10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
Or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 1-6639

MAGELLAN HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	58-1076937 (IRS Employer Identification No.)
4801 E. Washington Street Phoenix, Arizona (Address of principal executive offices)	85034 (Zip code)

(800) 642-1716

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MGLN	The NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange

Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Magellan Health, Inc.’s common stock outstanding as of March 31, 2021 was 26,126,570.

FORM 10-Q

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

INDEX

		Page No.
	PART I — Financial Information:
Item 1:	Financial Statements	2
	Consolidated Balance Sheets—December 31, 2020 and March 31, 2021	2
	Consolidated Statements of Comprehensive Income —For the Three Months Ended March 31, 2020 and 2021	3
	Consolidated Statements of Changes in Stockholders’ Equity—For the Three Months Ended March 31, 2020 and 2021	4
	Consolidated Statements of Cash Flows—For the Three Months Ended March 31, 2020 and 2021	5
	Notes to Consolidated Financial Statements	6
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4:	Controls and Procedures	40
	PART II — Other Information:
Item 1:	Legal Proceedings	40
Item 1A:	Risk Factors	40
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3:	Defaults Upon Senior Securities	41
Item 4:	Mine Safety Disclosures	41
Item 5:	Other Information	41
Item 6:	Exhibits	41
Exhibit Index		42
Signatures		43

1

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,		March 31,
	2020		2021
			(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ($49,227 and $75,458 restricted at December 31, 2020 and March 31, 2021, respectively)	$	1,144,450	$	456,309
Accounts receivable, net		743,502		793,504
Short-term investments ($88,867 and $74,312 restricted at December 31, 2020 and March 31, 2021, respectively)		140,847		625,600
Pharmaceutical inventory		43,334		46,389
Other current assets ($43,547 and $51,511 restricted at December 31, 2020 and March 31, 2021, respectively)		84,264		101,462
Total Current Assets		2,156,397		2,023,264
Property and equipment, net		136,739		142,084
Long-term investments ($1,026 and $2,615 restricted at December 31, 2020 and March 31, 2021, respectively)		2,612		4,830
Deferred income taxes		1,842		921
Other long-term assets		108,797		119,947
Goodwill		873,779		873,830
Other intangible assets, net		79,689		71,631
Total Assets	$	3,359,855	$	3,236,507
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	137,380	$	149,760
Accrued liabilities		354,906		266,217
Medical claims payable		111,851		116,580
Other medical liabilities		126,921		123,109
Current debt, finance lease and deferred financing obligations		6,521		6,543
Total Current Liabilities		737,579		662,209
Long-term debt, finance lease and deferred financing obligations		631,855		526,682
Deferred income taxes		7,102		13,602
Tax contingencies		11,002		11,867
Deferred credits and other long-term liabilities		69,283		79,276
Total Liabilities		1,456,821		1,293,636
Redeemable non-controlling interest		33,062		33,303
Stockholder's Equity:
Preferred stock, par value $.01 per share
Authorized—10,000 shares at December 31, 2020 and March 31, 2021-Issued and outstanding-none		—		—
Common stock, par value $.01 per share
Authorized—100,000 shares at December 31, 2020 and March 31, 2021-Issued and outstanding-55,549 and 25,887 shares at December 31, 2020, respectively, and 55,789 and 26,127 shares at March 31, 2021, respectively		555		558
Other Stockholders’ Equity:
Additional paid-in capital		1,477,219		1,488,975
Retained earnings		1,857,130		1,884,957
Accumulated other comprehensive loss		(205)		(195)
Treasury stock, at cost, 29,662 and 29,662 shares at December 31, 2020 and March 31, 2021, respectively		(1,464,727)		(1,464,727)
Total Stockholders’ Equity		1,869,972		1,909,568
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity	$	3,359,855	$	3,236,507

See accompanying notes to consolidated financial statements.

2

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended
	March 31,
	2020		2021
Net revenue:
Managed care and other	$	553,168	$	626,076
PBM		569,211		535,573
Total net revenue		1,122,379		1,161,649
Costs, expenses and other income:
Cost of care		349,108		379,191
Cost of goods sold		533,241		492,370
Direct service costs and other operating expenses (1)		204,241		231,021
Legal matter settlement		—		(9,000)
Depreciation and amortization		23,358		21,417
Interest expense		8,958		6,426
Interest and other income		(1,219)		(341)
Special charges		—		1,151
Total costs, expenses and other income		1,117,687		1,122,235
Income from continuing operations before income taxes		4,692		39,414
Provision for income taxes		5,762		10,905
Net (loss) income from continuing operations		(1,070)		28,509
Income (loss) from discontinued operations, net of tax		19,320		(682)
Net income	$	18,250	$	27,827
Net (loss) income per common share:
Basic (See Note A)
Continuing operations	$	(0.04)	$	1.10
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.07
Diluted (See Note A)
Continuing operations	$	(0.04)	$	1.07
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.04
Other comprehensive income
Unrealized gains (losses) on available-for-sale securities (2)		(201)		10
Comprehensive income	$	18,049	$	27,837

(1) Includes stock compensation expense of $5,797 and $7,057 for the three months ended March 31, 2020 and 2021, respectively.

(2) Net of income tax (benefit) provision of $(67) and $3 for the three months ended March 31, 2020 and 2021, respectively.

See accompanying notes to consolidated financial statements.

3

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

												Accumulated
				Common Stock				Additional				Other		Total
	Common Stock				In Treasury			Paid in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Shares		Amount		Capital		Earnings		(Loss) Income		Equity
Balance at December 31, 2019	54,285	$	543		(29,662)	$	(1,464,727)	$	1,386,616	$	1,475,207	$	144	$	1,397,783
Stock compensation expense	—		—		—		—		6,057		—		—		6,057
Exercise of stock options	216		2		—		—		11,261		—		—		11,263
Issuance of equity	130		1		—		—		(1,137)		—		—		(1,136)
Net income	—		—		—		—		—		18,250		—		18,250
Other comprehensive loss—other	—		—		—		—		—		—		(201)		(201)
Adoption of ASC 326	—		—		—		—		—		(413)		—		(413)
Balance at March 31, 2020	54,631	$	546		(29,662)	$	(1,464,727)	$	1,402,797	$	1,493,044	$	(57)	$	1,431,603
Balance at December 31, 2020	55,549	$	555		(29,662)	$	(1,464,727)	$	1,477,219	$	1,857,130	$	(205)	$	1,869,972
Stock compensation expense	—		—		—		—		7,057		—		—		7,057
Exercise of stock options	110		2		—		—		7,465		—		—		7,467
Issuance of equity	130		1		—		—		(2,766)		—		—		(2,765)
Net income	—		—		—		—		—		27,827		—		27,827
Other comprehensive income—other	—		—		—		—		—		—		10		10
Balance at March 31, 2021	55,789	$	558		(29,662)	$	(1,464,727)	$	1,488,975	$	1,884,957	$	(195)	$	1,909,568

See accompanying notes to consolidated financial statements.

4

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31,

(Unaudited)

	2020		2021
Cash flows from operating activities:
Net income	$	18,250	$	27,827
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		28,684		21,417
Special charges		—		1,151
Non-cash interest expense		585		355
Non-cash stock compensation expense		6,057		7,057
Non-cash income tax provision		7,802		7,603
Non-cash accretion on investments		325		592
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net		(33,291)		(50,013)
Pharmaceutical inventory		2,629		(3,055)
Other assets		(41,862)		(27,283)
Accounts payable and accrued liabilities		52,746		(76,183)
Medical claims payable and other medical liabilities		(13,622)		917
Tax contingencies		925		680
Deferred credits and other long-term liabilities		3,003		9,993
Other		(505)		1,067
Net cash provided by (used in) operating activities		31,726		(77,875)
Net cash provided by operating activities from discontinued operations		35,805		—
Net cash used in operating activities from continuing operations		(4,079)		(77,875)
Cash flows from investing activities:
Capital expenditures		(15,719)		(19,540)
Acquisitions and investments in businesses, net of cash acquired		(369)		(2,372)
Purchases of investments		(164,311)		(673,169)
Proceeds from maturities and sales of investments		152,394		185,619
Net cash used in investing activities		(28,005)		(509,462)
Net cash used in investing activities from discontinued operations		(19,154)		—
Net cash used in investing activities from continuing operations		(8,851)		(509,462)
Cash flows from financing activities:
Proceeds from borrowings on revolving line of credit		80,000		—
Proceeds from exercise of stock options		10,903		7,467
Payments on debt, finance lease and deferred financing obligations		(34,774)		(105,506)
Other		(1,136)		(2,765)
Net cash provided by (used in) financing activities		54,993		(100,804)
Net cash provided by financing activities from discontinued operations		—		—
Net cash provided by (used in) financing activities from continuing operations		54,993		(100,804)
Net increase (decrease) in cash and cash equivalents from continuing operations		42,063		(688,141)
Cash and cash equivalents at beginning of period		115,752		1,144,450
Cash and cash equivalents at end of period	$	157,815	$	456,309
Supplemental cash flow data:
Non-cash investing activities:
Assets acquired under finance leases and deferred financing obligations	$	3,599	$	—

See accompanying notes to consolidated financial statements.

5

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021

(Unaudited)

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 months ended March 31, 2021 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 December 31, 2020, Magellan completed the sale of its Magellan Complete Care business (the “MCC Business”) to Molina Healthcare, Inc. (“Molina”), pursuant to a Stock and Asset Purchase Agreement, dated as of April 30, 2020, by and between the Company and Molina, for cash in the amount of $850 million plus closing adjustments of $158 million (subject to post-closing adjustments, if any), and the assumption by Molina of liabilities of the MCC Business (the “MCC Sale”). The MCC Business was the Company’s business of contracting with state Medicaid agencies and the U.S. Centers for Medicare and Medicaid Services to manage total medical benefits or long-term support services for Medicaid and dual eligible Medicaid and Medicare populations.

On January 4, 2021, the Company and Centene Corporation (“Centene”) entered into an Agreement of Plan of Merger (the “Merger Agreement”) by and among the Company, Centene, and Mayflower Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Centene (“Merger Sub”), pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company, with the Company surviving such merger (the “Merger”) as a wholly-owned subsidiary of Centene. Pursuant to the Merger Agreement, each issued and outstanding share of the Company’s common stock will be automatically canceled and converted into the right to receive $95.00 in cash. The Company expects to complete the transaction in the second half of 2021.

The Merger has been approved by the Company’s board of directors, the Company’s stockholders and Centene’s board of directors. The completion of the Merger is subject to customary closing conditions, including, among others, the receipt of various regulatory approvals. For additional information on the Merger Agreement and the Merger, please refer to the Company’s Current Reports on Forms 8-K, filed with the SEC on January 4, 2021 and March 31, 2021, and our definitive proxy statement filed with the SEC on February 19, 2021 (the “Proxy Statement”). The Company cannot guarantee that the Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021.

Business Overview

The Company provides managed care and pharmacy solutions 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 Segment

The Healthcare Segment (“Healthcare”) customers include health plans, accountable care organizations

6

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

(“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 reporting unit also includes Magellan’s carve-out behavioral health contracts with various state Medicaid agencies, as well as certain provider assets that deliver primary care and behavioral healthcare services through an integrated approach.

Magellan’s coordination and management of these healthcare services are provided through its comprehensive network of medical and behavioral health professionals, clinics, hospitals, skilled nursing facilities, home care agencies and ancillary service providers. This network of credentialed providers is integrated with clinical and quality improvement programs to improve access to care and enhance the healthcare experience for individuals in need of care, while at the same time making the cost of these services more affordable for our customers. In addition to the Company’s provider assets where it provides treatment services in certain geographies, the Company also employs licensed behavioral health counselors to deliver non-medical counseling under certain government contracts.

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 per member per month (“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 Segment

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, 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, including through integrated Pharmacy Management and Healthcare service offerings.

Pharmacy Management contracts with its customers for services using risk-based, gain share or ASO arrangements. In addition, Pharmacy Management provides services 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. Any activity related to Medicare Part D business reflected in the three months ended March 31, 2021 is related to final run-out of the 2020 Part D contract provision. The Company continues to 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.

7

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Summary of Significant Accounting Policies

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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” below. Actual results could differ from those estimates.

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 months ended March 31, 2020 and 2021 by major service line, type of customer and timing of revenue recognition (in thousands):

	Three Months Ended March 31, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	349,845	$	—	$	(90)	$	349,755
EAP risk-based		79,938		—		—		79,938
ASO		59,123		11,534		(83)		70,574
PBM, including dispensing		—		518,112		(4,567)		513,545
Medicare Part D		—		55,666		—		55,666
PBA		—		30,129		—		30,129
Formulary management		—		22,161		—		22,161
Other		—		611		—		611
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Type of Customer
Government	$	227,102	$	203,957	$	—	$	431,059
Non-government		261,804		434,256		(4,740)		691,320
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	573,778	$	(4,567)	$	569,211
Transferred over time		488,906		64,435		(173)		553,168
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379

8

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

	Three Months Ended March 31, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	373,442	$	—	$	(86)	$	373,356
EAP risk-based		88,120		—		—		88,120
ASO		71,448		11,817		(75)		83,190
PBM, including dispensing		—		538,796		(3,399)		535,397
Medicare Part D		—		176		—		176
PBA		—		49,882		—		49,882
Formulary management		—		29,183		—		29,183
Other		—		2,345		—		2,345
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Type of Customer
Government	$	256,292	$	156,038	$	—	$	412,330
Non-government		276,718		476,161		(3,560)		749,319
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	538,972	$	(3,399)	$	535,573
Transferred over time		533,010		93,227		(161)		626,076
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649

Per Member Per Month (“PMPM”) Revenue.  Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare or pharmacy management. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM 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 in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

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

9

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

(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.

Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time-based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years.

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

10

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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 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,		March 31,
	2020		2021		$ Change		% Change
Accounts receivable	$	799,803	$	824,067	$	24,264		3.0%
Contract assets		3,566		4,678		1,112		31.2%
Contract liabilities - current		6,772		6,968		196		2.9%
Contract liabilities - long-term		11,073		11,453		380		3.4%

Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $24.3 million, mainly due to timing of receipts. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $1.1 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $0.2 million, mainly due to certain revenue payments received in advance. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.4 million mainly due to payments received for which recognition will be long term partially offset by certain balances which became current.

During the three months ended March 31 2021, the Company recognized revenue of $2.0 million that was included in current contract liabilities at December 31, 2020. The estimated timing of recognition of amounts included in contract liabilities at March 31, 2021 are as follows: 2021—$6.0 million; 2022—$4.0 million; 2023—$3.6 million; 2024 and beyond—$4.8 million. During the three months ended March 31, 2021, 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

11

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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.

Customers exceeding ten percent of segment net revenues

The following customers generated in excess of ten percent of net revenues from continuing operations for the respective segment for the three months ended March 31, 2020 and 2021 (in thousands):

Segment	Term Date	2020		2021
Healthcare
Customer A	December 31, 2021	$	88,539	$	92,982
Customer B	December 31, 2022		49,438		55,486
Pharmacy Management
Customer C	March 31, 2024		98,617		88,651

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 Centers for Medicare and Medicaid Services (“CMS”) and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $137.0 million and $152.7 million for the three months ended March 31, 2020 and 2021, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $55.7 million and $0.2 million for the three months ended March 31, 2020 and 2021, respectively. As of December 31, 2020 and March 31, 2021, the Company had $69.6 million and $55.2 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 $69.9 million and $77.7 million for the three months ended March 31, 2020 and 2021, respectively.

The Company’s contracts with customers typically have stated 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 30 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.

12

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Leases

The Company leases certain office space, distribution centers, land and equipment. We assess each contract 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 to ten years. The exercise of renewal options are at the sole discretion of the Company. Renewal options that the Company is reasonably certain to accept are recognized as part of the right-of-use (“ROU”) asset.

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 months ended March 31, 2021 (in thousands):

	Three Months Ended March 31, 2021
Operating lease cost	$	2,408
Finance lease cost:
Amortization of right-of-use asset		707
Interest on lease liabilities		166
Total finance lease cost		873
Short-term lease cost		40
Variable lease cost		224
Total lease cost		3,545
Sublease income		(7)
Net lease cost	$	3,538

13

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

The following table shows the components of the lease assets and liabilities as of March 31, 2021 (in thousands):

	March 31, 2021
Operating leases:
Other long-term assets	$	32,053
Accrued liabilities	$	10,597
Deferred credits and other long-term liabilities		33,626
Total operating lease liabilities	$	44,223
Finance leases:
Property and equipment, net	$	12,183
Current debt, finance lease and deferred financing obligations	$	4,455
Long-term debt, finance lease and deferred financing obligations		10,783
Total finance lease liabilities	$	15,238

The maturity dates of the Company’s leases as of March 31, 2021 are summarized below (in thousands):

	March 31, 2021
2021	$	11,819
2022		14,893
2023		12,399
2024		10,616
2025		5,358
2026 and beyond		5,556
Total lease payments		60,641
Less interest		(1,180)
Present value of lease liabilities	$	59,461

The following table shows the weighted average remaining lease term and discount rate as of March 31, 2021:

	March 31, 2021
Weighted average remaining lease term years
Operating leases		4.98
Finance leases		3.52
Weighted average discount rate
Operating leases		3.18%
Finance leases		4.40%

14

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Supplemental cash flow information relating to leases is as follows (in thousands):

	Year ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,661
Operating cash flows from finance leases		1,121
Financing cash flows from finance leases		166
Right-of-use asset obtained in exchange for new lease obligation
Operating leases		—
Finance leases		—

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, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	679,554	$	—	$	679,554
Investments:
U.S. Government and agency securities		42,399		—		—		42,399
Corporate debt securities		—		99,749		—		99,749
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	42,399	$	780,614	$	—	$	823,013

15

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (2)	$	—	$	447,627	$	—	$	447,627
Investments:
U.S. Government and agency securities		332,403		—		—		332,403
Corporate debt securities		—		296,716		—		296,716
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	332,403	$	745,654	$	—	$	1,078,057

(1) Excludes $464.9 million of cash held in bank accounts by the Company.

(2) Excludes $8.7 million of cash held in bank accounts by the Company.

For the three months ended March 31, 2021, 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 $387.4 million as of March 31, 2021 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 $158.8 million as of March 31, 2021 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 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 March 31, 2021, the Company had book overdrafts of $2.1 million. At March 31, 2021, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of approximately $50 million are included in cash and cash equivalents.

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.

16

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

As of December 31, 2020 and March 31, 2021, 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 ended March 31, 2020 or 2021. The following is a summary of short-term and long-term investments at December 31, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	42,389	$	11	$	(1)	$	42,399
Corporate debt securities		99,861		3		(115)		99,749
Certificates of deposit		1,311		—		—		1,311
Total investments at December 31, 2020	$	143,561	$	14	$	(116)	$	143,459

	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	332,375	$	29	$	(1)	$	332,403
Corporate debt securities		296,833		14		(131)		296,716
Certificates of deposit		1,311		—		—		1,311
Total investments at March 31, 2021	$	630,519	$	43	$	(132)	$	630,430

The maturity dates of the Company’s investments as of March 31, 2021 are summarized below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
2021	$	625,439	$	625,350
2022		5,080		5,080
Total investments at March 31, 2021	$	630,519	$	630,430

Income Taxes

The Company’s effective income tax rates from continuing operations were 122.8 percent and 27.7 percent for the three months ended March 31, 2020 and 2021, respectively. These rates differ from the applicable federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. 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 three months ended March 31, 2020 is primarily due to the impact of the non-deductible health insurance fee (“HIF”) relative to the reduced level of earnings of the period. Congress repealed the HIF effective for plan years after December 31, 2020.

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.

The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 and The American Rescue Plan Act of 2021 was signed March 11, 2021. All three acts provide widespread emergency relief for the economy and aid to corporations including several significant provisions related to taxes. As of March 31, 2021, the Company has not utilized (nor does it anticipate utilizing) any of the provisions that would result in a material impact on its results.

State Net Operating Loss Carryforwards

The Company and its subsidiaries have $75.0 million of net operating loss carryovers (“NOLs”) available to reduce state and local taxable income at certain subsidiaries in 2021 and subsequent years. Most of these NOLs will expire in 2021 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

17

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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.

Deferred tax assets as of December 31, 2020 and March 31, 2021 are shown net of valuation allowances of $0.9 million and $0.9 million, respectively. 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

The Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposed a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. Congress repealed the HIF fee effective for plan years after December 31, 2020. For 2020 the HIF fee was $36.2 million, of which $12.4 related to continuing operations, which was paid in 2020.

Stock Compensation

At December 31, 2020 and March 31, 2021, 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, 2020, which was filed with the SEC on February 26, 2021. The Company recorded stock compensation expense of $7.1 million for the three months ended March 31, 2021. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2021 has been reduced for forfeitures, estimated at between zero and four percent for all periods.

For the three months ended March 31, 2020, tax expense on deficiencies (net of the tax deductions in excess of recognized stock compensation expense) was $1.4 million, which was included as an increase to income tax expense. For the three months ended March 31, 2021, the benefit of tax deductions in excess of recognized stock compensation expense (net of deficiencies) was $1.1 million, which was included as a reduction of income tax expense.

18

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Summarized information related to the Company’s stock options for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(19,960)		89.13
Exercised	(109,381)		68.26
Outstanding, end of period	915,942	$	76.05
Vested and expected to vest at end of period	914,068	$	76.07
Exercisable, end of period	816,244	$	77.24

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	—		—
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	54,314		77.33

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	428,362	$	65.83
Awarded	275,619		92.85
Vested	(148,546)		67.77
Forfeited	(887)		70.40
Outstanding, ending of period	554,548		78.73

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 three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

19

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Long-Term Debt and Finance Lease Obligations

The following table shows the components of debt and finance lease obligations, including the current component, at December 31, 2020 and March 31, 2021 (in thousands):

	December 31,		March 31,
	2020		2021
Senior Notes	$	359,632	$	359,656
Term loan		263,125		158,750
Other loan		2,154		2,154
Finance leases - land and equipment		16,359		15,238
Finance leases - software as service arrangements		1,298		1,288
Deferred loan costs		(4,192)		(3,861)
Total debt and finance lease obligations	$	638,376	$	533,225

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, and is 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. Since the public offering, the Company purchased and subsequently retired $40.0 million of it’s Notes, of which $28.9 million was purchased and subsequently retired in March 2020 that resulted in a loss on retirement of $0.7 million that is included in interest expense. The Notes were issued at a discount and had a carrying value of $359.6 million and $359.7 million at December 31, 2020 and March 31, 2021, 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 interest rate on the Notes on March 31, 2021 was 4.900%. 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 through December 31, 2019, and which was necessary in order for the Company 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-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.000 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.500 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the Company’s debt rating as provided

20

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

by certain rating agencies. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The Company has elected to borrow in Eurodollar rate loans that currently have a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. For three months ended March 31, 2021, the weighted average interest rate on the term loan facility was approximately 2.01 percent. The interest rate on the term loan facility was 1.86% on March 31, 2021. The term loan facility balance under the 2017 Credit Agreement totaled $263.1 million and $158.8 million as of December 31, 2020 and March 31, 2021, respectively.

In March 2021, the Company made voluntary term loan repayments of $100.0 million. As of March 31, 2021, the contractual maturities, totaling $158.8 million of the term loan under the 2017 Credit Agreement were as follows: 2021—$0.0 million; 2022—$0.0 million; and 2023—$158.8 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, 2020 and March 31, 2021, the Company had no revolving loans, resulting in borrowing capacity of $400.0 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, 2020 and March 31, 2021 of $4.2 million and $3.9 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, 2020 and March 31, 2021 of $32.1 million and $33.0 million, respectively.

Finance Lease and Deferred Financing Obligations

There were $16.4 million and $15.2 million of finance lease and deferred financing obligations at December 31, 2020 and March 31, 2021, 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 $43.0 million and $43.0 million at December 31, 2020 and March 31, 2021, respectively.

Redeemable Non-Controlling Interest

As of March 31, 2021, the Company held a 70% equity interest in Aurelia Health, LLC (“Aurelia”). The other shareholders of Aurelia have the right to exercise put options, requiring the Company to purchase up to 33.3% of the remaining shares during the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter. In addition, for the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter, the Company has the right to purchase 33.3% of the remaining shares (“call option”). The redemption price for these put and call options is based on a fixed multiple of the trailing twelve-month EBITDA at the redemption date. Non-controlling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable non-controlling interests. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders’ equity on the Company’s consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of net income or loss or its redemption value. The carrying value of the non-controlling interest as of December 31, 2020 and March 31, 2021 was $33.1 million and $33.3 million, respectively. The Company evaluates the redemption value on a quarterly basis. If the redemption value is greater than the carrying value, the Company will adjust the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share (“EPS”) calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of March 31, 2021, the carrying value of the non-controlling interest exceeded the redemption value and therefore no adjustment to the carrying value was required.

21

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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 months ended March 31:

	Three Months Ended
	March 31,
	2020		2021
Numerator:
Net (loss) income from continuing operations	$	(1,070)	$	28,509
Income (loss) from discontinued operations, net of tax		19,320		(682)
Net income	$	18,250	$	27,827
Denominator:
Weighted average number of common shares outstanding—basic		24,728		25,948
Common stock equivalents—stock options		61		186
Common stock equivalents—RSAs		21		19
Common stock equivalents—RSUs		50		196
Common stock equivalents—PSUs		—		201
Common stock equivalents—employee stock purchase plan		9		3
Weighted average number of common shares outstanding—diluted		24,869		26,553
Net (loss) income per common share—basic:
Continuing operations	$	(0.04)	$	1.10
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.07
Net (loss) income per common share—diluted:
Continuing operations	$	(0.04)	$	1.07
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.04

The weighted average number of common shares outstanding for the three months ended March 31, 2020 and 2021 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 months ended March 31, 2020 and 2021 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 1.4 million and 0.3 million options for the three months ended March 31, 2020 and 2021, 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.

