilities $ 19,013 The maturity dates of the Company’s leases as of June 30, 2020 are summarized below (in thousands): June 30, 2020 2020 $ 8,201 2021 13,819 2022 12,518 2023 9,295 2024 7,927 2025 and beyond 2,581 Total lease payments 54,341 Less interest (1,708) Present value of lease liabilities $ 52,633 The following table shows the weighted average remaining lease term and discount rate as of June 30, 2020: June 30, 2020 Weighted average remaining lease term Operating leases 3.96 Finance leases 4.08 Weighted average discount rate Operating leases 4.79% Finance leases 4.39% Six months ended June 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,196 Operating cash flows from finance leases 2,815 Financing cash flows from finance leases 427 Right-of-use asset obtained in exchange for new lease obligation Operating leases 902 Finance leases 3,599 |
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 assets and liabilities that are required to be measured at fair value as of December 31, 2019 and June 30, 2020 (in thousands): December 31, 2019 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ 111,085 $ — $ 111,085 Investments: U.S. Government and agency securities 30,775 — — 30,775 Corporate debt securities — 69,581 — 69,581 Certificates of deposit — 1,305 — 1,305 Total assets held at fair value $ 30,775 $ 181,971 $ — $ 212,746 June 30, 2020 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (2) $ — $ 132,038 $ — $ 132,038 Investments: U.S. Government and agency securities 32,174 — — 32,174 Corporate debt securities — 42,192 — 42,192 Certificates of deposit — 1,305 — 1,305 Total assets held at fair value $ 32,174 $ 175,535 $ — $ 207,709 (1) Excludes $4.7 million of cash held in bank accounts by the Company. (2) Excludes $28.4 million of cash held in bank accounts by the Company. For the six months ended June 30, 2020, the Company has not transferred 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 fair value of the Notes (as defined below) of $366.2 million as of June 30, 2020 was determined based on quoted market prices and would be classified within Level 1 of the fair value hierarchy. The estimated fair value of the Company’s term loan of $271.9 million as of June 30, 2020 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. |
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. Book overdrafts are reflected within accounts payable on the balance sheets. At June 30, 2020, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of approximately $29 million are included in cash and cash equivalents. |
Investments | Investments 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 comprehensive 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 net income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income in the consolidated statements of comprehensive income. As of December 31, 2019 and June 30, 2020, there were no material unrealized losses that the Company determined to be other-than-temporary. No realized gains or losses were recorded for the three months or six months ended June 30, 2019 or 2020. The following is a summary of short-term and long-term investments at December 31, 2019 and June 30, 2020 (in thousands): December 31, 2019 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 30,742 $ 38 $ (5) $ 30,775 Corporate debt securities 69,552 40 (11) 69,581 Certificates of deposit 1,305 — — 1,305 Total investments at December 31, 2019 $ 101,599 $ 78 $ (16) $ 101,661 June 30, 2020 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 32,066 $ 108 $ — $ 32,174 Corporate debt securities 42,129 71 (8) 42,192 Certificates of deposit 1,305 — — 1,305 Total investments at June 30, 2020 $ 75,500 $ 179 $ (8) $ 75,671 The maturity dates of the Company’s investments as of June 30, 2020 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2020 $ 63,787 $ 63,901 2021 11,713 11,770 Total investments at June 30, 2020 $ 75,500 $ 75,671 |
Income Taxes | Income Taxes The Company’s effective income tax rates from continuing operations were 163.0 percent and (197.6) percent for the six months ended June 30, 2019 and 2020, respectively. These rates differ from the applicable federal statutory income tax rate primarily due to state income taxes, permanent differences between book and tax income, and a discrete adjustment for the recognition of a $38.9 million nonrecurring tax benefit in the current year for tax basis in excess of net book value for certain assets to be included in the MCC Sale. The Company also accrues interest and penalties related to uncertain tax positions in its provision for income taxes. The significant effective income tax rate for the six months ended June 30, 2019 is primarily due to the impact of the discrete adjustment for recognized stock compensation expense in excess of tax deductions relative to the reduced level of earnings for the period. The significant negative effective income tax rate for the six months ended June 30, 2020 is primarily due to the discrete adjustment for the nonrecurring tax benefit related to the divestiture recognized in the current year. The Company files a consolidated federal income tax return with its eighty-percent or more controlled subsidiaries. The Company and its subsidiaries also file income tax returns in various state and local jurisdictions. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law to provide widespread emergency relief for the economy and to provide aid to corporations. The CARES Act includes several significant provisions related to taxes. As of June 30, 2020, the Company has not utilized any of the provisions that would result in a material impact on its results. However, the Company continues to evaluate the relief options available under the CARES Act, as well as other emergency relief initiatives and stimulus packages instituted by the Federal Government. Net Operating Loss Carryforwards The Company has $16.2 million of federal net operating loss carryforwards (“NOLs”) available to reduce consolidated taxable income in 2020 and subsequent years. These NOLs were incurred by AlphaCare prior to its membership in the Magellan consolidated group and will expire in 2032 through 2035 if not used and are subject to examination and adjustment by the IRS. In addition, the Company’s utilization of these NOLs is subject to limitations under the Internal Revenue Code as to the timing and use. At this time, the Company does not believe these limitations will restrict the Company’s ability to use any federal NOLs before they expire. However, upon completion of the MCC Sale, any federal NOL carryovers that remain at that time will be assumed by Molina. As such, the deferred tax asset related to these net operating loss carryforwards is netted within deferred tax liabilities included in current portion of liabilities held for sale in the consolidated balance sheets. The Company and its subsidiaries also have $89.0 million of NOLs available to reduce state and local taxable income at certain subsidiaries in 2020 and subsequent years. Most of these NOLs will expire in 2020 through 2038 if not used and are subject to examination and adjustment by the respective tax authorities. In addition, the Company’s utilization of certain of these NOLs is subject to limitations as to the timing and use. Other than those considered in determining the valuation allowances discussed below, the Company does not believe these limitations will restrict the Company’s ability to use any of these state and local NOLs before they expire. However, $17.1 million of these state and local NOLs will, to the extent not utilized beforehand, be assumed by Molina upon completion of the MCC Sale. As such, the deferred tax asset related to these net operating loss carryforwards is netted within deferred tax liabilities included in current portion of liabilities held for sale in the consolidated balance sheets. Deferred tax assets as of December 31, 2019 and June 30, 2020 are shown net of valuation allowances of $2.1 million. These valuation allowances mostly relate to uncertainties regarding the eventual realization of certain state NOLs. 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. |
Health Care Reform | Health Care Reform |
Stock Compensation | Sto ck Compensation At December 31, 2019 and June 30, 2020, the Company had equity-based employee incentive plans, which are described more fully in Note 6 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 28, 2020. The Company recorded stock compensation expense of $5.4 million and $15.0 million, of which $0.2 million and $0.4 million is included in discontinued operations, for the three and six months ended June 30, 2019, respectively, and $7.0 million and $13.0 million, of which $0.4 million and $0.6 million is included in discontinued operations, for the three and six months ended June 30, 2020, respectively. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three and six months ended June 30, 2019 and 2020 has been reduced for forfeitures, estimated at between zero and four percent for all periods. The weighted average grant date fair value of all stock options granted during the six months ended June 30, 2020 was $18.55 as estimated using the Black-Scholes-Merton option pricing model, which also assumed an expected volatility of 35.56 percent based on the historical volatility of the Company’s stock price. For the six months ended June 30, 2019 and 2020, the tax expense for deficiencies included in continuing operations (net of the tax deductions in excess of recognized stock compensation expense) was $1.6 million and $1.7 million, respectively, which was included as an increase to income tax expense. The net tax expense to discontinued operations for the six months ended June 30, 2019 and 2020 was insignificant. Summarized information related to the Company’s stock options for the six months ended June 30, 2020 is as follows: Weighted Average Exercise Options Price Outstanding, beginning of period 2,125,861 $ 69.22 Granted 63,771 62.93 Forfeited (23,638) 83.80 Exercised (541,148) 58.22 Outstanding, end of period 1,624,846 $ 72.42 Vested and expected to vest at end of period 1,617,751 $ 72.43 Exercisable, end of period 1,287,233 $ 72.52 All of the Company’s options granted during the six months ended June 30, 2020 vest ratably on each anniversary date over the three years subsequent to grant and have a ten year life. Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 39,761 $ 65.40 Awarded 16,976 70.70 Vested (18,008) 66.66 Forfeited — — Outstanding, ending of period 38,729 67.14 Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 256,430 $ 74.12 Awarded 316,495 61.07 Vested (100,416) 74.93 Forfeited (12,096) 72.70 Outstanding, ending of period 460,413 65.01 Grants of RSAs vest on the anniversary of the grant. In general, RSUs vest ratably on each anniversary over the three years subsequent to grant. Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 248,559 $ 104.27 Awarded 133,752 75.65 Vested (52,861) 76.24 Forfeited (31,793) 79.22 Outstanding, end of period 297,657 99.06 The weighted average estimated fair value of the PSUs granted in the six months ended June 30, 2020 was $75.65, 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 0.68%, and expected volatility of 20% to 70% (average of 35%). The PSUs granted in the six months ended June 30, 2020, 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, 2022 and vesting on March 5, 2023, 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 is calculated as a percentage of the award target 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 varies 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, 2023 by the average share value of the Company’s common stock over the 30 trading days beginning on January 1, 2020, with a deemed reinvestment of any dividends declared during the performance period. The Company’s peer group includes 48 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. |
Goodwill | Goodwill At June 30, 2020, we evaluated whether changes in facts and circumstances would rise to an impairment indicator that it was more likely than not that any of our reporting units were impaired. The evaluation included whether our forecast for 2020 and beyond would have changed from what was used in our annual test performed as of October 1, 2019 test. We also considered the impact of economic and market volatility caused by the novel coronavirus (“COVID-19”) pandemic in the first six months of 2020. Based on our evaluation we do not believe that as of June 30, 2020 it was more likely than not that any of our reporting units were impaired. We do believe however, that while the fair value of the Pharmacy Management reporting unit continues to be in excess of its carrying value, the margin by which the fair value exceeds the carrying value has decreased. While the reporting unit was not determined to be impaired at this time, the Pharmacy Management Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in membership or rates or customer attrition and increase in costs that could significantly impact our immediate and long-range results, unfavorable working capital changes and an inability to successfully achieve our cost savings targets, (ii) adverse changes in macroeconomic conditions or an economic recovery that significantly differs from our assumptions in timing and/or degree (such as a recession); and (iii) volatility in the equity and debt markets or other country specific factors which could result in a higher weighted-average cost of capital. Based on known facts and circumstances, we evaluate and consider recent events and uncertain items, as well as related potential implications, as part of our annual assessment and incorporate into the analyses as appropriate. These facts and circumstances are subject to change and may impact future analyses. While historical performance and current expectations have resulted in fair values of our reporting units and indefinite-lived intangible assets in excess of carrying values, if our assumptions are not realized, it is possible that an impairment charge may need to be recorded in the future. |
Long Term Debt and Finance Lease Obligations | Long-Term Debt and Finance Lease Obligations Senior Notes On September 22, 2017, the Company completed the public offering of $400.0 million aggregate principal amount of its 4.400% Senior Notes due 2024 (the “Notes”). The Notes are governed by an indenture, dated as of September 22, 2017 (the “Base Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee, as supplemented by a first supplemental indenture, dated as of September 22, 2017 (the “First Supplemental Indenture” together with the Base Indenture, the “Indenture”), between the Company, as issuer, and U.S. Bank National Association, as trustee. During the year ended December 31, 2019 and six months ended June 30, 2020, the Company purchased and subsequently retired $11.1 million and $28.9 million of its Notes, respectively, which resulted in a loss on retirement of $0.3 million and $0.7 million, respectively, that is included in interest expense. The Notes were issued at a discount and had a carrying value of $388.4 million and $359.6 million at December 31, 2019 and June 30, 2020, respectively. The Notes bear interest payable semiannually in cash in arrears on March 22 and September 22 of each year, commencing on March 22, 2018, which rate is subject to an interest rate adjustment upon the occurrence of certain credit rating events. The Notes mature on September 22, 2024. The Indenture provides that the Notes are redeemable at the Company’s option, in whole or in part, at any time on or after July 22, 2024, at a redemption price equal to 100% of the principal amount of the Notes being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date. The Indenture also contains certain covenants which restrict the Company’s ability to, among other things, create liens on its and its subsidiaries’ assets; engage in sale and lease-back transactions; and engage in a consolidation, merger or sale of assets. Credit Agreement On September 22, 2017, the Company entered into a credit agreement with various lenders that provides for a $400.0 million senior unsecured revolving credit facility and a $350.0 million senior unsecured term loan facility to the Company, as the borrower (the “2017 Credit Agreement”). On August 13, 2018, the Company entered into an amendment to the 2017 Credit Agreement, which extended the maturity date by one year. On February 27, 2019, the Company entered into a second amendment to the 2017 Credit Agreement, which amended the total leverage ratio covenant, and which was necessary in order for us to remain in compliance with the terms of the 2017 Credit Agreement. The 2017 Credit Agreement is scheduled to mature on September 22, 2023. Under the 2017 Credit Agreement, the annual interest rate on the loan borrowing is equal to (i) in the case of base rate loans, the sum of an initial borrowing margin of 0.500 percent plus the higher of the prime rate, one percent of the unused revolving credit commitment, which rate shall be subject to adjustment based on the Company’s debt rating as provided by certain rating agencies. For the six months ended June 30, 2020, the weighted average interest rate was approximately 3.3217 percent. In August 2019, the Company made voluntary term loan repayments of $30.0 million. As of June 30, 2020, the contractual maturities, totaling $271.9 million of the term loan under the 2017 Credit Agreement were as follows: 2020—$0.0 million; 2021—$0.0 million; 2022—$13.8 million; and 2023—$258.1 million. Due to the timing of working capital needs, the Company will periodically borrow from the revolving loan under the 2017 Credit Agreement. At December 31, 2019, the Company had no revolving loan borrowings. At June 30, 2020 the Company had a revolving loan of $80.0 million, with a borrowing capacity of $320.0 million under the 2017 Credit Agreement. Included in long-term debt, finance lease and deferred financing obligations are deferred loan and bond issuance costs as of December 31, 2019 and June 30, 2020 of $5.7 million and $4.9 million, respectively. Letter of Credit Agreement On August 22, 2017, the Company entered into a Continuing Agreement for Standby Letters of Credit with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), as issuer (the “L/C Agreement”), under which BTMU, at its sole discretion, may provide stand-by letter of credit to the Company. The Company had letters of credit outstanding under the L/C Agreement as of December 31, 2019 and June 30, 2020 of $66.4 million and $32.1 million, respectively. Finance Lease and Deferred Financing Obligations There were $18.1 million and $19.0 million of finance lease and deferred financing obligations at December 31, 2019 and June 30, 2020, respectively. The Company’s finance lease and deferred financing obligations represent amounts due under leases for certain properties, computer software (acquired prior to the prospective adoption of ASU 2015-05 on January 1, 2016) and equipment. The recorded gross cost of finance lease assets was $56.0 million and $61.6 million at December 31, 2019 and June 30, 2020, respectively. |
General (Tables)
General (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
General | |
