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General (Policies)

9 Months Ended

Sep. 30, 2011

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, valuation allowances for deferred tax assets, valuation of goodwill and intangible assets, medical claims payable, other medical liabilities, stock compensation assumptions, tax contingencies and legal liabilities. Actual results could differ from those estimates.

Revenue recognition

Managed Care Revenue

Managed care revenue, inclusive of revenue from the Company's risk, EAP and ASO contracts, is recognized over the applicable coverage period on a per member basis for covered members. The Company is paid a per member fee for all enrolled members, and this fee is recorded as revenue in the month in which members are entitled to service. The Company adjusts its revenue for retroactive membership terminations, additions and other changes, when such adjustments are identified, with the exception of retroactivity that can be reasonably estimated. The impact of retroactive rate amendments is generally recorded in the accounting period that terms to the amendment are finalized, and that the amendment is executed. Any fees paid prior to the month of service are recorded as deferred revenue. Managed care revenues approximated $610.3 million and $1,784.9 million for the three and nine months ended September 30, 2010, respectively, and $533.3 million and $1,627.9 million for the three and nine months ended September 30, 2011, respectively.

Fee-For-Service and Cost-Plus Contracts

The Company has certain FFS contracts, including cost-plus contracts, with customers under which the Company recognizes revenue as services are performed and as costs are incurred. Revenues from fee-for-service and cost-plus contracts approximated $47.0 million and $145.3 million for the three and nine months ended September 30, 2010, respectively, and $45.0 million and $131.3 million for the three and nine months ended September 30, 2011, respectively.

Block Grant Revenues

The Maricopa Contract is partially funded by federal, state and county block grant money, which represents annual appropriations. The Company recognizes revenue from block grant activity ratably over the period to which the block grant funding applies. Block grant revenues were approximately $26.0 million and $82.8 million for the three and nine months ended September 30, 2010, respectively, and $31.8 million and $85.0 million for the three and nine months ended September 30, 2011, respectively.

Dispensing Revenue

The Company recognizes dispensing revenue, which includes the co-payments received from members of the health plans the Company serves, when the specialty pharmaceutical drugs are shipped. At the time of shipment, the earnings process is complete; the obligation of the Company's customer to pay for the specialty pharmaceutical drugs is fixed, and, due to the nature of the product, the member may neither return the specialty pharmaceutical drugs nor receive a refund. Revenues from the dispensing of specialty pharmaceutical drugs on behalf of health plans were $58.6 million and $178.3 million for the three and nine months ended September 30, 2010, respectively, and $61.8 million and $178.7 million for the three and nine months ended September 30, 2011, respectively.

Performance-Based Revenue

The Company has the ability to earn performance-based revenue under certain risk and non-risk contracts. Performance-based revenue generally is based on either the ability of the Company to manage care for its clients below specified targets, or on other operating metrics. For each such contract, the Company estimates and records performance-based revenue after considering the relevant contractual terms and the data available for the performance-based revenue calculation. Pro-rata performance-based revenue is recognized on an interim basis pursuant to the rights and obligations of each party upon termination of the contracts. Performance-based revenues were $2.9 million and $8.7 million for the three and nine months ended September 30, 2010, respectively, and $2.4 million and $15.6 million for the three and nine months ended September 30, 2011, respectively.

Significant Customers

Consolidated Company

The Maricopa Contract generated net revenues that exceeded, in the aggregate, ten percent of net revenues for the consolidated Company for the nine months ended September 30, 2010 and 2011.

Pursuant to the Maricopa Contract, the Company provides behavioral healthcare management and other related services to approximately 719,000 members in Maricopa County, Arizona. Under the Maricopa Contract, the Company is responsible for providing covered behavioral health services to persons eligible under Title XIX (Medicaid) and Title XXI (State Children's Health Insurance Program) of the Social Security Act, non-Title XIX and non-Title XXI eligible children and adults with a serious mental illness, and to certain non-Title XIX and non-Title XXI adults with behavioral health or substance abuse disorders. The Maricopa Contract began on September 1, 2007 and extends through September 30, 2013 unless sooner terminated by the parties. The State of Arizona has the right to terminate the Maricopa Contract for cause, as defined, upon ten days' notice with an opportunity to cure, and without cause immediately upon notice from the State. The Maricopa Contract generated net revenues of $602.4 million and $570.1 million for the nine months ended September 30, 2010 and 2011, respectively.