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

22

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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 March 31, 2020
Managed care and other revenue	$	488,906	$	64,435	$	(173)	$	553,168
PBM revenue		—		573,778		(4,567)		569,211
Cost of care		(349,108)		—		—		(349,108)
Cost of goods sold		—		(537,574)		4,333		(533,241)
Direct service costs and other		(105,936)		(81,866)		(16,439)		(204,241)
Stock compensation expense (1)		1,761		2,107		1,929		5,797
Segment Profit (Loss)	$	35,623	$	20,880	$	(14,917)	$	41,586

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended March 31, 2021
Managed care and other revenue	$	533,010	$	93,227	$	(161)	$	626,076
PBM revenue		—		538,972		(3,399)		535,573
Cost of care		(379,191)		—		—		(379,191)
Cost of goods sold		—		(495,593)		3,223		(492,370)
Direct service costs and other		(114,993)		(104,596)		(11,432)		(231,021)
Legal matter settlement		—		9,000		—		9,000
Stock compensation expense (1)		2,519		2,696		1,842		7,057
Segment Profit (Loss)	$	41,345	$	43,706	$	(9,927)	$	75,124

(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
	March 31,
	2020		2021
Income from continuing operations before income taxes	$	4,692	$	39,414
Stock compensation expense		5,797		7,057
Depreciation and amortization		23,358		21,417
Interest expense		8,958		6,426
Interest and other income		(1,219)		(341)
Special charges		—		1,151
Segment Profit from continuing operations	$	41,586	$	75,124

23

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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, 2020, which was filed with the SEC on February 26, 2021. 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

24

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

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 investigated, 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 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 voluntarily responded to government requests for further information regarding the Company’s investigation. As a result of the Company's disclosure and the ensuing government investigation, a former AFSC executive pleaded guilty in the United States District Court for the Eastern District of Virginia to one count of honest services fraud, and at sentencing in September 2020, the Court ordered the former AFSC executive to pay restitution to AFSC as the victim of that offense. In June 2020, the United States Attorney’s Office for the Eastern District of Virginia (“U.S. Attorney’s Office”) 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 also stemming from the matters self-disclosed by the Company. 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 Company or AFSC be held responsible for the reported conduct in a proceeding initiated by the U.S. Attorney’s Office, SBA, Department of Defense and/or other federal agencies, we may be required to pay damages and/or penalties and AFSC could be suspended or debarred from government contracting. Management believes that the resolution of such investigations 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. AFSC generated approximately 2.4% of the Company’s total revenue from continuing operations for the year ended December 31, 2020 and three months ended March 31, 2021.

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. Pursuant to the terms of the Merger Agreement, the Company suspended its stock repurchase programs on January 4, 2021, the date we announced our planned merger with Centene.

The Company’s board of directors approved, and subsequently amended, a stock repurchase plan which authorizes the Company to purchase up to $400 million of its outstanding common stock through November 15, 2021 (the “Repurchase Program”). As of March 31, 2021, the remaining capacity under the Repurchase Program was $186.3 million. 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.

25

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

Pursuant to the 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 - December 31, 2020	—		—		—
January 1, 2021 - March 31, 2021	—		—		—
	3,359,140			$	213.7

The Company made no share repurchases from April 1, 2021 through April 23, 2021.

Acquisition of Aurelia Health, LLC

Pursuant to the December 18, 2020 purchase agreement (the “Bayless Agreement”) between Bella Vista Enterprises, Inc., Aurelia Health, LLC and the Company, on December 21, 2020 the Company acquired 70 percent of the outstanding membership interests of Aurelia Health, LLC and its subsidiary Michael B. Bayless, LLC (collectively “Bayless”) (the “Bayless Acquisition”).

The base purchase price for the Bayless Acquisition per the Bayless Agreement was $78.4 million. The Company reports the results of operations of Bayless within its Healthcare segment. During the three months ended March 31, 2021, the Company made measurement period adjustments of $0.1 million to increase goodwill related to the Bayless Acquisition.

NOTE F—Discontinued Operations

Magellan Complete Care – Stock and Asset Purchase Agreement

On December 31, 2020, the Company completed the sale of its MCC Business to Molina, pursuant to a Stock and Asset Purchase Agreement, dated as of April 30, 2020, by and between the Company and Molina, for cash in the amount of $850 million plus closing adjustments of $158 million (subject to post-closing adjustments, if any), and the assumption by Molina of liabilities of the MCC Business.

In connection with the MCC Sale, the Company and Molina have entered into commercial agreements for certain behavioral health, utilization management and related services to be provided by the Company to Molina and the MCC Business. These commercial agreements are subject to termination in connection with the Company’s pending Merger with Centene and may not be implemented. In addition, the parties entered into a transition services agreement pursuant to which the Company and certain of its affiliates 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.

26

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

The following table summarizes the components of income from discontinued operations that is included in the Company’s consolidated income statements for the three months ended March 31, 2020 and 2021 (in thousands):

	Three Months Ended
	March 31,
	2020		2021
Managed care and other revenue	$	720,034	$	—
Costs and expenses:
Cost of care		602,534		—
Direct service costs and other operating expenses (1)(2)(3)		84,497		926
Depreciation and amortization		5,326		—
Interest expense		71		—
Interest and other income		(2,540)		—
Total costs and expenses		689,888		926
Income (loss) from discontinued operation before income taxes		30,146		(926)
Provision (benefit) for income taxes		10,826		(244)
Net income (loss) from discontinued operations	$	19,320	$	(682)

(1) Includes stock compensation expense of $260 for the three months ended March 31, 2020.

(2) Includes divestiture related expenses of $605 for the three months ended March 31, 2020.

(3) Includes changes in estimates and transition support services for the three months ended March 31, 2021.

The Company has retained corporate overhead expenses previously allocated to MCC of $6.7 million for the three months ended March 31, 2020.

27

MAGELLAN HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2021

(Unaudited)

NOTE G—Special Charges

In 2020, the Company established a transformation office which has an initiative (the “Transformation Initiative”) to lower our operating costs and reinvest in our business by improving and automating processes, leveraging technology, consolidating platforms and reducing any friction our customers, providers and members experience when doing business with us. As part of the Transformation Initiative, the Company is in the process of restructuring certain operating activities which has resulted in the Company recording an adjustment to severance of $0.2 million for the three months ended March 31, 2021, within special charges in the consolidated statement of comprehensive income.

In addition, the Company reevaluated its current office lease footprint. Recoverability of existing operating right-of-use lease assets, and the related fixed assets held at the office locations, to be held and used are measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any lease terminations or abandonments initiated as a result of the Transformation Initiative that result in an impairment of such right-of-use assets and the location’s related fixtures will be reported as special charges. For the three months ended March 31, 2021, lease terminations and abandonments resulted in the recognition of non-cash pre-tax impairment of $1.3 million, within special charges in the consolidated statement of comprehensive income. The impairment charge reduced the carrying value of these assets to their estimated fair value. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. In addition, the Company accrued various lease shutdown costs of $0.1 million for the three months ended March 31, 2021, within special charges in the consolidated statement of comprehensive income.

The following table summarizes the components of special charges that are included in the Company’s consolidated statement of comprehensive income for the three months ended March 31, 2021 (in thousands):

Non-cash related special charges
Right-of-use assets	$	1,263
Fixed assets		14
Total non-cash related special charges		1,277
Cash related special charges
Employee severance and termination benefits		(209)
Lease shutdown costs		83
Total cash related special charges		(126)
Total special charges	$	1,151

A roll-forward of the Transformation Initiative liabilities is as follows (in thousands):

	Balance						Balance
	December 31,						March 31,
	2020		Additions		Payments		2021
Employee severance and termination benefits	$	10,983	$	(209)	$	(1,019)	$	9,755
Lease shutdown costs		610		83		(83)		610
	$	11,593	$	(126)	$	(1,102)	$	10,365

28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Business Overview

The Company is engaged in the healthcare management business, and is focused on meeting needs in areas of healthcare that are fast growing, highly complex and high cost, with an emphasis on special population management. The Company provides services to health plans and other MCOs, employers, labor unions, various military and governmental agencies, TPAs, consultants and brokers. The Company’s business is divided into three segments, based on the services it provides and/or the customers that it serves. See Item 1—“Business” for more information on the Company’s business segments.

Results of Operations

The following table summarizes, for the periods indicated, operating results from continuing operations (in thousands):

	Three Months Ended
	March 31,				Change
Continuing Operations	2020		2021		'20 vs '21
Statement of Operations Data:
Net revenue	$	1,122,379	$	1,161,649	3.5%
Cost of Care		349,108		379,191	8.6%
Cost of goods sold		533,241		492,370	(7.7)%
Direct service costs and other operating expenses (1)		204,241		231,021	13.1%
Legal matter settlement		—		(9,000)	N/A
Depreciation and amortization		23,358		21,417	(8.3)%
Interest expense		8,958		6,426	(28.3)%
Interest and other income		(1,219)		(341)	(72.0)%
Special charges		—		1,151	N/A
Income before income taxes		4,692		39,414	740.0%
Provision for income taxes		5,762		10,905	89.3%
Net (loss) income from continuing operations	$	(1,070)	$	28,509	2764.4%

(1) Includes stock compensation expense of $5,797 and $7,057 for the three months ended March 31, 2020 and 2021, respectively.

Quarter ended March 31, 2021 (“Current Year Quarter”) compared to Quarter ended March 31, 2020 (“Prior Year Quarter”)

Net revenue, Cost of care, Cost of goods sold and Direct service costs and other operating expenses

Net revenue, cost of care, cost of goods sold and direct service costs and other operating expense variances are addressed within the segment results that follow.

Depreciation and amortization

Depreciation and amortization expense decreased by 8.3 percent or $1.9 million from the Prior Year Quarter to the Current Year Quarter, primarily due to asset maturities, partially offset by normal asset additions after the Prior Year Quarter.

Interest expense

Interest expense decreased by 28.3 percent or $2.5 million from the Prior Year Quarter to the Current Year Quarter primarily due to lower interest rates and lower debt balances.

29

Interest and other income

Interest income decreased by $0.9 million from the Prior Year Quarter to the Current Year Quarter primarily due to a reduction in rates.

Special charges

Special charges increased by $1.2 million from the Prior Year Quarter to the Current Year Quarter due to recognition of the special charges in the Current Year Quarter, see Note F—“Special Charges” for further discussion.

Income taxes

The Company’s effective income tax rates from continuing operations were 122.8 percent and 27.7 percent for the Prior Year Quarter and Current Year Quarter, respectively. The effective income tax rate for the Prior Year Quarter is higher than the effective income tax rate for the Current Year Quarter primarily due to the impact of the non-deductible health insurance fee (“HIF”) relative to the reduced level of earnings for the Prior Year Quarter. Congress repealed the HIF effective for plan years after December 31, 2020. The effective income tax rate for the Current Year Quarter differs from the federal and state statutory rates primarily due to deduction limitations on executive compensation.

Segment Results

The Company manages and measures operational performance through three segments: Healthcare, Pharmacy Management and Corporate. The Company evaluates performance of its segments based on 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. Stock compensation expense and changes in fair value of contingent consideration recorded in relation to acquisitions are included in direct service costs and other operating expenses; however, these amounts are excluded from the computation of Segment Profit. 

Healthcare

The Healthcare segment includes the Company’s: (i) management of behavioral healthcare services and EAP services and (ii) management of other specialty areas including diagnostic imaging and musculoskeletal management. The Healthcare segment provides management services to health plans, accountable care organizations, employers, state Medicaid agencies, the United States military and various federal government agencies for whom Magellan provides carve-out management services for behavioral health, employee assistance plans, and other areas of specialty healthcare including diagnostic imaging, musculoskeletal management, cardiac, and physical medicine.

30

The following table summarizes, for the periods indicated, operating results for the Healthcare segment (in thousands):

	Three Months Ended
	March 31,				Change
Healthcare Segment Results	2020		2021		'20 vs '21
Risk-based, non-EAP	$	349,845	$	373,442	6.7%
EAP risk-based		79,938		88,120	10.2%
ASO		59,123		71,448	20.8%
Managed care and other revenue		488,906		533,010	9.0%
Cost of care		349,108		379,191	8.6%
		139,798		153,819	10.0%
Direct service costs and other		105,936		114,993	8.5%
		33,862		38,826	14.7%
Stock compensation expense		1,761		2,519	43.0%
Segment Profit	$	35,623	$	41,345	16.1%
Direct service cost as % of revenue		21.7%		21.6%
MLR Behavioral & Specialty Health risk		83.6%		85.1%
MLR Behavioral & Specialty Health EAP risk		71.1%		69.7%
Membership
Risk (1)		10,329		10,647	3.1%
EAP risk		14,129		13,869	(1.8)%
ASO		24,529		24,931	1.6%
		48,987		49,447	0.9%

(1) May include some duplicate count of membership for customers that contract with Magellan for both behavioral and other specialty management services.