Schedule of disaggregation of revenue by major service line, type of customer and timing of revenue recognition | Three Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 400,591 $ — $ (65) $ 400,526 EAP risk-based 87,296 — — 87,296 ASO 58,226 10,327 (82) 68,471 PBM, including dispensing — 480,167 (4,335) 475,832 Medicare Part D — 69,843 — 69,843 PBA — 33,476 — 33,476 Formulary management — 18,426 — 18,426 Other — 419 — 419 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Type of Customer Government $ 236,014 $ 173,804 $ — $ 409,818 Non-government 310,099 438,854 (4,482) 744,471 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Timing of Revenue Recognition Transferred at a point in time $ — $ 550,010 $ (4,335) $ 545,675 Transferred over time 546,113 62,648 (147) 608,614 Total net revenue $ 546,113 $ 612,658 $ (4,482) $ 1,154,289 Three Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 344,199 $ — $ (92) $ 344,107 EAP risk-based 77,419 — — 77,419 ASO 59,403 12,271 (85) 71,589 PBM, including dispensing — 499,484 (4,831) 494,653 Medicare Part D — 56,711 — 56,711 PBA — 30,811 — 30,811 Formulary management — 25,061 — 25,061 Other — (276) — (276) Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Type of Customer Government $ 222,393 $ 208,989 $ — $ 431,382 Non-government 258,628 415,073 (5,008) 668,693 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Timing of Revenue Recognition Transferred at a point in time $ — $ 556,195 $ (4,831) $ 551,364 Transferred over time 481,021 67,867 (177) 548,711 Total net revenue $ 481,021 $ 624,062 $ (5,008) $ 1,100,075 Six Months Ended June 30, 2019 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 762,399 $ — $ (143) $ 762,256 EAP risk-based 176,913 — — 176,913 ASO 113,623 18,470 (173) 131,920 PBM, including dispensing — 973,391 (8,442) 964,949 Medicare Part D — 133,184 — 133,184 PBA — 67,453 — 67,453 Formulary management — 35,609 — 35,609 Other — 1,011 — 1,011 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Type of Customer Government $ 467,076 $ 401,852 $ — $ 868,928 Non-government 585,859 827,266 (8,758) 1,404,367 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,106,575 $ (8,442) $ 1,098,133 Transferred over time 1,052,935 122,543 (316) 1,175,162 Total net revenue $ 1,052,935 $ 1,229,118 $ (8,758) $ 2,273,295 Six Months Ended June 30, 2020 Healthcare Pharmacy Management Elimination Total Major Service Lines Behavioral & Specialty Health Risk-based, non-EAP $ 694,044 $ — $ (182) $ 693,862 EAP risk-based 157,357 — — 157,357 ASO 118,526 23,805 (168) 142,163 PBM, including dispensing — 1,017,596 (9,398) 1,008,198 Medicare Part D — 112,377 — 112,377 PBA — 60,940 — 60,940 Formulary management — 47,222 — 47,222 Other — 335 — 335 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Type of Customer Government $ 449,495 $ 412,946 $ — $ 862,441 Non-government 520,432 849,329 (9,748) 1,360,013 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 Timing of Revenue Recognition Transferred at a point in time $ — $ 1,129,973 $ (9,398) $ 1,120,575 Transferred over time 969,927 132,302 (350) 1,101,879 Total net revenue $ 969,927 $ 1,262,275 $ (9,748) $ 2,222,454 |
Schedule of accounts receivable, contract assets and contract liabilities | Accounts receivable, contract assets and contract liabilities consisted of the following (in thousands, except percentages): December 31, June 30, 2019 2020 $ Change % Change Accounts receivable $ 717,455 $ 837,710 $ 120,255 16.8% Contract assets 2,162 7,151 4,989 230.8% Contract liabilities - current 6,728 25,769 19,041 283.0% Contract liabilities - long-term 11,099 11,022 (77) (0.7%) |
Schedule of customers generating in excess of ten percent of net revenues for respective segment | The following customers generated in excess of ten percent of net revenues for the respective segment for the six months ended June 30, 2019 and 2020 (in thousands): Segment Term Date 2019 2020 Healthcare Customer A December 31, 2021 $ 161,887 $ 175,107 Pharmacy Management Customer B March 31, 2021 $ 174,535 $ 195,930 |
Schedule of leases | The following table shows the components of lease expenses for the three and six months ended June 30, 2020 (in thousands): Three Months Ended Six Months Ended Operating lease cost $ 2,503 $ 4,604 Finance lease cost: Amortization of right-of-use asset 1,046 2,378 Interest on lease liabilities 213 427 Total finance lease cost 1,259 2,805 Short-term lease cost 80 204 Variable lease cost 505 1,011 Total lease cost 4,347 8,624 Sublease income (66) (179) Net lease cost $ 4,281 $ 8,445 The following table shows the components of the lease assets and liabilities as of June 30, 2020 (in thousands): June 30, 2020 Operating leases: Other long-term assets $ 20,832 Accrued liabilities $ 23,959 Deferred credits and other long-term liabilities 9,661 Total operating lease liabilities $ 33,620 Finance leases: Property and equipment, net $ 13,489 Current debt, finance lease and deferred financing obligations $ 4,989 Long-term debt, finance lease and deferred financing obligations 14,024 Total finance lease liabilities $ 19,013 The following table shows the weighted average remaining lease term and discount rate as of June 30, 2020: June 30, 2020 Weighted average remaining lease term Operating leases 3.96 Finance leases 4.08 Weighted average discount rate Operating leases 4.79% Finance leases 4.39% Six months ended June 30, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 6,196 Operating cash flows from finance leases 2,815 Financing cash flows from finance leases 427 Right-of-use asset obtained in exchange for new lease obligation Operating leases 902 Finance leases 3,599 |
Schedule of maturity dates of leases | June 30, 2020 2020 $ 8,201 2021 13,819 2022 12,518 2023 9,295 2024 7,927 2025 and beyond 2,581 Total lease payments 54,341 Less interest (1,708) Present value of lease liabilities $ 52,633 |
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 assets and liabilities that are required to be measured at fair value as of December 31, 2019 and June 30, 2020 (in thousands): December 31, 2019 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (1) $ — $ 111,085 $ — $ 111,085 Investments: U.S. Government and agency securities 30,775 — — 30,775 Corporate debt securities — 69,581 — 69,581 Certificates of deposit — 1,305 — 1,305 Total assets held at fair value $ 30,775 $ 181,971 $ — $ 212,746 June 30, 2020 Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents (2) $ — $ 132,038 $ — $ 132,038 Investments: U.S. Government and agency securities 32,174 — — 32,174 Corporate debt securities — 42,192 — 42,192 Certificates of deposit — 1,305 — 1,305 Total assets held at fair value $ 32,174 $ 175,535 $ — $ 207,709 (1) Excludes $4.7 million of cash held in bank accounts by the Company. (2) Excludes $28.4 million of cash held in bank accounts by the Company. |
Summary of short-term and long-term investments | December 31, 2019 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 30,742 $ 38 $ (5) $ 30,775 Corporate debt securities 69,552 40 (11) 69,581 Certificates of deposit 1,305 — — 1,305 Total investments at December 31, 2019 $ 101,599 $ 78 $ (16) $ 101,661 June 30, 2020 Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value U.S. Government and agency securities $ 32,066 $ 108 $ — $ 32,174 Corporate debt securities 42,129 71 (8) 42,192 Certificates of deposit 1,305 — — 1,305 Total investments at June 30, 2020 $ 75,500 $ 179 $ (8) $ 75,671 |
Summary of maturity dates of investments | The maturity dates of the Company’s investments as of June 30, 2020 are summarized below (in thousands): Amortized Estimated Cost Fair Value 2020 $ 63,787 $ 63,901 2021 11,713 11,770 Total investments at June 30, 2020 $ 75,500 $ 75,671 |
Schedule of stock option activity | Summarized information related to the Company’s stock options for the six months ended June 30, 2020 is as follows: Weighted Average Exercise Options Price Outstanding, beginning of period 2,125,861 $ 69.22 Granted 63,771 62.93 Forfeited (23,638) 83.80 Exercised (541,148) 58.22 Outstanding, end of period 1,624,846 $ 72.42 Vested and expected to vest at end of period 1,617,751 $ 72.43 Exercisable, end of period 1,287,233 $ 72.52 |
Schedule of nonvested restricted stock award activity | Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 39,761 $ 65.40 Awarded 16,976 70.70 Vested (18,008) 66.66 Forfeited — — Outstanding, ending of period 38,729 67.14 |
Schedule of nonvested restricted stock units | Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 256,430 $ 74.12 Awarded 316,495 61.07 Vested (100,416) 74.93 Forfeited (12,096) 72.70 Outstanding, ending of period 460,413 65.01 |
Schedule of nonvested restricted performance stock units | Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the six months ended June 30, 2020 is as follows: Weighted Average Grant Date Shares Fair Value Outstanding, beginning of period 248,559 $ 104.27 Awarded 133,752 75.65 Vested (52,861) 76.24 Forfeited (31,793) 79.22 Outstanding, end of period 297,657 99.06 |
Net Income per Common Share A_2
Net Income per Common Share Attributable to Magellan Health, Inc. (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Net Income per Common Share Attributable to Magellan Health, Inc. | |
Schedule of computation of basic and diluted earnings per share | The following table reconciles income attributable to common shareholders (numerator) and shares (denominator) used in the computations of net income per share attributable to common shareholders (in thousands, except per share data) for the three and six months ended June 30: Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Numerator: Net income (loss) from continuing operations $ 7,215 $ 47,108 $ (976) $ 46,038 Income from discontinued operations, net of tax 6,398 36,397 15,020 55,717 Net income $ 13,613 $ 83,505 $ 14,044 $ 101,755 Denominator: Weighted average number of common shares outstanding—basic 24,101 25,054 24,024 24,891 Common stock equivalents—stock options 153 31 132 46 Common stock equivalents—RSAs 7 28 7 25 Common stock equivalents—RSUs 18 46 19 48 Common stock equivalents—PSUs 130 118 127 59 Common stock equivalents—employee stock purchase plan 7 1 6 5 Weighted average number of common shares outstanding—diluted 24,416 25,278 24,315 25,074 Net income (loss) per common share—basic: Continuing operations $ 0.30 $ 1.88 $ (0.04) $ 1.85 Discontinued operations 0.26 1.45 0.62 2.24 Consolidated operations $ 0.56 $ 3.33 $ 0.58 $ 4.09 Net income (loss) per common share—diluted: Continuing operations $ 0.30 $ 1.86 $ (0.04) $ 1.84 Discontinued operations 0.26 1.44 0.62 2.22 Consolidated operations $ 0.56 $ 3.30 $ 0.58 $ 4.06 |