One of the Company's top ten customers during 2010 was WellPoint, Inc. The Company recorded net revenue from contracts with WellPoint, Inc. of $130.9 million for the nine months ended September 30, 2010. The Company's contracts with WellPoint, Inc. terminated on December 31, 2010.

By Segment

In addition to the Maricopa Contract previously discussed, the following customers generated in excess of ten percent of net revenues for the respective segment for the nine months ended September 30, 2010 and 2011 (in thousands):

Segment		Term Date	2010			2011

Commercial
	Customer A	December 31, 2012	$	189,949		$	131,633
	Customer B	June 30, 2014		54,822			50,089
	Customer C	June 30, 2012 to November 30, 2013(1)		40,303	*		82,695
Public Sector
	Customer D	June 30, 2012(2)		113,540			135,597
Radiology Benefits Management
	WellPoint, Inc.	December 31, 2010(3)		119,155			—
	Customer E	November 30, 2012 to April 30, 2013(1)		84,435			100,575
	Customer F	June 30, 2011 to November 30, 2011(1)(4)		50,982			34,271
	Customer G	June 30, 2014		40,203			40,928
	Customer H	March 31, 2013		4,057	*		25,708
Specialty Pharmaceutical Management
	Customer I	November 30, 2011 to March 31, 2012(1)		65,421			64,731
	Customer J	September 1, 2011 to April 29, 2012(1)		43,246			41,704
	Customer E	February 1, 2012 to April 30, 2013(1)		26,937			19,499	*
Medicaid Administration
	Customer K	December 4, 2011(4)		23,531			22,193
	Customer L	September 30, 2013(5)		6,647	*		61,543
	Customer M	September 30, 2011 to June 30, 2017(1)		17,905			18,635
	Customer N	August 31, 2011 to June 30, 2013(1)		16,357			13,689	*
	Customer O	June 30, 2013 to September 30, 2014(1)		12,097			17,221

*: Revenue amount did not exceed ten percent of net revenues for the respective segment for the period presented. Amount is shown for comparative purposes only.
(1): The customer has more than one contract. The individual contracts are scheduled to terminate at various points during the time period indicated above.
(2): Contract has options for the customer to extend the term for three additional one-year periods.
(3): The contract has terminated.

(4): The customer has informed the Company that this contract will not be renewed.
(5): This customer represents a subcontract with a Public Sector customer and is eliminated in consolidation.

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, and with various areas in the State of Florida (the "Florida Areas") which are part of the Florida Medicaid program. Net revenues from the Pennsylvania Counties in the aggregate totaled $255.0 million and $265.1 million for the nine months ended September 30, 2010 and 2011, respectively. Net revenues from the Florida Areas in the aggregate totaled $106.0 million and $100.0 million for the nine months ended September 30, 2010 and 2011, respectively.

The Company's contracts with customers typically have terms of one to three years, and in certain cases contain renewal provisions (at the customer's option) for successive terms of between one and two years (unless terminated earlier). Substantially all of these contracts may be immediately terminated with cause and many of the Company's contracts are terminable without cause by the customer or the Company either upon the giving of requisite notice and the passage of a specified period of time (typically between 60 and 180 days) or upon the occurrence of other specified events. In addition, the Company's contracts with federal, state and local governmental agencies generally are conditioned on legislative appropriations. These contracts generally can be terminated or modified by the customer if such appropriations are not made.

Fair Value Measurements

Fair Value Measurements

The Company currently does not have non-financial assets and non-financial liabilities that are required to be measured at fair value on a recurring basis. Financial assets and liabilities are to be measured using inputs from the three levels of the fair value hierarchy, which are as follows:

        Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

        Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

        Level 3—Unobservable inputs that reflect the Company's assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including the Company's data.

In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value as of December 31, 2010 and September 30, 2011 (in thousands):

		Fair Value Measurements

		Level 1		Level 2		Level 3		Total
Cash and Cash Equivalents(1)		$	—	$	68,726	$	—	$	68,726
Restricted Cash(2)			—		72,698		—		72,698
Investments:
U.S. Government and agency securities			2,179		—		—		2,179
Obligations of government-sponsored enterprises(3)			—		10,138		—		10,138
Corporate debt securities			—		268,769		—		268,769
Certificates of deposit			—		750		—		750
Taxable municipal bonds			—		2,668		—		2,668