Current Year Quarter compared to the Prior Year Quarter

Managed care and other revenue

Net revenue increased by 9.0 percent or $44.1 million from the Prior Year Quarter to the Current Year Quarter. The increase in revenue is primarily due to favorable rate and membership changes of $35.4 million, revenue from acquisitions that occurred after the Prior Year Quarter of $11.1 million, new contracts implemented after (or during) the Prior Year Quarter of $10.5 million, revenue impact of favorable prior period medical claims development recorded in the Prior Year Quarter of $4.5 million and other net favorable variances of $5.0 million. These increases were partially offset by terminated contracts of $11.5 million, the revenue impact of program changes of $6.1 million net recorded for HIF fee in the Prior Year Quarter of $4.3 million, and the revenue impact of unfavorable prior period medical claims development recorded in the Current Year Quarter of $0.5 million.

Cost of care

Cost of care increased by 8.6 percent or $30.1 million from the Prior Year Quarter to the Current Year Quarter. The increase is primarily due to rate and membership changes of $20.8 million, cost of care for acquisitions that occurred after the Prior Year Quarter of $5.7 million, favorable prior period care development recorded in the Prior Year Quarter of $4.5 million and care trends and other unfavorable variances of $14.5 million. The increases were partially offset by terminated contracts of $7.8 million, program changes of $6.2 million, and net favorable prior period medical claims development recorded in the Current Year Quarter of $1.4 million. Cost of care as a percentage of risk revenue (excluding EAP business) increased from 83.6 percent in the prior year quarter to 85.1 percent in the Current Year Quarter, mainly due to costs related to new contracts implemented.

Direct service costs and other

Direct service costs increased 8.5 percent or $9.1 million from the Prior Year Quarter to the Current Year Quarter primarily due to an increase in allocated corporate expenses. Direct services costs decreased as a percentage of

31

revenue from 21.7 percent in the Prior Year Quarter to 21.6 percent in the Current Year Quarter primarily due to the previously discussed revenue increases.

Pharmacy Management

The Pharmacy Management segment comprises products and solutions that provide clinical and financial management of pharmaceuticals paid under medical and pharmacy benefit programs. Pharmacy Management’s services include: (i) PBM services; (ii) PBA for state Medicaid and other government sponsored programs; (iii) pharmaceutical dispensing operations; (iv) clinical and formulary management programs; (v) medical pharmacy management programs; and (vi) programs for the integrated management of specialty drugs. Pharmacy Management’s services are provided under contracts with health plans, employers, state Medicaid programs, and other government agencies.

The following table summarizes, for the periods indicated, operating results for the Pharmacy Management segment (in thousands, except state count):

	Three Months Ended
	March 31,				Change
Pharmacy Segment Results	2020		2021		'20 vs '21
Formulary management	$	22,161	$	29,183	31.7%
PBA and other		42,274		64,044	51.5%
Managed care and other revenue		64,435		93,227	44.7%
PBM, including dispensing		518,112		538,796	4.0%
Medicare Part D		55,666		176	(99.7)%
PBM revenue		573,778		538,972	(6.1)%
Total net revenue		638,213		632,199	(0.9)%
Cost of goods sold		537,574		495,593	(7.8)%
		100,639		136,606	35.7%
Direct service costs and other		81,866		104,596	27.8%
		18,773		32,010	70.5%
Stock compensation expense		2,107		2,696	28.0%
Legal matter settlement		—		9,000	100.0%
Segment Profit	$	20,880	$	43,706	109.3%
Direct service cost as % of revenue		12.8%		16.5%
COGS as % of PBM revenue		93.7%		92.0%
Pharmacy Operational Statistics
Adjusted commercial network claims		6,740		6,195
Adjusted PBA claims		17,831		12,801
Total adjusted claims		24,571		18,996
Generic dispensing rate		87.2%		89.7%
Commercial PBM covered lives		1,760		486
Medical pharmacy covered lives		16,046		16,081
Total states and DC that participate in PBA		26		26

Current Year Quarter compared to the Prior Year Quarter

Managed care and other revenue

Managed care and other revenue increased by 44.7 percent or $28.8 million from the Prior Year Quarter to the Current Year Quarter primarily due to increased government pharmacy revenue of $19.8 million mainly due to increased membership, formulary management revenue of $8.4 million mainly due to utilization and other favorable variances of $0.6 million.

32

PBM revenue

PBM revenue decreased by 6.1 percent or $34.8 million from the Prior Year Quarter to the Current Year Quarter. The decrease is primarily due to terminated contracts of $55.1 million and is partially offset by increased membership and utilization of $19.1 million and other net favorable variances of $1.2 million.

Cost of goods sold

Cost of goods sold decreased by 7.8 percent or $42.0 million from the Prior Year Quarter to the Current Year Quarter. This decrease is primarily due to terminated contracts of $55.9 million and is partially offset by increase in membership and utilization of $13.9 million. As a percentage of the portion of net revenue that relates to PBM, cost of goods sold decreased from 93.7 percent in the Prior Year Quarter to 92.0 percent in the Current Year Quarter, mainly due to business mix.

Direct service costs and other

Direct service costs increased by 27.8 percent or $22.7 million from the Prior Year Quarter to the Current Year Quarter primarily due to an increase in allocated corporate expenses and start-up costs associated with a new contract implementation. Direct service costs increased as a percentage of revenue from 12.8 percent in the Prior Year Quarter to 16.5 percent in the Current Year Quarter primarily due to new contract implementation costs.

Legal matter settlement

In the Current Year Quarter, the Company recognized a $9.0 million recovery in connection with the resolution of a legal matter.

Corporate Segment

The Corporate segment of the Company is comprised primarily of amounts not allocated to the Healthcare and Pharmacy Management segments, and that are largely associated with costs related to being a publicly traded company.

The following table summarizes, for the periods indicated, operating results for the Corporate segment (in thousands):

	Three Months Ended
	March 31,				Change
Corporate Segment & Eliminations	2020		2021		'20 vs '21
Managed care and other revenue	$	(173)	$	(161)	(6.9)%
PBM revenue		(4,567)		(3,399)	(25.6)%
Cost of goods sold		4,333		3,223	(25.6)%
		(407)		(337)	(17.2)%
Direct service costs and other		16,439		11,432	(30.5)%
		(16,846)		(11,769)	(30.1)%
Stock compensation expense		1,929		1,842	(4.5)%
Segment Loss	$	(14,917)	$	(9,927)	(33.5)%

Current Year Quarter compared to the Prior Year Quarter

The Corporate segment loss decreased by 33.5 percent or $5.0 million from the Prior Year Quarter to the Current Year Quarter, mainly due to stranded corporate overhead expenses in the Prior Year Quarter related to the sale of the MCC Business. As a percentage of revenue, the Corporate segment loss decreased slightly from 1.3 percent in the Prior Year Quarter to 0.9 percent in the Current Year Quarter, mainly due increased revenue.

Inter segment revenues and expenses

Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits management services for certain Healthcare 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 within the Corporate segment.

33

Non-GAAP Measures

The Company reports its financial results in accordance with GAAP; however, the Company’s management also assesses business performance and makes business decisions regarding the Company’s operations using certain non-GAAP measures.

In addition to Segment Profit, as defined above, the Company also uses adjusted net income attributable to Magellan (“Adjusted Net Income”) and adjusted net income per common share attributable to Magellan on a diluted basis (“Adjusted EPS”). Adjusted Net Income and Adjusted EPS reflect certain adjustments made for acquisitions completed after January 1, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, changes in the fair value of contingent consideration, amortization of identified acquisition intangibles, as well as impairment of identified acquisition intangibles, special charges and any impact related to the sale of MCC. The Company believes these non-GAAP measures provide a more useful comparison of the Company’s underlying business performance from period to period and are more representative of the earnings capacity of the Company. Non-GAAP financial measures disclosed, such as Segment Profit, Adjusted Net Income and Adjusted EPS, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.

The following table reconciles income from continuing operations before income taxes to Segment Profit from continuing operations (in thousands):

	Three Months Ended
	March 31,
	2020		2021
Income from continuing operations before income taxes	$	4,692	$	39,414
Stock compensation expense		5,797		7,057
Depreciation and amortization		23,358		21,417
Interest expense		8,958		6,426
Interest and other income		(1,219)		(341)
Special charges		—		1,151
Segment Profit from continuing operations	$	41,586	$	75,124

The following table reconciles net (loss) income from continuing operations to Adjusted Net Income from continuing operations (in thousands):

	Three Months Ended
	March 31,
	2020		2021
Net (loss) income from continuing operations	$	(1,070)	$	28,509
Adjustments
Stock compensation expense		—		246
Amortization of acquired intangibles		9,686		8,059
Special charges		—		1,151
Tax impact		(2,605)		(2,492)
Adjusted Net Income from continuing operations	$	6,011	$	35,473

34

The following table reconciles net income from continuing operations per common share—diluted to Adjusted EPS from continuing operations:

	Three Months Ended
	March 31,
	2020		2021
Net (loss) income from continuing operations per common share—diluted	$	(0.04)	$	1.07
Adjustments
Stock compensation expense		—		0.01
Amortization of acquired intangibles		0.39		0.30
Special charges		—		0.04
Tax impact		(0.10)		(0.09)
Adjusted EPS from continuing operations	$	0.25	$	1.33

Outlook—Results of Operations

The Company’s Segment Profit and net income are subject to significant fluctuations from period to period. These fluctuations may result from a variety of factors such as those set forth under Item 1A—“Risk Factors” as well as a variety of other factors including: (i) changes in utilization levels by enrolled members of the Company’s risk-based contracts, including seasonal utilization patterns; (ii) contractual adjustments and settlements; (iii) retrospective membership adjustments; (iv) timing of implementation of new contracts, enrollment changes and contract terminations; (v) pricing adjustments upon contract renewals (and price competition in general); (vi) the timing of acquisitions; (vii) changes in estimates regarding medical costs and IBNR; (viii) the timing of recognition of pharmacy revenues, including rebates; and (ix) changes in the estimates of contingent consideration.

A portion of the Company’s business is subject to rising care costs due to an increase in the number and frequency of covered members seeking healthcare services and higher costs of such services. Many of these factors are beyond the Company’s control. Future results of operations will be heavily dependent on management’s ability to obtain customer rate increases that are consistent with care cost increases and/or to reduce operating expenses.

Interest Rate Risk. Changes in interest rates affect interest income earned on the Company’s cash equivalents and investments, as well as interest expense on the variable interest rate borrowings under the 2017 Credit Agreement. In addition, interest rates on the Notes are subject to adjustment upon the occurrence of certain credit rating events. Based on the amount of cash equivalents and investments, the borrowing levels under the 2017 Credit Agreement and the principal amount of the Notes as of March 31, 2021, a hypothetical 10 percent increase or decrease in the interest rate associated with these instruments, with all other variables held constant, would not materially affect the Company’s future earnings and cash outflows.

Historical—Liquidity and Capital Resources

Operating Activities. The Company reported net cash provided by operating activities of $31.7 million and net cash used in operating activities of $77.9 million for the Prior Year Quarter and the Current Year Quarter, respectively. The $109.6 million decrease in operating cash flows from the Prior Year Quarter is mainly attributable to unfavorable working capital changes, increased tax payments and lower interest income collected.

The net unfavorable impact of working capital changes between periods totaled $106.6 million. For the Prior Year Quarter, operating cash flows were impacted by net unfavorable working capital changes of $33.6 million, mainly attributable to the timing of receivable and payables. For the Current Year Quarter, operating cash flows were impacted by net unfavorable working capital changes of $140.2 million, mainly attributable to the timing of receivables and payables.

In relation to continuing operations, the Company reported net cash used in operating activities of $4.1 million for the Prior Year Quarter and net cash used in operating activities of $77.9 million for the Current Year Quarter. The decrease is mainly due to timing of accounts receivable and other working capital changes.

Investing Activities. The Company utilized $15.7 million and $19.5 million during the Prior Year Quarter and the Current Year Quarter, respectively, for capital expenditures. The additions related to hard assets (equipment,

35

furniture, and leaseholds) and capitalized software for the Prior Year Quarter were $4.2 million and $11.5 million, respectively, as compared to additions for the Current Year Quarter related to hard assets and capitalized software of $6.6 million and $12.9 million, respectively.

During the Prior Year Quarter and the Current Year Quarter, the Company used $11.9 million and $487.6 million, respectively, for the net purchase of "available-for-sale" securities. During the Prior Year Quarter and the Current Year Quarter, the Company used net cash of $0.4 million and $2.4 million, respectively, for investments in other non-consolidated subsidiaries.

Financing Activities. During the Prior Year Quarter, the Company received $80.0 million from borrowings under our revolving line of credit and $10.9 million from the exercise of stock options. In addition, the Company paid $33.3 million under debt obligations, $1.5 million for payments on finance lease obligations and had other net unfavorable items of $1.1 million.

During the Current Year Quarter, the Company paid $104.4 million on debt obligations and $1.1 million on finance lease obligations and had other net unfavorable items of $2.8 million. In addition the Company received $7.5 million from the exercise of stock options.

Outlook—Liquidity and Capital Resources

Liquidity. The Company may draw on the 2017 Credit Agreement (discussed further below) as required to meet working capital needs associated with the timing of receivables and payables, fund share repurchases or support acquisition activities. The Company currently expects to have adequate liquidity to satisfy its existing financial commitments over the periods in which they will become due. At March 31, 2021, the Company had no revolving loans with a borrowing capacity of $400.0 million of the revolving credit facility still available to the Company for additional drawdown. The Company plans to maintain its current investment strategy of investing in a diversified, high quality, liquid portfolio of investments and continues to closely monitor the financial markets. The Company estimates that it has no risk of any material permanent loss on its investment portfolio; however, there can be no assurance the Company will not experience any such losses in the future.