Business Segment Information (T
Business Segment Information (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
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 Three Months Ended June 30, 2019 Managed care and other revenue $ 546,113 $ 62,648 $ (147) $ 608,614 PBM revenue — 550,010 (4,335) 545,675 Cost of care (408,911) — — (408,911) Cost of goods sold — (505,203) 4,122 (501,081) Direct service costs and other (98,314) (78,776) (18,817) (195,907) Stock compensation expense (1) 2,237 2,124 846 5,207 Segment Profit (Loss) $ 41,125 $ 30,803 $ (18,331) $ 53,597 Corporate Pharmacy and Healthcare Management Elimination Consolidated Three Months Ended June 30, 2020 Managed care and other revenue $ 481,021 $ 67,867 $ (177) $ 548,711 PBM revenue — 556,195 (4,831) 551,364 Cost of care (321,831) — — (321,831) Cost of goods sold — (532,685) 4,618 (528,067) Direct service costs and other (100,450) (80,082) (19,224) (199,756) Stock compensation expense (1) 2,102 1,939 2,551 6,592 Segment Profit (Loss) $ 60,842 $ 13,234 $ (17,063) $ 57,013 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2019 Managed care and other revenue $ 1,052,935 $ 122,543 $ (316) $ 1,175,162 PBM revenue — 1,106,575 (8,442) 1,098,133 Cost of care (778,008) — — (778,008) Cost of goods sold — (1,035,410) 8,015 (1,027,395) Direct service costs and other (1) (198,424) (158,411) (41,372) (398,207) Stock compensation expense (1) 3,780 3,796 7,031 14,607 Segment Profit (Loss) $ 80,283 $ 39,093 $ (35,084) $ 84,292 Corporate Pharmacy and Healthcare Management Elimination Consolidated Six Months Ended June 30, 2020 Managed care and other revenue $ 969,927 $ 132,302 $ (350) $ 1,101,879 PBM revenue — 1,129,973 (9,398) 1,120,575 Cost of care (670,939) — — (670,939) Cost of goods sold — (1,070,259) 8,951 (1,061,308) Direct service costs and other (1) (206,386) (161,948) (35,663) (403,997) Stock compensation expense (1) 3,863 4,046 4,480 12,389 Segment Profit (Loss) $ 96,465 $ 34,114 $ (31,980) $ 98,599 (1) Stock compensation expense, changes in the fair value of contingent consideration recorded in relation to 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. |
Schedule of reconciliation of Segment Profit to income before income taxes | The following table reconciles income from continuing operations before income taxes to Segment Profit from continuing operations (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Income from continuing operations before income taxes $ 12,950 $ 10,780 $ 1,550 $ 15,472 Stock compensation expense 5,207 6,592 14,607 12,389 Depreciation and amortization 28,191 23,888 53,608 47,246 Interest expense 9,070 7,995 18,107 16,953 Interest and other income (1,821) (551) (3,580) (1,770) Special charges — 8,309 — 8,309 Segment Profit from continuing operations $ 53,597 $ 57,013 $ 84,292 $ 98,599 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Commitments and Contingencies | |
Schedule of stock repurchases made | Pursuant to the 2015 Stock Repurchase 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 345,044 $ 53.46 $ 18.4 January 1, 2016 - December 31, 2016 1,828,183 58.40 106.8 January 1, 2017 - December 31, 2017 280,140 77.67 21.8 January 1, 2018 - December 31, 2018 844,872 74.59 63.0 January 1, 2019 - December 31, 2019 60,901 61.15 3.7 January 1, 2020 - June 30, 2020 — — — 3,359,140 $ 213.7 |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 6 Months Ended |
Jun. 30, 2020 | |
Discontinued Operations | |
Summary the major classes of assets and liabilities held for sale | The following table summarizes the major classes of assets and liabilities held for sale that were included in the Company’s consolidated balance sheets as of December 31, 2019 and June 30, 2020 (in thousands): December 31, June 30, 2019 2020 Assets Held For Sale Cash and cash equivalents ($95,202 and $69,971 restricted at December 31, 2019 and June 30, 2020, respectively) $ 209,497 $ 235,873 Accounts receivable, net 209,496 163,216 Short-term and long-term investments ($243,496 and $343,348 restricted at December 31, 2019 and June 30, 2020, respectively) 243,496 398,741 Property and equipment, net 6,710 7,477 Goodwill 211,735 211,735 Other intangible assets, net 85,669 76,628 Other current and long-term assets ($2,387 and $2,387 restricted at December 31, 2019 and June 30, 2020, respectively) 32,386 52,234 Total Assets Held For Sale 998,989 1,145,904 Less: current portion 663,276 1,145,904 Total Assets Held For Sale, Less Current Portion $ 335,713 $ — Liabilities Held For Sale Accounts payable $ 4,625 $ 3,449 Accrued liabilities 92,170 145,558 Medical claims payable 281,419 271,998 Other medical liabilities 31,769 50,384 Deferred income taxes 15,063 13,910 Tax contingencies 5,388 5,462 Deferred credits and other long-term liabilities 16,850 13,698 Total Liabilities Held For Sale 447,284 504,459 Less: current portion 409,983 504,459 Total Liabilities Held For Sale, Less Current Portion $ 37,301 $ — |
Summary of the components of income from discontinued operation | The following table summarizes the components of income from discontinued operations that is included in the Company’s consolidated income statements for the three and six months ended June 30, 2019 and 2020 (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2019 2020 2019 2020 Managed care and other revenue $ 674,760 $ 735,357 $ 1,332,385 $ 1,455,391 Costs and expenses: Cost of care 592,975 573,374 1,165,839 1,175,908 Direct service costs and other operating expenses (1)(2)(3) 71,346 92,078 141,591 176,575 Depreciation and amortization 5,299 5,379 10,590 10,705 Interest expense 71 18 141 89 Interest and other income (3,200) (1,478) (6,415) (4,018) Total costs and expenses 666,491 669,371 1,311,746 1,359,259 Income from discontinued operation before income taxes 8,269 65,986 20,639 96,132 Provision for income taxes 1,871 29,589 5,619 40,415 Net income from discontinued operations $ 6,398 $ 36,397 $ 15,020 $ 55,717 (1) Includes stock compensation expense of $207 and $366 for the three months ended June 30, 2019 and 2020, respectively, and $414 and $626 for the six months ended June 30, 2019 and 2020, respectively. (2) Includes changes in fair value of contingent consideration of $(2,149) and $(2,005) for the three and six months ended June 30, 2019, respectively. (3) Includes divestiture related expenses of $3,353 and $3,958 for the three and six months ended June 30, 2020, respectively. |
General - Discontinued Operatio
General - Discontinued Operations (Details) $ in Millions | Apr. 30, 2020USD ($) |
MCC Business | Discontinued Operations, Held-for-sale | |
Discontinued Operations | |
Disposal Group, Including Discontinued Operation, Consideration | $ 850 |
General - Business Overview (De
General - Business Overview (Details) - segment | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
General | ||||
Number of segments | 3 | 3 | 3 | 3 |
Healthcare | ||||
General | ||||
Number of reporting units | 2 | 2 | 2 | 2 |
General - Revenue Recognition (
General - Revenue Recognition (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Operating results by business segment | ||||
Net revenue | $ 1,100,075 | $ 1,154,289 | $ 2,222,454 | $ 2,273,295 |
Transferred at a point in time | ||||
Operating results by business segment | ||||
Net revenue | 551,364 | 545,675 | 1,120,575 | 1,098,133 |
Transferred over time | ||||
Operating results by business segment | ||||
Net revenue | 548,711 | 608,614 | 1,101,879 | 1,175,162 |
Government | ||||
Operating results by business segment | ||||
Net revenue | 431,382 | 409,818 | 862,441 | 868,928 |
Non-government | ||||
Operating results by business segment | ||||
Net revenue | 668,693 | 744,471 | 1,360,013 | 1,404,367 |
Behavioral & Specialty Health, risk-based, non-EAP | ||||
Operating results by business segment | ||||
Net revenue | 344,107 | 400,526 | 693,862 | 762,256 |
Behavioral & Specialty Health, EAP risk-based | ||||
Operating results by business segment | ||||
Net revenue | 77,419 | 87,296 | 157,357 | 176,913 |
Behavioral & Specialty Health, ASO | ||||
Operating results by business segment | ||||
Net revenue | 71,589 | 68,471 | 142,163 | 131,920 |
PBM, including dispensing | ||||
Operating results by business segment | ||||
Net revenue | 494,653 | 475,832 | 1,008,198 | 964,949 |
Medicare Part D | ||||
Operating results by business segment | ||||
Net revenue | 56,711 | 69,843 | 112,377 | 133,184 |
PBA | ||||
Operating results by business segment | ||||
Net revenue | 30,811 | 33,476 | 60,940 | 67,453 |
Formulary management | ||||
Operating results by business segment | ||||
Net revenue | 25,061 | 18,426 | 47,222 | 35,609 |
Other service lines | ||||
Operating results by business segment | ||||
Net revenue | (276) | 419 | 335 | 1,011 |
Healthcare | ||||
Operating results by business segment | ||||
Net revenue | 481,021 | 546,113 | 969,927 | 1,052,935 |
Healthcare | Transferred over time | ||||
Operating results by business segment | ||||
Net revenue | 481,021 | 546,113 | 969,927 | 1,052,935 |
Healthcare | Government | ||||
Operating results by business segment | ||||
Net revenue | 222,393 | 236,014 | 449,495 | 467,076 |
Healthcare | Non-government | ||||
Operating results by business segment | ||||
