On March 11, Magellan Health Services Inc.--a leading managed behavioral-health company that serves 67 million people and contracts with more than 48,000 providers--announced that it had filed for voluntary reorganization under Chapter 11 of the U.S. bankruptcy code. The company had accumulated a $1 billion debt. Through proposed restructuring plans, Magellan hopes to cut its debt roughly in half. And with support from its key creditors, the company hopes it will emerge from Chapter 11 by the end of the third quarter of this year.

The news was met with much concern in the provider community, says Shirley Ann Higuchi, JD, assistant executive director for legal and regulatory affairs in APA's Practice Directorate, especially since the rumors of the company's financial troubles had been circulating for six months prior to the filing. Would providers get paid? How much risk should providers continue to take on by continuing to contract with Magellan?

As it turns out, the filing allowed the company to continue to operate in a "business as usual" mode so far. What that means, say company spokespeople, is that providers and patients should not experience any disruption in services or payment. In fact, the bankruptcy process could make the company more stable than if it had been forced into filing for bankruptcy, which had been a fear of the provider community. Because the company filed voluntarily it was able to reach agreements with key creditors, which allowed it to continue business. According to an April 3 letter from Magellan CEO Steve Shulman to all providers, the company is paying more than 99 percent of clean claims within 30 days.

"Despite the company's predictions of increased stability now, the APA Practice Directorate does advise that practitioners reassess the risk and financial exposure related to their individual relationships with Magellan," says Higuchi. She offers the following tips:

  • File insurance claims and paperwork without delay and demand prompt payment of all claims.

  • Review participation agreements to determine whether they prohibit seeking payments directly from patients, in the event that Magellan is unable to pay at any point.

  • Check with your state psychological association to get an update on the potential impact of Magellan's financial condition in your state.

But there should be no impact on providers, according to Erin Somers, a spokesperson for the company, who says, "When we come out of this, we will have addressed our debt issue--we will have cut it in half." And that, she says, will enable the company to direct its time to "running the business and reinvesting in it."

Chief Clinical Officer Deborah Trout, PhD, a psychologist, agrees that having the debt issue out on the table and under control will allow the company to implement "more positive and innovative programs that we've been working on for the last two years."

Though the filing may have helped Magellan, Russ Newman, PhD, JD, APA's executive director for professional practice, does note that the company's financial predicament is illustrative of a managed-care industry that is in dire financial straits. "Some managed-care analysts have indicated that the industry's days are numbered," he says. Until then, the Practice Directorate will monitor Magellan's situation and that of the industry.

Further Reading

Practitioners can check www.APAPractice.org for updates on Magellan.