Stock Repurchases. The Company’s board of directors approved, and subsequently amended, a stock repurchase plan which authorizes the Company to purchase up to $400 million of its outstanding common stock through October 22, 2020. On October 27, 2020, the Company’s board of directors extended the Repurchase Program through November 15, 2021. As of March 31, 2021, the remaining capacity under the Repurchase Program was $186.3 million. See Part II, Item 2—“Unregistered Sales of Equity Securities and Use of Proceeds” for more information on the Company’s share repurchase program.

Off-Balance Sheet Arrangements. As of March 31, 2021, the Company had no material off-balance sheet arrangements.

Credit Agreement. On September 22, 2017, the Company entered into the 2017 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. 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 the Company to remain in compliance with the terms of the 2017 Credit Agreement. The 2017 Credit Agreement is scheduled to mature on September 22, 2023. See Note A—“General” for more information on the 2017 Credit Agreement.

Restrictive Covenants in Debt Agreements. The 2017 Credit Agreement contains covenants that potentially limit management’s discretion in operating the Company’s business by, in certain circumstances, restricting or limiting the Company’s ability, among other things, to:

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

● pay dividends and make other distributions;

36

● repurchase equity interests;

● make certain advances, investments and loans;

● enter into sale and leaseback transactions;

● create liens;

● sell and otherwise dispose of assets;

● acquire or merge or consolidate with another company; and

● enter into some types of transactions with affiliates.

These restrictions could adversely affect the Company’s ability to finance future operations or capital needs or engage in other business activities that may be in the Company’s interest.

The 2017 Credit Agreement also requires the Company to comply with specified financial ratios and tests. Failure to do so, unless waived by the lenders under the 2017 Credit Agreement pursuant to its terms, or amended, would result in an event of default under the 2017 Credit Agreement. As of March 31, 2021, the Company was in compliance with all covenants, including financial covenants, under the 2017 Credit Agreement.

Critical Accounting Policies and 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 ASC 606 which are explained in more detail in Note A—“General – Revenue Recognition.” Actual results could differ from those estimates. Except as noted above, the Company’s critical accounting policies are summarized in the Company’s Annual Report on Form 10-K, filed with the SEC on February 26, 2021.

Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Company believes that its plans, intentions and expectations as reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Existing and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include:

● the Company’s inability to renegotiate or extend expiring customer contracts, or the termination of customer contracts;

● changes in business practices of the industry, including the possibility that certain of the Company’s managed care customers could seek to provide managed healthcare services directly to their subscribers, instead of contracting with the Company for such services, particularly as a result of further consolidation in the managed care industry and especially regarding managed healthcare customers that have already done so with a portion of their membership;

● the impact of changes in the contracting model for Medicaid contracts, including certain changes in the contracting model used by states for managed healthcare services contracts relating to Medicaid lives;

37

● the Company’s ability to accurately predict and control healthcare costs, and to properly price the Company’s services;

● the Company’s ability to accurately underwrite and control healthcare costs associated with its expansion into clinically integrated management of special populations eligible for Medicaid and Medicare, including individuals with serious mental illness and other unique high-cost populations;

● the Company’s ability to maintain or secure cost-effective healthcare provider contracts;

● the Company’s ability to maintain relationships with key pharmacy providers, vendors and manufacturers;

● the Company’s dependence on government spending for managed healthcare, including changes in federal, state and local healthcare policies;

● restrictive covenants in the Company’s debt instruments;

● present or future state regulations and contractual requirements that the Company provide financial assurance of its ability to meet its obligations;

● the impact of the competitive environment in the managed healthcare services industry which may limit the Company’s ability to maintain or obtain contracts, as well as its ability to maintain or increase its rates;

● the Mental Health and Substance Abuse Benefit Parity Law and Regulations;

● government regulation;

● proposed changes to current Federal law and regulations;

● noncompliance with regulations;

● the Company’s participation in Medicare Part D is subject to government regulation;

● the unauthorized disclosure of sensitive or confidential member or other information;

● a breach or failure in the Company’s operational security systems or infrastructure, or those of third parties with which it does business;

● risk associated with outsourcing services and functions to third parties;

● the possible impact of additional regulatory scrutiny and liability associated with the Company’s Pharmacy Management segment;

● the inability to realize the value of goodwill and intangible assets;

● pending or future actions or claims for professional liability;

● claims brought against the Company that either exceed the scope of the Company’s liability coverage or result in denial of coverage;

● class action suits and other legal proceedings;

● negative publicity;

● the impact of governmental investigations;

38

● the impact of varying economic and market conditions on the Company’s investment portfolio;

● the state of the national economy and adverse changes in economic conditions;

● tax matters, including changes in corporate tax rates, disagreements with taxing authorities and imposition of new taxes;

● the impact of an epidemic or health crisis such as the COVID-19 pandemic, natural disasters, political disruptions, acts of war or terrorism, cybersecurity attacks or other data breaches or intrusions and other extraordinary events;

● the Company’s amended bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees;

● the Company’s ability to attract and retain employees and manage the succession and retention of key executives; and

● risks relating to the Company’s proposed Merger with Centene, including the ability to obtain regulatory approvals for the transaction and to satisfy other closing conditions, business uncertainties and contractual restrictions while the Merger is pending, provisions of the Merger Agreement may limit the Company’s ability to pursue alternatives to the Merger, litigation against the Company or Centene could prevent or delay the completion of the Merger, and the ability of the parties to close the transaction in the anticipated timeframe.

Further discussion of factors currently known to management that could cause actual results to differ materially from those in forward-looking statements is set forth under the heading “Risk Factors” in Item 1A of Magellan’s Annual Report on Form 10-K for the year ended December 31, 2020 and in Item 1A of this Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form 10-Q, the words “estimate,” “anticipate,” “expect,” “believe,” “should,” and similar expressions are intended to be forward-looking statements. Magellan undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Changes in interest rates affect interest income earned on the Company’s cash equivalents and investments, as well as interest expense on the variable interest rate borrowings under the 2017 Credit Agreement. In addition, interest rates on the Notes is subject to adjustment upon the occurrence of certain credit rating events. Based on the amount of cash equivalents and investments, the borrowing levels under the 2017 Credit Agreement and the principal amount of the Notes as of March 31, 2021, a hypothetical 10 percent increase or decrease in the interest rate associated with these instruments, with all other variables held constant, would not materially affect the Company’s future earnings and cash outflows.

39

Item 4. Controls and Procedures.

a)The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of March 31, 2021. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021.

b)Under the supervision and with the participation of management, including the Company’s principal executive and principal financial officers, the Company has determined that there has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

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, 2020, which was filed with the SEC on February 26, 2021. 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.

Item 1A. Risk Factors.

There have been no material changes in the risk factors as disclosed in Part I—Item 1A—“Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

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. Pursuant to the terms of the Merger Agreement, the Company suspended its stock repurchase programs on January 4, 2021, the date we announced our planned merger with Centene.

40

The Company’s board of directors approved, and subsequently amended, a stock repurchase plan which authorizes the Company to purchase up to $400 million of its outstanding common stock through October 22, 2020. On October 27, 2020, the Company’s board of directors extended the Repurchase Program through November 15, 2021. The Company made no repurchases during the three months ended March 31, 2021. As of March 31, 2021, the Company had approximately $186.3 million remaining available for future repurchases under the current plan. The Company made no share repurchases from April 1, 2021 through April 23, 2021.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

See Exhibit Index.

41

C

Exhibit Index

Exhibit  Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished).
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished).
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the cover page, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes.
104	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

42

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: April 30, 2021	Magellan Health, Inc. (Registrant)
	By:	/s/ David P. Bourdon
		David P. Bourdon
		Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

43

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Kenneth J. Fasola, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Magellan Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Kenneth J. Fasola
	Kenneth J. Fasola
	Chief Executive Officer
Date: April 30, 2021

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, David P. Bourdon, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Magellan Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ David P. Bourdon
	David P. Bourdon
	Chief Financial Officer
Date: April 30, 2021

EX-32.1

Exhibit 32.1

Certification Required by Rule 13a-14(b) and 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, Kenneth J. Fasola, as Chief Executive Officer of Magellan Health, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

(1) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Kenneth J. Fasola
	Kenneth J. Fasola
	Chief Executive Officer
Date: April 30, 2021

EX-32.2

Exhibit 32.2

Certification Required by Rule 13a-14(b) and 18 U.S.C. Section 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

I, David P. Bourdon, as Chief Financial Officer of Magellan Health, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to my knowledge:

(1) the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2021 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ David P. Bourdon
	David P. Bourdon
	Chief Financial Officer
Date: April 30, 2021

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2021 $ / shares shares
Cover [Abstract]
Entity Central Index Key	0000019411
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
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	26,126,570
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Current Assets:
Cash and cash equivalents ($49,227 and $75,458 restricted at December 31, 2020 and March 31, 2021, respectively)	$ 456,309	$ 1,144,450
Accounts receivable, net	793,504	743,502
Short-term investments ($88,867 and $74,312 restricted at December 31, 2020 and March 31, 2021, respectively)	625,600	140,847
Pharmaceutical inventory	46,389	43,334
Other current assets ($43,547 and $51,511 restricted at December 31, 2020 and March 31, 2021, respectively)	101,462	84,264
Total Current Assets	2,023,264	2,156,397
Property and equipment, net	142,084	136,739
Long-term investments ($1,026 and $2,615 restricted at December 31, 2020 and March 31, 2021, respectively)	4,830	2,612
Deferred income taxes	921	1,842
Other long-term assets	119,947	108,797
Goodwill	873,830	873,779
Other intangible assets, net	71,631	79,689
Total Assets	3,236,507	3,359,855
Current Liabilities:
Accounts payable	149,760	137,380
Accrued liabilities	266,217	354,906
Medical claims payable	116,580	111,851
Other medical liabilities	123,109	126,921
Current debt, finance lease and deferred financing obligations	6,543	6,521
Total Current Liabilities	662,209	737,579
Long-term debt, finance lease and deferred financing obligations	526,682	631,855
Deferred income taxes	13,602	7,102
Tax contingencies	11,867	11,002
Deferred credits and other long-term liabilities	79,276	69,283
Total Liabilities	1,293,636	1,456,821
Redeemable non-controlling interest	33,303	33,062
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share Authorized-10,000 shares at December 31, 2020 and March 31, 2021-Issued and outstanding-none
Common stock, par value $.01 per share: Authorized-100,000 shares at December 31, 2020 and March 31, 2021-Issued and outstanding-55,549 and 25,887 shares at December 31, 2020, respectively, and 55,789 and 26,127 shares at March 31, 2021, respectively	558	555
Other Stockholders' Equity:
Additional paid-in capital	1,488,975	1,477,219
Retained earnings	1,884,957	1,857,130
Accumulated other comprehensive income (loss)	(195)	(205)
Treasury stock, at cost, 29,662 and 29,662 shares at December 31, 2020 and March 31, 2021, respectively	(1,464,727)	(1,464,727)
Total Stockholders' Equity	1,909,568	1,869,972
Total Liabilities and Stockholders' Equity	$ 3,236,507	$ 3,359,855

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Restricted cash and cash equivalents
Restricted cash and cash equivalents	$ 75,458	$ 49,227
Restricted investments, short-term and long-term
Short-term restricted investments	74,312	88,867
Long term restricted investments	2,615	1,026
Other current restricted assets
Other current restricted assets	$ 51,511	$ 43,547
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)	55,789	55,549
Common stock, outstanding (in shares)	26,127	25,887
Treasury stock
Treasury stock (in shares)	29,662	29,662

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Net revenue:
Net revenue	$ 1,161,649	$ 1,122,379
Costs and expenses:
Cost of care	379,191	349,108
Cost of goods sold	492,370	533,241
Direct service costs and other operating expenses	231,021	204,241
Legal matter settlement	(9,000)
Depreciation and amortization	21,417	23,358
Interest expense	6,426	8,958
Interest and other income	(341)	(1,219)
Special charges	1,151
Total costs, expenses and other income	1,122,235	1,117,687
Income from continuing operations before income taxes	39,414	4,692
Provision for income taxes	10,905	5,762
Net (loss) income from continuing operations	28,509	(1,070)
Income (loss) from discontinued operations, net of tax	(682)	19,320
Net income	$ 27,827	$ 18,250
Basic
Continuing operations (in dollars per share)	$ 1.10	$ (0.04)
Discontinued operations (in dollars per share)	(0.03)	0.78
Consolidated operations (in dollars per share)	1.07	0.74
Net income per common share - diluted:
Continuing operations (in dollars per share)	1.07	(0.04)
Discontinued operations (in dollars per share)	(0.03)	0.78
Consolidated operations (in dollars per share)	$ 1.04	$ 0.74
Other comprehensive income
Unrealized gains (losses) on available-for-sale securities	$ 10	$ (201)
Comprehensive income	27,837	18,049
Managed care and other
Net revenue:
Net revenue	626,076	553,168
PBM
Net revenue:
Net revenue	$ 535,573	$ 569,211