Net revenue | 258,628 | 310,099 | 520,432 | 585,859 |
Healthcare | Behavioral & Specialty Health, risk-based, non-EAP | ||||
Operating results by business segment | ||||
Net revenue | 344,199 | 400,591 | 694,044 | 762,399 |
Healthcare | Behavioral & Specialty Health, EAP risk-based | ||||
Operating results by business segment | ||||
Net revenue | 77,419 | 87,296 | 157,357 | 176,913 |
Healthcare | Behavioral & Specialty Health, ASO | ||||
Operating results by business segment | ||||
Net revenue | 59,403 | 58,226 | 118,526 | 113,623 |
Pharmacy Management | ||||
Operating results by business segment | ||||
Net revenue | 624,062 | 612,658 | 1,262,275 | 1,229,118 |
Pharmacy Management | Transferred at a point in time | ||||
Operating results by business segment | ||||
Net revenue | 556,195 | 550,010 | 1,129,973 | 1,106,575 |
Pharmacy Management | Transferred over time | ||||
Operating results by business segment | ||||
Net revenue | 67,867 | 62,648 | 132,302 | 122,543 |
Pharmacy Management | Government | ||||
Operating results by business segment | ||||
Net revenue | 208,989 | 173,804 | 412,946 | 401,852 |
Pharmacy Management | Non-government | ||||
Operating results by business segment | ||||
Net revenue | 415,073 | 438,854 | 849,329 | 827,266 |
Pharmacy Management | Behavioral & Specialty Health, ASO | ||||
Operating results by business segment | ||||
Net revenue | 12,271 | 10,327 | 23,805 | 18,470 |
Pharmacy Management | PBM, including dispensing | ||||
Operating results by business segment | ||||
Net revenue | 499,484 | 480,167 | 1,017,596 | 973,391 |
Pharmacy Management | Medicare Part D | ||||
Operating results by business segment | ||||
Net revenue | 56,711 | 69,843 | 112,377 | 133,184 |
Pharmacy Management | PBA | ||||
Operating results by business segment | ||||
Net revenue | 30,811 | 33,476 | 60,940 | 67,453 |
Pharmacy Management | Formulary management | ||||
Operating results by business segment | ||||
Net revenue | 25,061 | 18,426 | 47,222 | 35,609 |
Pharmacy Management | Other service lines | ||||
Operating results by business segment | ||||
Net revenue | (276) | 419 | 335 | 1,011 |
Elimination | ||||
Operating results by business segment | ||||
Net revenue | (5,008) | (4,482) | (9,748) | (8,758) |
Elimination | Transferred at a point in time | ||||
Operating results by business segment | ||||
Net revenue | (4,831) | (4,335) | (9,398) | (8,442) |
Elimination | Transferred over time | ||||
Operating results by business segment | ||||
Net revenue | (177) | (147) | (350) | (316) |
Elimination | Non-government | ||||
Operating results by business segment | ||||
Net revenue | (5,008) | (4,482) | (9,748) | (8,758) |
Elimination | Behavioral & Specialty Health, risk-based, non-EAP | ||||
Operating results by business segment | ||||
Net revenue | (92) | (65) | (182) | (143) |
Elimination | Behavioral & Specialty Health, ASO | ||||
Operating results by business segment | ||||
Net revenue | (85) | (82) | (168) | (173) |
Elimination | PBM, including dispensing | ||||
Operating results by business segment | ||||
Net revenue | $ (4,831) | $ (4,335) | $ (9,398) | $ (8,442) |
General - Per Member Per Month
General - Per Member Per Month Revenue (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Operating results by business segment | |
Required notice to terminate PMPM contract | 30 days |
Minimum | |
Operating results by business segment | |
Term of PMPM contract | 1 year |
General - Pharmacy Benefit Mana
General - Pharmacy Benefit Management Revenue (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Minimum | |
Operating results by business segment | |
Expected term of PBM relationship | 1 year |
General - Pharmacy Benefit Admi
General - Pharmacy Benefit Administration Revenue (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Minimum | |
Operating results by business segment | |
Anticipated period of benefit of the material right | 2 years |
Maximum | |
Operating results by business segment | |
Anticipated period of benefit of the material right | 10 years |
General - Formulary Management
General - Formulary Management Revenue (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Minimum | |
Operating results by business segment | |
Term of formulary management contract | 1 year |
General - Accounts Receivable,
General - Accounts Receivable, Contract Assets and Contract Liabilities - Tabular Disclosure (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2020 | Dec. 31, 2019 | |
Summary of Significant Accounting Policies | ||
Accounts receivable | $ 837,710 | $ 717,455 |
Change in accounts receivable | $ 120,255 | |
Change in accounts receivable (as a percent) | 16.80% | |
Contract assets | $ 7,151 | 2,162 |
Change in contract assets | $ (4,989) | |
Change in contract assets (as a percent) | 230.80% | |
Contract liabilities - current | $ 25,769 | 6,728 |
Change in contract liabilities - current | $ 19,041 | |
Change in contract liabilities - current (as a percent) | 283.00% | |
Contract liabilities - long-term | $ 11,022 | $ 11,099 |
Change in contract liabilities - long-term | $ (77) | |
Change in contract liabilities - long-term (as a percent) | (0.70%) |
General - Accounts Receivable_2
General - Accounts Receivable, Contract Assets and Contract Liabilities - Additional Information (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended |
Jun. 30, 2020 | Jun. 30, 2020 | |
Contract liabilities | ||
Revenue recognized previously included in current contract liabilities | $ 2 | $ 4 |
General - Accounts Receivable_3
General - Accounts Receivable, Contract Assets and Contract Liabilities - Performance Obligation (Details) $ in Millions | Jun. 30, 2020USD ($) |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01 | |
Performance obligation | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 9 months |
Estimated revenue to be recognized | $ 24 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01 | |
Performance obligation | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 12 months |
Estimated revenue to be recognized | $ 3.6 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01 | |
Performance obligation | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 12 months |
Estimated revenue to be recognized | $ 3.1 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 | |
Performance obligation | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 0 months |
Estimated revenue to be recognized | $ 6.1 |
General - Customers Exceeding T
General - Customers Exceeding Ten Percent of Consolidated Net Revenues (Details) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020USD ($)item | Jun. 30, 2019USD ($) | Jun. 30, 2020USD ($)item | Jun. 30, 2019USD ($) | |
MCC Business | Discontinued Operations, Held-for-sale | ||||
Significant customers | ||||
Managed care and other revenue | $ 735,357 | $ 674,760 | $ 1,455,391 | $ 1,332,385 |
Maximum | ||||
Significant customers | ||||
Term of contracts with customers | 3 years | |||
Term of contract extensions or renewals | 2 years | |||
Virginia Contracts | MCC Business | Discontinued Operations, Held-for-sale | ||||
Significant customers | ||||
Managed care and other revenue | $ 475,200 | 391,200 | ||
CCC Plus Contract | ||||
Significant customers | ||||
Term of contracts with customers | 5 years | |||
Term of contract extensions or renewals | 12 months | |||
Termination notice | 90 days | |||
CCC Plus Contract | Maximum | ||||
Significant customers | ||||
Number of contract extensions or renewals | item | 5 | 5 | ||
Medallion Contract | ||||
Significant customers | ||||
Number of contract extensions or renewals | item | 6 | 6 | ||
Term of contract extensions or renewals | 12 months | |||
Termination notice | 180 days | |||
New York Contract | ||||
Significant customers | ||||
Managed care and other revenue | $ 411,700 | 400,600 | ||
Massachusetts Contracts | MCC Business | Discontinued Operations, Held-for-sale | ||||
Significant customers | ||||
Managed care and other revenue | $ 359,700 | $ 360,900 | ||
SCO Contract | ||||
Significant customers | ||||
Term of contract extensions or renewals | 1 year | |||
Termination notice | 180 days | |||
SCO Contract | Maximum | ||||
Significant customers | ||||
Number of contract extensions or renewals | item | 5 | 5 | ||
CMS Contract | ||||
Significant customers | ||||
Term of contracts with customers | 1 year |
General - Customers Exceeding_2
General - Customers Exceeding Ten Percent of Segment Revenues (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Significant customers | ||||
Revenues | $ 1,100,075 | $ 1,154,289 | $ 2,222,454 | $ 2,273,295 |
Healthcare | ||||
Significant customers | ||||
Revenues | 481,021 | 546,113 | 969,927 | 1,052,935 |
Healthcare | Customer A | ||||
Significant customers | ||||
Revenues | 175,107 | 161,887 | ||
Pharmacy Management | ||||
Significant customers | ||||
Revenues | $ 624,062 | $ 612,658 | 1,262,275 | 1,229,118 |
Pharmacy Management | Customer B | ||||
Significant customers | ||||
Revenues | $ 195,930 | $ 174,535 |
General - Concentration of Busi
General - Concentration of Business (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | Dec. 31, 2019 | |
Significant customers | |||||
Net revenue | $ 1,100,075 | $ 1,154,289 | $ 2,222,454 | $ 2,273,295 | |
Accounts receivable, net | 753,065 | $ 753,065 | $ 680,569 | ||
Minimum | |||||
Significant customers | |||||
Term of contracts with customers | 1 year | ||||
Term of contract extensions or renewals | 1 year | ||||
Notice period for termination of contract | 30 days | ||||
Maximum | |||||
Significant customers | |||||
Term of contracts with customers | 3 years | ||||
Term of contract extensions or renewals | 2 years | ||||
Notice period for termination of contract | 180 days | ||||
Pennsylvania Counties | |||||
Significant customers | |||||
Net revenue | $ 272,200 | 271,400 | |||