	December 31, 2010	$	2,179	$	423,749	$	—	$	425,928

		Level 1		Level 2		Level 3		Total

Cash and Cash Equivalents(4)		$	—	$	7,732	$	—	$	7,732
Restricted Cash(5)			—		32,524		—		32,524
Investments:
U.S. Government and agency securities			698		—		—		698
Obligations of government-sponsored enterprises(6)			—		11,161		—		11,161
Corporate debt securities			—		242,090		—		242,090
Certificates of deposit			—		200		—		200

	September 30, 2011	$	698	$	293,707	$	—	$	294,405

(1): Excludes $268.5 million of cash held in bank accounts by the Company.
(2): Excludes $44.0 million of restricted cash held in bank accounts by the Company.
(3): Includes investments in notes issued by the Federal Home Loan Mortgage Corporation and the Federal Home Loan Bank.
(4): Excludes $134.7 million of cash held in bank accounts by the Company.
(5): Excludes $123.1 million of restricted cash held in bank accounts by the Company.

(6): Includes investments in notes issued by the Federal Home Loan Bank.

For the nine months ended September 30, 2011, the Company has not transferred any assets between fair value measurement levels.

All of the Company's investments are classified as "available-for-sale" and are carried at fair value. Securities which have been classified as Level 1 are measured using quoted market prices while those which have been classified as Level 2 are measured using quoted prices for similar assets and liabilities in active markets. The Company's policy is to classify all investments with contractual maturities within one year as current. Investment income is recognized when earned and reported net of investment expenses. Net unrealized holding gains or losses are excluded from earnings and are reported, net of tax, as "accumulated other comprehensive income (loss)" in the accompanying consolidated balance sheets and consolidated statements of income until realized, unless the losses are deemed to be other-than-temporary. Realized gains or losses, including any provision for other-than-temporary declines in value, are included in the consolidated statements of income.

If a debt security is in an unrealized loss position and the Company has the intent to sell the debt security, or it is more likely than not that the Company will have to sell the debt security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses recognized in income in the consolidated statements of income. For impaired debt securities that the Company does not intend to sell or it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses recognized in income in the consolidated statements of income and the non-credit component of the other-than-temporary impairment is recognized in other comprehensive income.

The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the debt security. The net present value is calculated by discounting the best estimate of projected future cash flows at the effective interest rate implicit in the debt security at the date of acquisition. Cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings, and estimates regarding timing and amount of recoveries associated with a default. Furthermore, unrealized losses entirely caused by non-credit related factors related to debt securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.

As of December 31, 2010 and September 30, 2011, there were no unrealized losses that the Company believed to be other-than-temporary. No realized gains or losses were recorded for the nine months ended September 30, 2010 or 2011. The following is a summary of short-term and long-term investments at December 31, 2010 and September 30, 2011 (in thousands):

	December 31, 2010

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	2,178	$	1	$	—		$	2,179
Obligations of government-sponsored enterprises(1)		10,142		7		(11	)		10,138
Corporate debt securities		268,739		245		(215	)		268,769
Certificates of deposit		750		—		—			750
Taxable municipal bonds		2,680		—		(12	)		2,668

Total investments at December 31, 2010	$	284,489	$	253	$	(238	)	$	284,504

	September 30, 2011

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	698	$	—	$	—		$	698
Obligations of government-sponsored enterprises(2)		11,160		4		(3	)		11,161
Corporate debt securities		242,569		53		(532	)		242,090
Certificates of deposit		200		—		—			200

Total investments at September 30, 2011	$	254,627	$	57	$	(535	)	$	254,149

(1): Includes investments in notes issued by the Federal Home Loan Mortgage Corporation and the Federal Home Loan Bank.
(2): Includes investments in notes issued by the Federal Home Loan Bank.

The maturity dates of the Company's investments as of September 30, 2011 are summarized below (in thousands):

	Amortized Cost		Estimated Fair Value

2011	$	92,150	$	92,062
2012		159,009		158,644
2013		3,468		3,443

Total investments at September 30, 2011	$	254,627	$	254,149

- Definition

Disclosure of accounting policy for revenue recognition. If the entity has different policies for different types of revenue transactions, the policy for each material type of transaction is generally disclosed. If a sales transaction has multiple element arrangements (for example, delivery of multiple products, services or the rights to use assets) the disclosure may indicate the accounting policy for each unit of accounting as well as how units of accounting are determined and valued. The disclosure may encompass important judgment as to appropriateness of principles related to recognition of revenue. The disclosure also may indicate the entity's treatment of any unearned or deferred revenue that arises from the transaction.

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