XML

CONSOLIDATED STATEMENTS OF INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CONSOLIDATED STATEMENTS OF INCOME
Stock compensation expense	$ 7,057	$ 5,797
Net of income tax (benefit) provision	$ (3)	$ 67

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Common Stock In Treasury	Additional Paid in Capital	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Cumulative Effect, Period of Adoption, Adjustment	Total
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)
Increase (Decrease) in Stockholders' Equity
Stock compensation expense			6,057					6,057
Exercise of stock options	$ 2		11,261					11,263
Exercise of stock options (in shares)	216,000
Issuance of equity	$ 1		(1,137)					(1,136)
Issuance of equity (in shares)	130,000
Net income					18,250			18,250
Other comprehensive income (loss)-other						(201)		(201)
Balance at Mar. 31, 2020	$ 546	$ (1,464,727)	1,402,797	$ (413)	1,493,044	(57)	$ (413)	1,431,603
Balance (in shares) at Mar. 31, 2020	54,631,000	(29,662,000)
Balance at Dec. 31, 2020	$ 555	$ (1,464,727)	1,477,219		1,857,130	(205)		$ 1,869,972
Balance (in shares) at Dec. 31, 2020	55,549,000	(29,662,000)						25,887,000
Increase (Decrease) in Stockholders' Equity
Stock compensation expense			7,057					$ 7,057
Exercise of stock options	$ 2		7,465					$ 7,467
Exercise of stock options (in shares)	110,000							109,381
Issuance of equity	$ 1		(2,766)					$ (2,765)
Issuance of equity (in shares)	130,000
Net income					27,827			27,827
Other comprehensive income (loss)-other						10		10
Balance at Mar. 31, 2021	$ 558	$ (1,464,727)	$ 1,488,975		$ 1,884,957	$ (195)		$ 1,909,568
Balance (in shares) at Mar. 31, 2021	55,789,000	(29,662,000)						26,127,000

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash flows from operating activities:
Net income	$ 27,827	$ 18,250
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	21,417	28,684
Special charges	1,151
Non-cash interest expense	355	585
Non-cash stock compensation expense	7,057	6,057
Non-cash income tax provision	7,603	7,802
Non-cash accretion on investments	592	325
Changes in assets and liabilities, net of effects from acquisitions of businesses:
Accounts receivable, net	(50,013)	(33,291)
Pharmaceutical inventory	(3,055)	2,629
Other assets	(27,283)	(41,862)
Accounts payable and accrued liabilities	(76,183)	52,746
Medical claims payable and other medical liabilities	917	(13,622)
Tax contingencies	680	925
Deferred credits and other long-term liabilities	9,993	3,003
Other	1,067	(505)
Net cash provided by (used in) operating activities	(77,875)	31,726
Net cash provided by operating activities from discontinued operations		35,805
Net cash provided by operating activities from continuing operations	(77,875)	(4,079)
Cash flows from investing activities:
Capital expenditures	(19,540)	(15,719)
Acquisitions and investments in businesses, net of cash acquired	(2,372)	(369)
Purchases of investments	(673,169)	(164,311)
Proceeds from maturities and sales of investments	185,619	152,394
Net cash provided by investing activities	(509,462)	(28,005)
Net cash provided by investing activities from discontinued operations		(19,154)
Net cash provided by investing activities from continuing operations	(509,462)	(8,851)
Cash flows from financing activities:
Proceeds from borrowings on revolving line of credit		80,000
Proceeds from exercise of stock options	7,467	10,903
Payments on debt, finance lease and deferred financing obligations	(105,506)	(34,774)
Other	(2,765)	(1,136)
Net cash provided by (used in) financing activities	(100,804)	54,993
Net cash provided by (used in) financing activities from continuing operations	(100,804)	54,993
Net increase (decrease) in cash and cash equivalents from continuing operations	(688,141)	42,063
Cash and cash equivalents at beginning of period	1,144,450	115,752
Cash and cash equivalents at end of period	$ 456,309	157,815
Non-cash investing activities:
Assets acquired under finance leases and deferred financing obligations		$ 3,599

XML

General

3 Months Ended

Mar. 31, 2021

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 months ended March 31, 2021 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 December 31, 2020, Magellan completed the sale of its Magellan Complete Care business (the “MCC Business”) to Molina Healthcare, Inc. (“Molina”), pursuant to a Stock and Asset Purchase Agreement, dated as of April 30, 2020, by and between the Company and Molina, for cash in the amount of $850 million plus closing adjustments of $158 million (subject to post-closing adjustments, if any), and the assumption by Molina of liabilities of the MCC Business (the “MCC Sale”). The MCC Business was the Company’s business of contracting with state Medicaid agencies and the U.S. Centers for Medicare and Medicaid Services to manage total medical benefits or long-term support services for Medicaid and dual eligible Medicaid and Medicare populations.

On January 4, 2021, the Company and Centene Corporation (“Centene”) entered into an Agreement of Plan of Merger (the “Merger Agreement”) by and among the Company, Centene, and Mayflower Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Centene (“Merger Sub”), pursuant to which, subject to the terms and conditions set forth therein, Merger Sub will merge with and into the Company, with the Company surviving such merger (the “Merger”) as a wholly-owned subsidiary of Centene. Pursuant to the Merger Agreement, each issued and outstanding share of the Company’s common stock will be automatically canceled and converted into the right to receive $95.00 in cash. The Company expects to complete the transaction in the second half of 2021.

The Merger has been approved by the Company’s board of directors, the Company’s stockholders and Centene’s board of directors. The completion of the Merger is subject to customary closing conditions, including, among others, the receipt of various regulatory approvals. For additional information on the Merger Agreement and the Merger, please refer to the Company’s Current Reports on Forms 8-K, filed with the SEC on January 4, 2021 and March 31, 2021, and our definitive proxy statement filed with the SEC on February 19, 2021 (the “Proxy Statement”). The Company cannot guarantee that the Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021.

Business Overview

The Company provides managed care and pharmacy solutions 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 Segment

The Healthcare Segment (“Healthcare”) 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 reporting unit also includes Magellan’s carve-out behavioral health contracts with various state Medicaid agencies, as well as certain provider assets that deliver primary care and behavioral healthcare services through an integrated approach.

Magellan’s coordination and management of these healthcare services are provided through its comprehensive network of medical and behavioral health professionals, clinics, hospitals, skilled nursing facilities, home care agencies and ancillary service providers. This network of credentialed providers is integrated with clinical and quality improvement programs to improve access to care and enhance the healthcare experience for individuals in need of care, while at the same time making the cost of these services more affordable for our customers. In addition to the Company’s provider assets where it provides treatment services in certain geographies, the Company also employs licensed behavioral health counselors to deliver non-medical counseling under certain government contracts.

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 per member per month (“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 Segment

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, 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, including through integrated Pharmacy Management and Healthcare service offerings.

Pharmacy Management contracts with its customers for services using risk-based, gain share or ASO arrangements. In addition, Pharmacy Management provides services 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. Any activity related to Medicare Part D business reflected in the three months ended March 31, 2021 is related to final run-out of the 2020 Part D contract provision. The Company continues to 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

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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” below. Actual results could differ from those estimates.

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 months ended March 31, 2020 and 2021 by major service line, type of customer and timing of revenue recognition (in thousands):

	Three Months Ended March 31, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	349,845	$	—	$	(90)	$	349,755
EAP risk-based		79,938		—		—		79,938
ASO		59,123		11,534		(83)		70,574
PBM, including dispensing		—		518,112		(4,567)		513,545
Medicare Part D		—		55,666		—		55,666
PBA		—		30,129		—		30,129
Formulary management		—		22,161		—		22,161
Other		—		611		—		611
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Type of Customer
Government	$	227,102	$	203,957	$	—	$	431,059
Non-government		261,804		434,256		(4,740)		691,320
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	573,778	$	(4,567)	$	569,211
Transferred over time		488,906		64,435		(173)		553,168
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379

	Three Months Ended March 31, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	373,442	$	—	$	(86)	$	373,356
EAP risk-based		88,120		—		—		88,120
ASO		71,448		11,817		(75)		83,190
PBM, including dispensing		—		538,796		(3,399)		535,397
Medicare Part D		—		176		—		176
PBA		—		49,882		—		49,882
Formulary management		—		29,183		—		29,183
Other		—		2,345		—		2,345
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Type of Customer
Government	$	256,292	$	156,038	$	—	$	412,330
Non-government		276,718		476,161		(3,560)		749,319
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	538,972	$	(3,399)	$	535,573
Transferred over time		533,010		93,227		(161)		626,076
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649

Per Member Per Month (“PMPM”) Revenue.  Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare or pharmacy management. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM 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 in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

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.

Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time-based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years.

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 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,		March 31,
	2020		2021		$ Change		% Change
Accounts receivable	$	799,803	$	824,067	$	24,264		3.0%
Contract assets		3,566		4,678		1,112		31.2%
Contract liabilities - current		6,772		6,968		196		2.9%
Contract liabilities - long-term		11,073		11,453		380		3.4%

Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $24.3 million, mainly due to timing of receipts. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $1.1 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $0.2 million, mainly due to certain revenue payments received in advance. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.4 million mainly due to payments received for which recognition will be long term partially offset by certain balances which became current.

During the three months ended March 31 2021, the Company recognized revenue of $2.0 million that was included in current contract liabilities at December 31, 2020. The estimated timing of recognition of amounts included in contract liabilities at March 31, 2021 are as follows: 2021—$6.0 million; 2022—$4.0 million; 2023—$3.6 million; 2024 and beyond—$4.8 million. During the three months ended March 31, 2021, 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.

Customers exceeding ten percent of segment net revenues

The following customers generated in excess of ten percent of net revenues from continuing operations for the respective segment for the three months ended March 31, 2020 and 2021 (in thousands):

Segment	Term Date	2020		2021
Healthcare
Customer A	December 31, 2021	$	88,539	$	92,982
Customer B	December 31, 2022		49,438		55,486
Pharmacy Management
Customer C	March 31, 2024		98,617		88,651

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 Centers for Medicare and Medicaid Services (“CMS”) and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $137.0 million and $152.7 million for the three months ended March 31, 2020 and 2021, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $55.7 million and $0.2 million for the three months ended March 31, 2020 and 2021, respectively. As of December 31, 2020 and March 31, 2021, the Company had $69.6 million and $55.2 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 $69.9 million and $77.7 million for the three months ended March 31, 2020 and 2021, respectively.

The Company’s contracts with customers typically have stated 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 30 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.

Leases

The Company leases certain office space, distribution centers, land and equipment. We assess each contract 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 to ten years. The exercise of renewal options are at the sole discretion of the Company. Renewal options that the Company is reasonably certain to accept are recognized as part of the right-of-use (“ROU”) asset.

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 months ended March 31, 2021 (in thousands):

	Three Months Ended March 31, 2021
Operating lease cost	$	2,408
Finance lease cost:
Amortization of right-of-use asset		707
Interest on lease liabilities		166
Total finance lease cost		873
Short-term lease cost		40
Variable lease cost		224
Total lease cost		3,545
Sublease income		(7)
Net lease cost	$	3,538

The following table shows the components of the lease assets and liabilities as of March 31, 2021 (in thousands):

	March 31, 2021
Operating leases:
Other long-term assets	$	32,053
Accrued liabilities	$	10,597
Deferred credits and other long-term liabilities		33,626
Total operating lease liabilities	$	44,223
Finance leases:
Property and equipment, net	$	12,183
Current debt, finance lease and deferred financing obligations	$	4,455
Long-term debt, finance lease and deferred financing obligations		10,783
Total finance lease liabilities	$	15,238

The maturity dates of the Company’s leases as of March 31, 2021 are summarized below (in thousands):

	March 31, 2021
2021	$	11,819
2022		14,893
2023		12,399
2024		10,616
2025		5,358
2026 and beyond		5,556
Total lease payments		60,641
Less interest		(1,180)
Present value of lease liabilities	$	59,461

The following table shows the weighted average remaining lease term and discount rate as of March 31, 2021:

	March 31, 2021
Weighted average remaining lease term years
Operating leases		4.98
Finance leases		3.52
Weighted average discount rate
Operating leases		3.18%
Finance leases		4.40%

Supplemental cash flow information relating to leases is as follows (in thousands):

	Year ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,661
Operating cash flows from finance leases		1,121
Financing cash flows from finance leases		166
Right-of-use asset obtained in exchange for new lease obligation
Operating leases		—
Finance leases		—

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, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	679,554	$	—	$	679,554
Investments:
U.S. Government and agency securities		42,399		—		—		42,399
Corporate debt securities		—		99,749		—		99,749
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	42,399	$	780,614	$	—	$	823,013

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (2)	$	—	$	447,627	$	—	$	447,627
Investments:
U.S. Government and agency securities		332,403		—		—		332,403
Corporate debt securities		—		296,716		—		296,716
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	332,403	$	745,654	$	—	$	1,078,057

(1) Excludes $464.9 million of cash held in bank accounts by the Company.

(2) Excludes $8.7 million of cash held in bank accounts by the Company.