CMS | |||||
Significant customers | |||||
Net revenue | 112,300 | 133,200 | |||
Accounts receivable, net | $ 114,300 | 114,300 | $ 117,400 | ||
United States federal government | |||||
Significant customers | |||||
Net revenue | $ 136,100 | $ 156,700 |
General - Leases - General Info
General - Leases - General Information (Details) | 6 Months Ended |
Jun. 30, 2020lease | |
Leases | |
Initial term | 12 months |
Renewal terms | true |
Minimum | |
Leases | |
Options to renew | 1 |
Options to extend the lease renewal terms | 1 year |
Maximum | |
Leases | |
Options to extend the lease renewal terms | 10 years |
General - Leases - Lease Expens
General - Leases - Lease Expenses (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2020 | Jun. 30, 2020 | |
Components of leases expenses: | ||
Operating lease cost | $ 2,503 | $ 4,604 |
Amortization of right-of-use asset | 1,046 | 2,378 |
Interest on lease liabilities | 213 | 427 |
Total finance lease cost | 1,259 | 2,805 |
Short-term lease cost | 80 | 204 |
Variable lease cost | 505 | 1,011 |
Total lease cost | 4,347 | 8,624 |
Sublease income | (66) | (179) |
Net lease cost | $ 4,281 | $ 8,445 |
General - Leases - Assets and L
General - Leases - Assets and Liabilities (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Components of lease assets and liabilities | ||
Operating lease right-of-use assets | $ 20,832 | |
Operating Lease, Right-of-Use Asset, Statement of Financial Position | us-gaap:OtherAssetsNoncurrent | |
Current operating lease liabilities | $ 23,959 | |
Operating Lease, Liability, Current, Statement of Financial Position | us-gaap:AccruedLiabilitiesCurrent | |
Long-term operating lease liabilities | $ 9,661 | |
Operating Lease, Liability, Noncurrent, Statement of Financial Position | us-gaap:DeferredCreditsAndOtherLiabilitiesNoncurrent | |
Total operating lease liabilities | $ 33,620 | |
Operating Lease, Liability, Statement of Financial Position | us-gaap:AccruedLiabilitiesCurrent us-gaap:DeferredCreditsAndOtherLiabilitiesNoncurrent | |
Finance lease assets | $ 13,489 | |
Finance Lease, Right-of-Use Asset, Statement of Financial Position | us-gaap:PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortization | |
Current finance lease liabilities | $ 4,989 | |
Finance Lease, Liability, Current, Statement of Financial Position | us-gaap:LongTermDebtAndCapitalLeaseObligationsCurrent | |
Long-term finance lease liabilities | $ 14,024 | |
Finance Lease, Liability, Noncurrent, Statement of Financial Position | us-gaap:LongTermDebtAndCapitalLeaseObligations | |
Total finance lease liabilities | $ 19,013 | $ 18,100 |
Total lease liabilities | $ 52,633 |
General - Leases - Maturity Dat
General - Leases - Maturity Dates (Details) $ in Thousands | Jun. 30, 2020USD ($) |
Leases | |
2020 | $ 8,201 |
2021 | 13,819 |
2022 | 12,518 |
2023 | 9,295 |
2024 | 7,927 |
2025 and beyond | 2,581 |
Total lease payments | 54,341 |
Less interest | (1,708) |
Present value of lease liabilities | $ 52,633 |
General - Leases - Weighted Ave
General - Leases - Weighted Average Remaining Lease Term and Discount Rate (Details) | Jun. 30, 2020 |
Leases | |
Weighted average remaining lease term, operating leases | 3 years 11 months 15 days |
Weighted average remaining lease term, finance leases | 4 years 29 days |
Weighted average discount rate, operating leases | 4.79% |
Weighted average discount rate, finance leases | 4.39% |
General - Leases - Supplemental
General - Leases - Supplemental Cash Flow Information (Details) $ in Thousands | 6 Months Ended |
Jun. 30, 2020USD ($) | |
Leases | |
Operating cash flows from operating leases | $ 6,196 |
Operating cash flows from finance leases | 2,815 |
Financing cash flows from finance leases | 427 |
Right-of-use asset obtained in exchange for new lease obligation, operating leases | 902 |
Right-of-use asset obtained in exchange for new lease obligation, finance leases | $ 3,599 |
General - Fair Value Measuremen
General - Fair Value Measurements (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Assets | ||
Investments | $ 75,671 | $ 101,661 |
Cash held in bank accounts | 28,400 | 4,700 |
U.S. Government and agency securities | ||
Assets | ||
Investments | 32,174 | 30,775 |
Corporate debt securities | ||
Assets | ||
Investments | 42,192 | 69,581 |
Certificates of deposit | ||
Assets | ||
Investments | 1,305 | 1,305 |
Level 1 | 4.400% Senior Notes due 2024 | ||
Liabilities | ||
Long-term Debt, Fair Value | 366,200 | |
Level 2 | 2017 Credit Agreement, senior unsecured term loan facility | ||
Liabilities | ||
Long-term Debt, Fair Value | 271,900 | |
Fair Value, Recurring | ||
Assets | ||
Total assets held at fair value | 207,709 | 212,746 |
Fair Value, Recurring | Other Than Cash In Entity Bank Accounts Member | ||
Assets | ||
Cash and cash equivalents | 132,038 | 111,085 |
Fair Value, Recurring | U.S. Government and agency securities | ||
Assets | ||
Investments | 32,174 | 30,775 |
Fair Value, Recurring | Corporate debt securities | ||
Assets | ||
Investments | 42,192 | 69,581 |
Fair Value, Recurring | Certificates of deposit | ||
Assets | ||
Investments | 1,305 | 1,305 |
Fair Value, Recurring | Level 1 | ||
Assets | ||
Total assets held at fair value | 32,174 | 30,775 |
Fair Value, Recurring | Level 1 | U.S. Government and agency securities | ||
Assets | ||
Investments | 32,174 | 30,775 |
Fair Value, Recurring | Level 2 | ||
Assets | ||
Total assets held at fair value | 175,535 | 181,971 |
Fair Value, Recurring | Level 2 | Other Than Cash In Entity Bank Accounts Member | ||
Assets | ||
Cash and cash equivalents | 132,038 | 111,085 |
Fair Value, Recurring | Level 2 | Corporate debt securities | ||
Assets | ||
Investments | 42,192 | 69,581 |
Fair Value, Recurring | Level 2 | Certificates of deposit | ||
Assets | ||
Investments | $ 1,305 | $ 1,305 |
General - Cash And Cash Equival
General - Cash And Cash Equivalents (Details) $ in Millions | Jun. 30, 2020USD ($) |
Cash and Cash Equivalents | |
Excess capital and undistributed earnings for regulated subsidiaries included in cash and cash equivalents | $ 29 |
General - Investments - Realize
General - Investments - Realized Gains or Losses (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Realized gains or losses | ||
Realized gains or losses | $ 0 | $ 0 |
General - Investments - Amortiz
General - Investments - Amortized Cost (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Amortized cost | ||
Amortized Cost | $ 75,500 | $ 101,599 |
Gross Unrealized Gains | 179 | 78 |
Gross Unrealized Losses | (8) | (16) |
Estimated Fair Value | 75,671 | 101,661 |
U.S. Government and agency securities | ||
Amortized cost | ||
Amortized Cost | 32,066 | 30,742 |
Gross Unrealized Gains | 108 | 38 |
Gross Unrealized Losses | (5) | |
Estimated Fair Value | 32,174 | 30,775 |
Corporate debt securities | ||
Amortized cost | ||
Amortized Cost | 42,129 | 69,552 |
Gross Unrealized Gains | 71 | 40 |
Gross Unrealized Losses | (8) | (11) |
Estimated Fair Value | 42,192 | 69,581 |
Certificates of deposit | ||
Amortized cost | ||
Amortized Cost | 1,305 | 1,305 |
Estimated Fair Value | $ 1,305 | $ 1,305 |
General - Investments by Maturi
General - Investments by Maturity Date (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Amortized Cost | ||
2020 | $ 63,787 | |
2021 | 11,713 | |
Amortized Cost | 75,500 | $ 101,599 |
Estimated Fair Value | ||
2020 | 63,901 | |
2021 | 11,770 | |
Estimated Fair Value | $ 75,671 | $ 101,661 |
General - Income Taxes - Effect
General - Income Taxes - Effective Income Tax Rates (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Income Taxes | ||
Effective income tax rates (as a percent) | (197.60%) | 163.00% |
Deferred tax assets after valuation allowances | $ 38.9 |
General - Income Taxes - Net Op
General - Income Taxes - Net Operating Loss Carryforwards (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Operating loss carryforwards | ||
Operating Loss Carryforwards | $ 16.2 | |
Additional valuation allowance for federal net operating loss carryforwards | 2.1 | $ 2.1 |
State | ||
Operating loss carryforwards | ||
Operating Loss Carryforwards | 89 | |
State | MCC Business | Discontinued Operations, Held-for-sale | ||
Operating loss carryforwards | ||
Operating Loss Carryforwards | $ 17.1 |
General - Health Care Reform (D
General - Health Care Reform (Details) $ in Millions | 6 Months Ended |
Jun. 30, 2020USD ($) | |
HIF fees | $ 36.2 |
Accrued Liabilities | |
HIF fees | 12.4 |
Liabilities Held For Sale | |
HIF fees | $ 23.8 |
General - Stock Compensation -
General - Stock Compensation - Stock Compensation Expense (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Stock Compensation | ||||
Stock compensation expense | $ 7 | $ 5.4 | $ 13 | $ 15 |
Stock Compensation Expense Discontinued Operations | $ 0.4 | $ 0.2 | $ 0.6 | $ 0.4 |
Minimum | ||||
Stock Compensation | ||||
Estimated forfeitures (as a percent) | 0.00% | 0.00% | 0.00% | 0.00% |
Maximum | ||||
Stock Compensation | ||||
Estimated forfeitures (as a percent) | 4.00% | 4.00% | 4.00% | 4.00% |
General - Stock Compensation _2
General - Stock Compensation - Options - Fair Value Assumptions (Details) | 6 Months Ended |
Jun. 30, 2020$ / shares | |
Fair Value Assumptions | |
Grants in period, weighted average grant date fair value (in dollars per share) | $ 18.55 |
Stock options | |
Fair Value Assumptions | |
Expected volatility (as a percent) | 35.56% |
General - Stock Compensation _3
General - Stock Compensation - Options - Benefit of Tax (Tax on Deficiencies) (Details) - USD ($) $ in Millions | 6 Months Ended | |
Jun. 30, 2020 | Jun. 30, 2019 | |
Stock Compensation | ||
Benefits of tax deductions (tax on deficiencies) in excess of recognized stock compensation expense | $ 1.7 | $ 1.6 |
General - Stock Compensation _4