For the three months ended March 31, 2021, 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 $387.4 million as of March 31, 2021 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 $158.8 million as of March 31, 2021 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 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 March 31, 2021, the Company had book overdrafts of $2.1 million. At March 31, 2021, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of approximately $50 million are included in cash and cash equivalents.

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, 2020 and March 31, 2021, 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 ended March 31, 2020 or 2021. The following is a summary of short-term and long-term investments at December 31, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	42,389	$	11	$	(1)	$	42,399
Corporate debt securities		99,861		3		(115)		99,749
Certificates of deposit		1,311		—		—		1,311
Total investments at December 31, 2020	$	143,561	$	14	$	(116)	$	143,459

	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	332,375	$	29	$	(1)	$	332,403
Corporate debt securities		296,833		14		(131)		296,716
Certificates of deposit		1,311		—		—		1,311
Total investments at March 31, 2021	$	630,519	$	43	$	(132)	$	630,430

The maturity dates of the Company’s investments as of March 31, 2021 are summarized below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
2021	$	625,439	$	625,350
2022		5,080		5,080
Total investments at March 31, 2021	$	630,519	$	630,430

Income Taxes

The Company’s effective income tax rates from continuing operations were 122.8 percent and 27.7 percent for the three months ended March 31, 2020 and 2021, respectively. These rates differ from the applicable federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. 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 three months ended March 31, 2020 is primarily due to the impact of the non-deductible health insurance fee (“HIF”) relative to the reduced level of earnings of the period. Congress repealed the HIF effective for plan years after December 31, 2020.

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.

The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 and The American Rescue Plan Act of 2021 was signed March 11, 2021. All three acts provide widespread emergency relief for the economy and aid to corporations including several significant provisions related to taxes. As of March 31, 2021, the Company has not utilized (nor does it anticipate utilizing) any of the provisions that would result in a material impact on its results.

State Net Operating Loss Carryforwards

The Company and its subsidiaries have $75.0 million of net operating loss carryovers (“NOLs”) available to reduce state and local taxable income at certain subsidiaries in 2021 and subsequent years. Most of these NOLs will expire in 2021 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.

Deferred tax assets as of December 31, 2020 and March 31, 2021 are shown net of valuation allowances of $0.9 million and $0.9 million, respectively. 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

The Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposed a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. Congress repealed the HIF fee effective for plan years after December 31, 2020. For 2020 the HIF fee was $36.2 million, of which $12.4 related to continuing operations, which was paid in 2020.

Stock Compensation

At December 31, 2020 and March 31, 2021, 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, 2020, which was filed with the SEC on February 26, 2021. The Company recorded stock compensation expense of $7.1 million for the three months ended March 31, 2021. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2021 has been reduced for forfeitures, estimated at between zero and four percent for all periods.

For the three months ended March 31, 2020, tax expense on deficiencies (net of the tax deductions in excess of recognized stock compensation expense) was $1.4 million, which was included as an increase to income tax expense. For the three months ended March 31, 2021, the benefit of tax deductions in excess of recognized stock compensation expense (net of deficiencies) was $1.1 million, which was included as a reduction of income tax expense.

Summarized information related to the Company’s stock options for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(19,960)		89.13
Exercised	(109,381)		68.26
Outstanding, end of period	915,942	$	76.05
Vested and expected to vest at end of period	914,068	$	76.07
Exercisable, end of period	816,244	$	77.24

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	—		—
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	54,314		77.33

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	428,362	$	65.83
Awarded	275,619		92.85
Vested	(148,546)		67.77
Forfeited	(887)		70.40
Outstanding, ending of period	554,548		78.73

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 three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

Long-Term Debt and Finance Lease Obligations

The following table shows the components of debt and finance lease obligations, including the current component, at December 31, 2020 and March 31, 2021 (in thousands):

	December 31,		March 31,
	2020		2021
Senior Notes	$	359,632	$	359,656
Term loan		263,125		158,750
Other loan		2,154		2,154
Finance leases - land and equipment		16,359		15,238
Finance leases - software as service arrangements		1,298		1,288
Deferred loan costs		(4,192)		(3,861)
Total debt and finance lease obligations	$	638,376	$	533,225

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, and is 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. Since the public offering, the Company purchased and subsequently retired $40.0 million of it’s Notes, of which $28.9 million was purchased and subsequently retired in March 2020 that resulted in a loss on retirement of $0.7 million that is included in interest expense. The Notes were issued at a discount and had a carrying value of $359.6 million and $359.7 million at December 31, 2020 and March 31, 2021, 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 interest rate on the Notes on March 31, 2021 was 4.900%. 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 through December 31, 2019, and which was necessary in order for the Company 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-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.000 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.500 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the Company’s debt rating as provided

by certain rating agencies. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The Company has elected to borrow in Eurodollar rate loans that currently have a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. For three months ended March 31, 2021, the weighted average interest rate on the term loan facility was approximately 2.01 percent. The interest rate on the term loan facility was 1.86% on March 31, 2021. The term loan facility balance under the 2017 Credit Agreement totaled $263.1 million and $158.8 million as of December 31, 2020 and March 31, 2021, respectively.

In March 2021, the Company made voluntary term loan repayments of $100.0 million. As of March 31, 2021, the contractual maturities, totaling $158.8 million of the term loan under the 2017 Credit Agreement were as follows: 2021—$0.0 million; 2022—$0.0 million; and 2023—$158.8 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, 2020 and March 31, 2021, the Company had no revolving loans, resulting in borrowing capacity of $400.0 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, 2020 and March 31, 2021 of $4.2 million and $3.9 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, 2020 and March 31, 2021 of $32.1 million and $33.0 million, respectively.

Finance Lease and Deferred Financing Obligations

There were $16.4 million and $15.2 million of finance lease and deferred financing obligations at December 31, 2020 and March 31, 2021, 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 $43.0 million and $43.0 million at December 31, 2020 and March 31, 2021, respectively.

Redeemable Non-Controlling Interest

As of March 31, 2021, the Company held a 70% equity interest in Aurelia Health, LLC (“Aurelia”). The other shareholders of Aurelia have the right to exercise put options, requiring the Company to purchase up to 33.3% of the remaining shares during the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter. In addition, for the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter, the Company has the right to purchase 33.3% of the remaining shares (“call option”). The redemption price for these put and call options is based on a fixed multiple of the trailing twelve-month EBITDA at the redemption date. Non-controlling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable non-controlling interests. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders’ equity on the Company’s consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of net income or loss or its redemption value. The carrying value of the non-controlling interest as of December 31, 2020 and March 31, 2021 was $33.1 million and $33.3 million, respectively. The Company evaluates the redemption value on a quarterly basis. If the redemption value is greater than the carrying value, the Company will adjust the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share (“EPS”) calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of March 31, 2021, the carrying value of the non-controlling interest exceeded the redemption value and therefore no adjustment to the carrying value was required.

XML

Net Income per Common Share Attributable to Magellan Health, Inc.

3 Months Ended

Mar. 31, 2021

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 months ended March 31:

	Three Months Ended
	March 31,
	2020		2021
Numerator:
Net (loss) income from continuing operations	$	(1,070)	$	28,509
Income (loss) from discontinued operations, net of tax		19,320		(682)
Net income	$	18,250	$	27,827
Denominator:
Weighted average number of common shares outstanding—basic		24,728		25,948
Common stock equivalents—stock options		61		186
Common stock equivalents—RSAs		21		19
Common stock equivalents—RSUs		50		196
Common stock equivalents—PSUs		—		201
Common stock equivalents—employee stock purchase plan		9		3
Weighted average number of common shares outstanding—diluted		24,869		26,553
Net (loss) income per common share—basic:
Continuing operations	$	(0.04)	$	1.10
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.07
Net (loss) income per common share—diluted:
Continuing operations	$	(0.04)	$	1.07
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.04

The weighted average number of common shares outstanding for the three months ended March 31, 2020 and 2021 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 months ended March 31, 2020 and 2021 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 1.4 million and 0.3 million options for the three months ended March 31, 2020 and 2021, 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.

XML

Business Segment Information

3 Months Ended

Mar. 31, 2021

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 March 31, 2020
Managed care and other revenue	$	488,906	$	64,435	$	(173)	$	553,168
PBM revenue		—		573,778		(4,567)		569,211
Cost of care		(349,108)		—		—		(349,108)
Cost of goods sold		—		(537,574)		4,333		(533,241)
Direct service costs and other		(105,936)		(81,866)		(16,439)		(204,241)
Stock compensation expense (1)		1,761		2,107		1,929		5,797
Segment Profit (Loss)	$	35,623	$	20,880	$	(14,917)	$	41,586

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended March 31, 2021
Managed care and other revenue	$	533,010	$	93,227	$	(161)	$	626,076
PBM revenue		—		538,972		(3,399)		535,573
Cost of care		(379,191)		—		—		(379,191)
Cost of goods sold		—		(495,593)		3,223		(492,370)
Direct service costs and other		(114,993)		(104,596)		(11,432)		(231,021)
Legal matter settlement		—		9,000		—		9,000
Stock compensation expense (1)		2,519		2,696		1,842		7,057
Segment Profit (Loss)	$	41,345	$	43,706	$	(9,927)	$	75,124

(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
	March 31,
	2020		2021
Income from continuing operations before income taxes	$	4,692	$	39,414
Stock compensation expense		5,797		7,057
Depreciation and amortization		23,358		21,417
Interest expense		8,958		6,426
Interest and other income		(1,219)		(341)
Special charges		—		1,151
Segment Profit from continuing operations	$	41,586	$	75,124

XML

Commitments and Contingencies

3 Months Ended

Mar. 31, 2021

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, 2020, which was filed with the SEC on February 26, 2021. 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 investigated, 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 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 voluntarily responded to government requests for further information regarding the Company’s investigation. As a result of the Company's disclosure and the ensuing government investigation, a former AFSC executive pleaded guilty in the United States District Court for the Eastern District of Virginia to one count of honest services fraud, and at sentencing in September 2020, the Court ordered the former AFSC executive to pay restitution to AFSC as the victim of that offense. In June 2020, the United States Attorney’s Office for the Eastern District of Virginia (“U.S. Attorney’s Office”) 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 also stemming from the matters self-disclosed by the Company. 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 Company or AFSC be held responsible for the reported conduct in a proceeding initiated by the U.S. Attorney’s Office, SBA, Department of Defense and/or other federal agencies, we may be required to pay damages and/or penalties and AFSC could be suspended or debarred from government contracting. Management believes that the resolution of such investigations 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. AFSC generated approximately 2.4% of the Company’s total revenue from continuing operations for the year ended December 31, 2020 and three months ended March 31, 2021.

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. Pursuant to the terms of the Merger Agreement, the Company suspended its stock repurchase programs on January 4, 2021, the date we announced our planned merger with Centene.

The Company’s board of directors approved, and subsequently amended, a stock repurchase plan which authorizes the Company to purchase up to $400 million of its outstanding common stock through November 15, 2021 (the “Repurchase Program”). As of March 31, 2021, the remaining capacity under the Repurchase Program was $186.3 million. 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 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 - December 31, 2020	—		—		—
January 1, 2021 - March 31, 2021	—		—		—
	3,359,140			$	213.7

The Company made no share repurchases from April 1, 2021 through April 23, 2021.

XML

Acquisitions

3 Months Ended

Mar. 31, 2021

Acquisitions

Acquisitions

Acquisition of Aurelia Health, LLC

Pursuant to the December 18, 2020 purchase agreement (the “Bayless Agreement”) between Bella Vista Enterprises, Inc., Aurelia Health, LLC and the Company, on December 21, 2020 the Company acquired 70 percent of the outstanding membership interests of Aurelia Health, LLC and its subsidiary Michael B. Bayless, LLC (collectively “Bayless”) (the “Bayless Acquisition”).

The base purchase price for the Bayless Acquisition per the Bayless Agreement was $78.4 million. The Company reports the results of operations of Bayless within its Healthcare segment. During the three months ended March 31, 2021, the Company made measurement period adjustments of $0.1 million to increase goodwill related to the Bayless Acquisition.

XML

Discontinued Operations

3 Months Ended

Mar. 31, 2021

Discontinued Operations

Discontinued Operations

NOTE F—Discontinued Operations

Magellan Complete Care – Stock and Asset Purchase Agreement

On December 31, 2020, the Company completed the sale of its MCC Business to Molina, pursuant to a Stock and Asset Purchase Agreement, dated as of April 30, 2020, by and between the Company and Molina, for cash in the amount of $850 million plus closing adjustments of $158 million (subject to post-closing adjustments, if any), and the assumption by Molina of liabilities of the MCC Business.

In connection with the MCC Sale, the Company and Molina have entered into commercial agreements for certain behavioral health, utilization management and related services to be provided by the Company to Molina and the MCC Business. These commercial agreements are subject to termination in connection with the Company’s pending Merger with Centene and may not be implemented. In addition, the parties entered into a transition services agreement pursuant to which the Company and certain of its affiliates 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 components of income from discontinued operations that is included in the Company’s consolidated income statements for the three months ended March 31, 2020 and 2021 (in thousands):

	Three Months Ended
	March 31,
	2020		2021
Managed care and other revenue	$	720,034	$	—
Costs and expenses:
Cost of care		602,534		—
Direct service costs and other operating expenses (1)(2)(3)		84,497		926
Depreciation and amortization		5,326		—
Interest expense		71		—
Interest and other income		(2,540)		—
Total costs and expenses		689,888		926
Income (loss) from discontinued operation before income taxes		30,146		(926)
Provision (benefit) for income taxes		10,826		(244)
Net income (loss) from discontinued operations	$	19,320	$	(682)

(1) Includes stock compensation expense of $260 for the three months ended March 31, 2020.