General - Stock Compensation - Options - Activity (Details) - $ / shares | 6 Months Ended |
Jun. 30, 2020 | |
Options | |
Outstanding, beginning of period (in shares) | 2,125,861 |
Granted (in shares) | 63,771 |
Forfeited (in shares) | (23,638) |
Exercised (in shares) | (541,148) |
Outstanding, end of period (in shares) | 1,624,846 |
Weighted Average Exercise Price | |
Outstanding, beginning of period (in dollars per share) | $ 69.22 |
Granted (in dollars per share) | 62.93 |
Forfeited (in dollars per share) | 83.80 |
Exercised (in dollars per share) | 58.22 |
Outstanding, end of period (in dollars per share) | $ 72.42 |
Vested and Expected to Vest | |
Vested and expected to vest end of period (in shares) | 1,617,751 |
Vested and expected to vest end of period (in dollars per share) | $ 72.43 |
Exercisable, end of period (in shares) | 1,287,233 |
Exercisable, end of period (in dollars per share) | $ 72.52 |
General - Stock Compensation _5
General - Stock Compensation - Options - Vesting Periods (Details) - Stock options | 6 Months Ended |
Jun. 30, 2020 | |
Stock Compensation | |
Vesting period | 3 years |
Life of options (expiration period) | 10 years |
General - Stock Compensation _6
General - Stock Compensation - Nonvested - Activity (Details) | 6 Months Ended |
Jun. 30, 2020$ / sharesshares | |
Restricted Stock Awards | |
Shares | |
Outstanding, beginning of period (in shares) | shares | 39,761 |
Awarded (in shares) | shares | 16,976 |
Vested (in shares) | shares | (18,008) |
Outstanding, end of period (in shares) | shares | 38,729 |
Weighted Average Grant Date Fair Value | |
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 65.40 |
Awarded (in dollars per share) | $ / shares | 70.70 |
Vested (in dollars per share) | $ / shares | 66.66 |
Outstanding, end of period (in dollars per share) | $ / shares | $ 67.14 |
Restricted Stock Units (RSUs) | |
Shares | |
Outstanding, beginning of period (in shares) | shares | 256,430 |
Awarded (in shares) | shares | 316,495 |
Vested (in shares) | shares | (100,416) |
Forfeited (in shares) | shares | (12,096) |
Outstanding, end of period (in shares) | shares | 460,413 |
Weighted Average Grant Date Fair Value | |
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 74.12 |
Awarded (in dollars per share) | $ / shares | 61.07 |
Vested (in dollars per share) | $ / shares | 74.93 |
Forfeited (in dollars per share) | $ / shares | 72.70 |
Outstanding, end of period (in dollars per share) | $ / shares | $ 65.01 |
Performance Based Restricted Stock Units ("PSUs") | |
Shares | |
Outstanding, beginning of period (in shares) | shares | 248,559 |
Awarded (in shares) | shares | 133,752 |
Vested (in shares) | shares | (52,861) |
Forfeited (in shares) | shares | (31,793) |
Outstanding, end of period (in shares) | shares | 297,657 |
Weighted Average Grant Date Fair Value | |
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 104.27 |
Awarded (in dollars per share) | $ / shares | 75.65 |
Vested (in dollars per share) | $ / shares | 76.24 |
Forfeited (in dollars per share) | $ / shares | 79.22 |
Outstanding, end of period (in dollars per share) | $ / shares | $ 99.06 |
General - Stock Compensation _7
General - Stock Compensation - Restricted Stock Units (Details) | 6 Months Ended |
Jun. 30, 2020 | |
Restricted Stock Units (RSUs) | |
Stock Compensation | |
Vesting period | 3 years |
General - Stock Compensation _8
General - Stock Compensation - Performance-Based Restricted Stock Units - General Information (Details) - Performance Based Restricted Stock Units ("PSUs") | 6 Months Ended |
Jun. 30, 2020companyD | |
Stock options, Non vested restricted stock awards and nonvested restricted stock units | |
Number of trading days considered for average share value | D | 30 |
Number of companies in peer group | company | 48 |
Performance period | 3 years |
Minimum | |
Stock options, Non vested restricted stock awards and nonvested restricted stock units | |
Shares to be settled (as a percent) | 0.00% |
Maximum | |
Stock options, Non vested restricted stock awards and nonvested restricted stock units | |
Shares to be settled (as a percent) | 200.00% |
General - Stock Compensation _9
General - Stock Compensation - Performance-Based Restricted Stock Units - Fair Value Assumptions (Details) - Performance Based Restricted Stock Units ("PSUs") | 6 Months Ended |
Jun. 30, 2020$ / shares | |
Fair Value Assumptions | |
Weighted average estimated fair value of the PSUs granted (in dollars per share) | $ 75.65 |
Expected dividend yield (as a percent) | 0.00% |
Risk-free interest rate (as a percent) | 0.68% |
Expected volatility, minimum (as a percent) | 20.00% |
Expected volatility, maximum (as a percent) | 70.00% |
Expected volatility (as a percent) | 35.00% |
General - Goodwill (Details)
General - Goodwill (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Goodwill | ||
Goodwill | $ 806,421 | $ 806,421 |
Pharmacy Management | ||
Goodwill | ||
Goodwill | $ 395,600 | |
Reporting Unit, Name of Segment | mgln:PharmacyManagementMember |
General - Long-Term Debt, Finan
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Senior Notes (Details) - Senior Notes - 4.400% Senior Notes due 2024 - USD ($) $ in Millions | 6 Months Ended | 12 Months Ended | |
Jun. 30, 2020 | Dec. 31, 2019 | Sep. 22, 2017 | |
Debt | |||
Debt instrument, face amount | $ 400 | ||
Stated interest rate (as a percent) | 4.40% | ||
Debt instrument, repurchased face amount | $ 28.9 | $ 11.1 | |
Gain (loss) on repurchase of debt instrument | 0.7 | 0.3 | |
Long-term debt | $ 359.6 | $ 388.4 | |
Debt instrument, maturity date | Sep. 22, 2024 | ||
Redemption price of the principal amount redeemed (as a percent) | 100.00% |
General - Long-Term Debt, Fin_2
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - General Information (Details) - USD ($) $ in Millions | Aug. 12, 2018 | Sep. 22, 2017 | Aug. 31, 2019 | Jun. 30, 2020 |
Debt | ||||
Voluntary term loan repayments | $ 30 | |||
Unsecured Debt | 2017 Credit Agreement | ||||
Debt | ||||
Debt instrument, maturity date | Sep. 22, 2022 | Sep. 22, 2022 | Sep. 22, 2023 | |
Unsecured Debt | 2017 Credit Agreement, senior unsecured revolving credit facility | ||||
Debt | ||||
Maximum borrowing capacity | $ 400 | |||
Commitment commission (as a percent) | 0.20% | |||
Weighted average interest rate (as a percent) | 3.3217% | |||
Unsecured Debt | 2017 Credit Agreement, senior unsecured term loan facility | ||||
Debt | ||||
Maximum borrowing capacity | $ 350 | |||
Unsecured Debt | 2017 Credit Agreement, senior unsecured term loan facility | Prime rate | ||||
Debt | ||||
Basis spread on variable rate (as a percent) | 0.50% | |||
Unsecured Debt | 2017 Credit Agreement, senior unsecured term loan facility | Federal Funds Rate | ||||
Debt | ||||
Basis spread on variable rate (as a percent) | 0.50% | |||
Unsecured Debt | 2017 Credit Agreement, senior unsecured term loan facility | Eurodollar rate for one month | ||||
Debt | ||||
Basis spread on variable rate (as a percent) | 1.00% | |||
Unsecured Debt | 2017 Credit Agreement, senior unsecured term loan facility | Eurodollar rate for selected interest period | ||||
Debt | ||||
Basis spread on variable rate (as a percent) | 1.50% |
General - Long-Term Debt, Fin_3
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - Contractual Maturities (Details) - Unsecured Debt $ in Millions | Jun. 30, 2020USD ($) |
2017 Credit Agreement | |
Long-term Debt, Fiscal Year Maturity | |
Long-term Debt | $ 271.9 |
2017 Credit Agreement, senior unsecured term loan facility | |
Long-term Debt, Fiscal Year Maturity | |
2020 | 0 |
2021 | 0 |
2022 | 13.8 |
2023 | $ 258.1 |
General - Long-Term Debt, Fin_4
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - Additional Information (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Debt | ||
Deferred loan issuance cost | $ 4.9 | $ 5.7 |
Unsecured Debt | 2017 Credit Agreement | ||
Debt | ||
Available borrowing capacity | 320 | |
Unsecured Debt | 2017 Credit Agreement, senior unsecured revolving credit facility | ||
Debt | ||
Revolving borrowings outstanding | $ 0 | |
Available borrowing capacity | $ 80 |
General - Long-Term Debt, Fin_5
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Letter of Credit Agreement (Details) - USD ($) $ in Millions | Jun. 30, 2020 | Dec. 31, 2019 |
Long Term Debt, Capital Lease and Deferred Financing Obligations | ||
Letters of credit outstanding | $ 32.1 | $ 66.4 |
General - Long-Term Debt, Fin_6
General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Finance Lease (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Leases | ||
Finance lease liability | $ 19,013 | $ 18,100 |
Gross cost of finance leased assets | $ 61,600 | $ 56,000 |
Net Income per Common Share A_3
Net Income per Common Share Attributable to Magellan Health, Inc. - Tabular Disclosure (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Numerator: | ||||
Net income from continuing operations | $ 47,108 | $ 7,215 | $ 46,038 | $ (976) |
Income from discontinued operations, net of tax | 36,397 | 6,398 | 55,717 | 15,020 |
Net income | $ 83,505 | $ 13,613 | $ 101,755 | $ 14,044 |
Denominator: | ||||
Weighted average number of common shares outstanding-basic | 25,054 | 24,101 | 24,891 | 24,024 |
Common stock equivalents-stock options (in shares) | 31 | 153 | 46 | 132 |
Common stock equivalents-RSAs (in shares) | 28 | 7 | 25 | 7 |
Common stock equivalents-RSUs (in shares) | 46 | 18 | 48 | 19 |
Common stock equivalents-PSUs (in shares) | 118 | 130 | 59 | 127 |
Common stock equivalents-employee stock purchase plan (in shares) | 1 | 7 | 5 | 6 |
Weighted average number of common shares outstanding-diluted (in shares) | 25,278 | 24,416 | 25,074 | 24,315 |
Net income per common share - basic: | ||||
Continuing operations (in dollars per share) | $ 1.88 | $ 0.30 | $ 1.85 | $ (0.04) |
Discontinued operations (in dollars per share) | 1.45 | 0.26 | 2.24 | 0.62 |
Consolidated operations (in dollars per share) | 3.33 | 0.56 | 4.09 | 0.58 |
Net Income (Loss) Available to Common Stockholders, Operations, Diluted [Abstract] | ||||
Continuing operations (in dollars per share) | 1.86 | 0.30 | 1.84 | (0.04) |
Discontinued operations (in dollars per share) | 1.44 | 0.26 | 2.22 | 0.62 |
Consolidated operations (in dollars per share) | $ 3.30 | $ 0.56 | $ 4.06 | $ 0.58 |
Net Income per Common Share A_4
Net Income per Common Share Attributable to Magellan Health, Inc. - Antidilutive Securities (Details) - shares shares in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Stockholders' Equity | ||||
Potential dilutive securities excluded from computation of dilutive securities (in shares) | 1.3 | 1.1 | 1.4 | 1.1 |
Business Segment Information -
Business Segment Information - Operating Results by Business Segment (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Operating results by business segment | ||||
Net revenue | $ 1,100,075 | $ 1,154,289 | $ 2,222,454 | $ 2,273,295 |
Cost of care | (321,831) | (408,911) | (670,939) | (778,008) |
Cost of goods sold | (528,067) | (501,081) | (1,061,308) | (1,027,395) |
Direct service costs and other | (199,756) | (195,907) | (403,997) | (398,207) |
Stock compensation expense | 6,592 | 5,207 | 12,389 | 14,607 |
Segment Profit (Loss) | 57,013 | 53,597 | 98,599 | 84,292 |
Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 548,711 | 608,614 | 1,101,879 | 1,175,162 |
PBM | ||||
Operating results by business segment | ||||
Net revenue | 551,364 | 545,675 | 1,120,575 | 1,098,133 |
Healthcare | ||||
Operating results by business segment | ||||
Net revenue | 481,021 | 546,113 | 969,927 | 1,052,935 |
Pharmacy Management | ||||
Operating results by business segment | ||||
Net revenue | 624,062 | 612,658 | 1,262,275 | 1,229,118 |
Operating Segments | Healthcare | ||||
Operating results by business segment | ||||
Cost of care | (321,831) | (408,911) | (670,939) | (778,008) |
Direct service costs and other | (100,450) | (98,314) | (206,386) | (198,424) |
Stock compensation expense | 2,102 | 2,237 | 3,863 | 3,780 |
Segment Profit (Loss) | 60,842 | 41,125 | 96,465 | 80,283 |
Operating Segments | Healthcare | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 481,021 | 546,113 | 969,927 | 1,052,935 |
Operating Segments | Pharmacy Management | ||||
Operating results by business segment | ||||
Cost of goods sold | (532,685) | (505,203) | (1,070,259) | (1,035,410) |
Direct service costs and other | (80,082) | (78,776) | (161,948) | (158,411) |
Stock compensation expense | 1,939 | 2,124 | 4,046 | 3,796 |
Segment Profit (Loss) | 13,234 | 30,803 | 34,114 | 39,093 |
Operating Segments | Pharmacy Management | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | 67,867 | 62,648 | 132,302 | 122,543 |
Operating Segments | Pharmacy Management | PBM | ||||
Operating results by business segment | ||||
Net revenue | 556,195 | 550,010 | 1,129,973 | 1,106,575 |
Corporate and Eliminations | ||||
Operating results by business segment | ||||
Cost of goods sold | 4,618 | 4,122 | 8,951 | 8,015 |
Direct service costs and other | (19,224) | (18,817) | (35,663) | (41,372) |
Stock compensation expense | 2,551 | 846 | 4,480 | 7,031 |
Segment Profit (Loss) | (17,063) | (18,331) | (31,980) | (35,084) |
Corporate and Eliminations | Managed care and other | ||||
Operating results by business segment | ||||
Net revenue | (177) | (147) | (350) | (316) |
Corporate and Eliminations | PBM | ||||
Operating results by business segment | ||||
Net revenue | $ (4,831) | $ (4,335) | $ (9,398) | $ (8,442) |
Business Segment Information _2
Business Segment Information - Reconciliation of Segment Profit to Income Before Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Reconciliation of segment profit to income before income taxes | ||||
Income from continuing operations before income taxes | $ 10,780 | $ 12,950 | $ 15,472 | $ 1,550 |
Stock compensation expense | 6,592 | 5,207 | 12,389 | 14,607 |
Depreciation and amortization | 23,888 | 28,191 | 47,246 | 53,608 |
Interest expense | 7,995 | 9,070 | 16,953 | 18,107 |
Interest and other income | (551) | (1,821) | (1,770) | (3,580) |
Special charges | 8,309 | 8,309 | ||
Segment Profit (Loss) | $ 57,013 | $ 53,597 | $ 98,599 | $ 84,292 |
Commitments and Contingencies -
Commitments and Contingencies - Regulatory Issues (Details) | 6 Months Ended | 12 Months Ended |
Jun. 30, 2020 | Dec. 31, 2019 | |
AFSC | ||
Acquisitions | ||
Percentage of total revenues attributable to subsidiary | 2.50% | 3.00% |
Commitments and Contingencies_2
Commitments and Contingencies - Stock Repurchases - General Information (Details) - October 2015 Share Repurchase Program - USD ($) $ in Millions | May 24, 2018 | Jun. 30, 2020 | Oct. 26, 2015 |
Equity, Class of Treasury Stock [Line Items] | |||
Amount authorized under stock repurchase plan | $ 400 | $ 200 | |
Increase in amount authorized under stock repurchase plan | $ 200 | ||
Remaining authorized repurchase amount | $ 186.3 |
Commitments and Contingencies_3
Commitments and Contingencies - Stock Repurchases - Tabular Disclosure (Details) - USD ($) $ / shares in Units, $ in Millions | 1 Months Ended | 2 Months Ended | 12 Months Ended | 56 Months Ended | |||
Jul. 31, 2020 | Dec. 31, 2015 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Jun. 30, 2020 | |
Stockholders' Equity | |||||||
Share repurchases made in open market (in shares) | 0 | 345,044 | 60,901 | 844,872 | 280,140 | 1,828,183 | 3,359,140 |
Average Price Paid per Share (in dollars per share) | $ 53.46 | $ 61.15 | $ 74.59 | $ 77.67 | $ 58.40 | ||
Aggregate Cost | $ 18.4 | $ 3.7 | $ 63 | $ 21.8 | $ 106.8 | $ 213.7 |
Discontinued Operations - Gener
Discontinued Operations - General Information (Details) $ in Millions | Apr. 30, 2020USD ($) |
MCC Business | Discontinued Operations, Held-for-sale | |
Discontinued Operations | |
Disposal Group, Including Discontinued Operation, Consideration | $ 850 |
Discontinued Operations - Major
Discontinued Operations - Major Classes of Assets and Liabilities Held for Sale (Details) - USD ($) $ in Thousands | Jun. 30, 2020 | Dec. 31, 2019 |
Assets Held For Sale | ||
Less: current portion | $ 1,145,904 | $ 663,276 |
Total Assets Held For Sale, Less Current Portion | 335,713 | |
Liabilities Held For Sale | ||
Less: current portion | 504,459 | 409,983 |
Total Liabilities Held For Sale, Less Current Portion | 37,301 | |
MCC Business | Discontinued Operations, Held-for-sale | ||
Assets Held For Sale | ||
Cash and cash equivalents | 235,873 | 209,497 |
Accounts receivable, net | 163,216 | 209,496 |
Investments | 398,741 | 243,496 |
Property and equipment, net | 7,477 | 6,710 |
Goodwill | 211,735 | 211,735 |
Other intangible assets, net | 76,628 | 85,669 |
Other assets | 52,234 | 32,386 |
Total Assets Held For Sale | 1,145,904 | 998,989 |
Less: current portion | 1,145,904 | 663,276 |
Total Assets Held For Sale, Less Current Portion | 335,713 | |
Restricted cash and cash equivalents | 69,971 | 95,202 |
Restricted investments | 343,348 | 243,496 |
Restricted other assets | 2,387 | 2,387 |
Liabilities Held For Sale | ||
Accounts payable | 3,449 | 4,625 |
Accrued liabilities | 145,558 | 92,170 |
Medical claims payable | 271,998 | 281,419 |
Other medical liabilities | 50,384 | 31,769 |
Deferred income taxes | 13,910 | 15,063 |
Tax contingencies | 5,462 | 5,388 |
Deferred credits and other long-term liabilities | 13,698 | 16,850 |
Total Liabilities Held For Sale | 504,459 | 447,284 |
Less: current portion | $ 504,459 | 409,983 |
Total Liabilities Held For Sale, Less Current Portion | $ 37,301 |
Discontinued Operations - Compo
Discontinued Operations - Components of Income from Discontinued Operations - Tabular Disclosure (Details) - MCC Business - Discontinued Operations, Held-for-sale - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Discontinued Operations | ||||
Managed care and other revenue | $ 735,357 | $ 674,760 | $ 1,455,391 | $ 1,332,385 |
Cost of care | 573,374 | 592,975 | 1,175,908 | 1,165,839 |
Direct service costs and other operating expenses | 92,078 | 71,346 | 176,575 | 141,591 |
Depreciation and amortization | 5,379 | 5,299 | 10,705 | 10,590 |
Interest expense | 18 | 71 | 89 | 141 |
Interest and other income | (1,478) | (3,200) | (4,018) | (6,415) |
Total costs and expenses | (669,371) | (666,491) | (1,359,259) | (1,311,746) |
Income from discontinued operation before income taxes | 65,986 | 8,269 | 96,132 | 20,639 |
Provision for income taxes | 29,589 | 1,871 | 40,415 | 5,619 |
Net income from discontinued operations | $ 36,397 | $ 6,398 | $ 55,717 | $ 15,020 |
Discontinued Operations - Com_2
Discontinued Operations - Components of Income from Discontinued Operations - Additional Information (Details) - MCC Business - Discontinued Operations, Held-for-sale - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Discontinued Operations | ||||
Stock compensation expense | $ 366 | $ 207 | $ 626 | $ 414 |
Changes in fair value of contingent consideration | $ (2,149) | $ (2,005) | ||
Divestiture related expenses | $ 3,353 | $ 3,958 |
Discontinued Operations - Addit
Discontinued Operations - Additional Information (Details) - MCC Business - Discontinued Operations, Held-for-sale - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2020 | Jun. 30, 2019 | Jun. 30, 2020 | Jun. 30, 2019 | |
Discontinued Operations | ||||
Overhead expenses previously allocated | $ 7 | $ 8.5 | $ 13.7 | $ 17.5 |
Excess capital and undistributed earnings | $ 160 |
Special Charges (Details)
Special Charges (Details) $ in Thousands | 3 Months Ended | 6 Months Ended |
Jun. 30, 2020USD ($) | Jun. 30, 2020USD ($) | |
Special Charges | ||
Special charges | $ 8,309 | $ 8,309 |
Transformation initiative liabilities | $ 9,600 | $ 9,600 |