(2) Includes divestiture related expenses of $605 for the three months ended March 31, 2020.

(3) Includes changes in estimates and transition support services for the three months ended March 31, 2021.

The Company has retained corporate overhead expenses previously allocated to MCC of $6.7 million for the three months ended March 31, 2020.

XML

Special Charges

3 Months Ended

Mar. 31, 2021

Special Charges

Special Charges

NOTE G—Special Charges

In 2020, the Company established a transformation office which has an initiative (the “Transformation Initiative”) to lower our operating costs and reinvest in our business by improving and automating processes, leveraging technology, consolidating platforms and reducing any friction our customers, providers and members experience when doing business with us. As part of the Transformation Initiative, the Company is in the process of restructuring certain operating activities which has resulted in the Company recording an adjustment to severance of $0.2 million for the three months ended March 31, 2021, within special charges in the consolidated statement of comprehensive income.

In addition, the Company reevaluated its current office lease footprint. Recoverability of existing operating right-of-use lease assets, and the related fixed assets held at the office locations, to be held and used are measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Any lease terminations or abandonments initiated as a result of the Transformation Initiative that result in an impairment of such right-of-use assets and the location’s related fixtures will be reported as special charges. For the three months ended March 31, 2021, lease terminations and abandonments resulted in the recognition of non-cash pre-tax impairment of $1.3 million, within special charges in the consolidated statement of comprehensive income. The impairment charge reduced the carrying value of these assets to their estimated fair value. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs. In addition, the Company accrued various lease shutdown costs of $0.1 million for the three months ended March 31, 2021, within special charges in the consolidated statement of comprehensive income.

The following table summarizes the components of special charges that are included in the Company’s consolidated statement of comprehensive income for the three months ended March 31, 2021 (in thousands):

Non-cash related special charges
Right-of-use assets	$	1,263
Fixed assets		14
Total non-cash related special charges		1,277
Cash related special charges
Employee severance and termination benefits		(209)
Lease shutdown costs		83
Total cash related special charges		(126)
Total special charges	$	1,151

A roll-forward of the Transformation Initiative liabilities is as follows (in thousands):

	Balance						Balance
	December 31,						March 31,
	2020		Additions		Payments		2021
Employee severance and termination benefits	$	10,983	$	(209)	$	(1,019)	$	9,755
Lease shutdown costs		610		83		(83)		610
	$	11,593	$	(126)	$	(1,102)	$	10,365

XML

General (Policies)

3 Months Ended

Mar. 31, 2021

General

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in the first quarter of 2021. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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” below. Actual results could differ from those estimates.

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 months ended March 31, 2020 and 2021 by major service line, type of customer and timing of revenue recognition (in thousands):

	Three Months Ended March 31, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	349,845	$	—	$	(90)	$	349,755
EAP risk-based		79,938		—		—		79,938
ASO		59,123		11,534		(83)		70,574
PBM, including dispensing		—		518,112		(4,567)		513,545
Medicare Part D		—		55,666		—		55,666
PBA		—		30,129		—		30,129
Formulary management		—		22,161		—		22,161
Other		—		611		—		611
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Type of Customer
Government	$	227,102	$	203,957	$	—	$	431,059
Non-government		261,804		434,256		(4,740)		691,320
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	573,778	$	(4,567)	$	569,211
Transferred over time		488,906		64,435		(173)		553,168
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379

	Three Months Ended March 31, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	373,442	$	—	$	(86)	$	373,356
EAP risk-based		88,120		—		—		88,120
ASO		71,448		11,817		(75)		83,190
PBM, including dispensing		—		538,796		(3,399)		535,397
Medicare Part D		—		176		—		176
PBA		—		49,882		—		49,882
Formulary management		—		29,183		—		29,183
Other		—		2,345		—		2,345
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Type of Customer
Government	$	256,292	$	156,038	$	—	$	412,330
Non-government		276,718		476,161		(3,560)		749,319
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	538,972	$	(3,399)	$	535,573
Transferred over time		533,010		93,227		(161)		626,076
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649

Per Member Per Month (“PMPM”) Revenue.  Almost all of the Healthcare revenue and a small portion of the Pharmacy Management revenue is paid on a PMPM basis. PMPM revenue is inclusive of revenue from the Company’s risk, EAP and ASO contracts and primarily relates to managed care contracts for services such as the provision of behavioral healthcare, specialty healthcare or pharmacy management. PMPM contracts generally have a term of one year or longer, with the exception of government contracts where the customer can terminate with as little as 30 days’ notice for no significant penalty. All managed care contracts have a single performance obligation that constitutes a series for the provision of managed healthcare services for a population of enrolled members for the duration of the contract. The transaction price for PMPM contracts is entirely variable as it primarily includes PMPM fees associated with unspecified membership that fluctuates throughout the contract. In certain contracts, PMPM fees also include adjustments for things such as performance incentives, performance guarantees and risk shares. The Company generally estimates the transaction price using an expected value methodology and amounts are only included in the net transaction price to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. The majority of the Company’s net PMPM 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 in the month in which members are entitled to service. The remaining transaction price is recognized over the contract period (or portion of the series to which it specifically relates) based upon estimated membership as a measure of progress.

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.

Pharmacy Benefit Administration Revenue. The Company provides Medicaid pharmacy services to states and other government sponsored programs. PBA contracts are generally multi-year arrangements but include language regarding early termination for convenience without material penalty provisions that results in enforceable rights and obligations on a month-to-month basis. In PBA arrangements, the Company is generally paid a fixed fee per month to provide PBA services. In addition, some PBA contracts contain upfront fees that constitute a material right. For contracts without an upfront fee, there is a single performance obligation to stand ready to provide the PBA services required for the contracted period. The Company believes that the customer receives the PBA benefits each day from access to the claims processing activities, and has concluded that a time-based measure is appropriate for recognizing PBA revenue. For contracts with an upfront fee, the material right represents an additional performance obligation. Amounts allocated to the material right are initially recorded as a contract liability and recognized as revenue over the anticipated period of benefit of the material right, which generally ranges from 2 to 10 years.

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 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,		March 31,
	2020		2021		$ Change		% Change
Accounts receivable	$	799,803	$	824,067	$	24,264		3.0%
Contract assets		3,566		4,678		1,112		31.2%
Contract liabilities - current		6,772		6,968		196		2.9%
Contract liabilities - long-term		11,073		11,453		380		3.4%

Accounts receivable, which are included in accounts receivable, other current assets and other long-term assets on the consolidated balance sheets, increased by $24.3 million, mainly due to timing of receipts. Contract assets, which are included in other current assets on the consolidated balance sheets, increased by $1.1 million, mainly due to the timing of accrual of certain performance incentives. Contract liabilities – current, which are included in accrued liabilities on the consolidated balance sheets, increased by $0.2 million, mainly due to certain revenue payments received in advance. Contract liabilities – long-term, which are included in deferred credits and other long-term liabilities on the consolidated balance sheets, increased by $0.4 million mainly due to payments received for which recognition will be long term partially offset by certain balances which became current.

During the three months ended March 31 2021, the Company recognized revenue of $2.0 million that was included in current contract liabilities at December 31, 2020. The estimated timing of recognition of amounts included in contract liabilities at March 31, 2021 are as follows: 2021—$6.0 million; 2022—$4.0 million; 2023—$3.6 million; 2024 and beyond—$4.8 million. During the three months ended March 31, 2021, 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.

Customers exceeding ten percent of segment net revenues

The following customers generated in excess of ten percent of net revenues from continuing operations for the respective segment for the three months ended March 31, 2020 and 2021 (in thousands):

Segment	Term Date	2020		2021
Healthcare
Customer A	December 31, 2021	$	88,539	$	92,982
Customer B	December 31, 2022		49,438		55,486
Pharmacy Management
Customer C	March 31, 2024		98,617		88,651

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 Centers for Medicare and Medicaid Services (“CMS”) and with various agencies and departments of the United States federal government. Net revenues from the Pennsylvania Counties in the aggregate totaled $137.0 million and $152.7 million for the three months ended March 31, 2020 and 2021, respectively. Net revenues from members in relation to its contracts with CMS in aggregate totaled $55.7 million and $0.2 million for the three months ended March 31, 2020 and 2021, respectively. As of December 31, 2020 and March 31, 2021, the Company had $69.6 million and $55.2 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 $69.9 million and $77.7 million for the three months ended March 31, 2020 and 2021, respectively.

The Company’s contracts with customers typically have stated 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 30 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.

Leases

Leases

The Company leases certain office space, distribution centers, land and equipment. We assess each contract 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 to ten years. The exercise of renewal options are at the sole discretion of the Company. Renewal options that the Company is reasonably certain to accept are recognized as part of the right-of-use (“ROU”) asset.

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 months ended March 31, 2021 (in thousands):

	Three Months Ended March 31, 2021
Operating lease cost	$	2,408
Finance lease cost:
Amortization of right-of-use asset		707
Interest on lease liabilities		166
Total finance lease cost		873
Short-term lease cost		40
Variable lease cost		224
Total lease cost		3,545
Sublease income		(7)
Net lease cost	$	3,538

The following table shows the components of the lease assets and liabilities as of March 31, 2021 (in thousands):

	March 31, 2021
Operating leases:
Other long-term assets	$	32,053
Accrued liabilities	$	10,597
Deferred credits and other long-term liabilities		33,626
Total operating lease liabilities	$	44,223
Finance leases:
Property and equipment, net	$	12,183
Current debt, finance lease and deferred financing obligations	$	4,455
Long-term debt, finance lease and deferred financing obligations		10,783
Total finance lease liabilities	$	15,238

The maturity dates of the Company’s leases as of March 31, 2021 are summarized below (in thousands):

	March 31, 2021
2021	$	11,819
2022		14,893
2023		12,399
2024		10,616
2025		5,358
2026 and beyond		5,556
Total lease payments		60,641
Less interest		(1,180)
Present value of lease liabilities	$	59,461

The following table shows the weighted average remaining lease term and discount rate as of March 31, 2021:

	March 31, 2021
Weighted average remaining lease term years
Operating leases		4.98
Finance leases		3.52
Weighted average discount rate
Operating leases		3.18%
Finance leases		4.40%

Supplemental cash flow information relating to leases is as follows (in thousands):

	Year ended March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,661
Operating cash flows from finance leases		1,121
Financing cash flows from finance leases		166
Right-of-use asset obtained in exchange for new lease obligation
Operating leases		—
Finance leases		—

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, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	679,554	$	—	$	679,554
Investments:
U.S. Government and agency securities		42,399		—		—		42,399
Corporate debt securities		—		99,749		—		99,749
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	42,399	$	780,614	$	—	$	823,013

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (2)	$	—	$	447,627	$	—	$	447,627
Investments:
U.S. Government and agency securities		332,403		—		—		332,403
Corporate debt securities		—		296,716		—		296,716
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	332,403	$	745,654	$	—	$	1,078,057

(1) Excludes $464.9 million of cash held in bank accounts by the Company.

(2) Excludes $8.7 million of cash held in bank accounts by the Company.

For the three months ended March 31, 2021, 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 $387.4 million as of March 31, 2021 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 $158.8 million as of March 31, 2021 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 March 31, 2021, the Company had book overdrafts of $2.1 million. At March 31, 2021, the Company’s excess capital and undistributed earnings for the Company’s regulated subsidiaries of approximately $50 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, 2020 and March 31, 2021, 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 ended March 31, 2020 or 2021. The following is a summary of short-term and long-term investments at December 31, 2020 and March 31, 2021 (in thousands):

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	42,389	$	11	$	(1)	$	42,399
Corporate debt securities		99,861		3		(115)		99,749
Certificates of deposit		1,311		—		—		1,311
Total investments at December 31, 2020	$	143,561	$	14	$	(116)	$	143,459

	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	332,375	$	29	$	(1)	$	332,403
Corporate debt securities		296,833		14		(131)		296,716
Certificates of deposit		1,311		—		—		1,311
Total investments at March 31, 2021	$	630,519	$	43	$	(132)	$	630,430

The maturity dates of the Company’s investments as of March 31, 2021 are summarized below (in thousands):

	Amortized		Estimated
	Cost		Fair Value
2021	$	625,439	$	625,350
2022		5,080		5,080
Total investments at March 31, 2021	$	630,519	$	630,430

Income Taxes

Income Taxes

The Company’s effective income tax rates from continuing operations were 122.8 percent and 27.7 percent for the three months ended March 31, 2020 and 2021, respectively. These rates differ from the applicable federal statutory income tax rate primarily due to state income taxes and permanent differences between book and tax income. 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 three months ended March 31, 2020 is primarily due to the impact of the non-deductible health insurance fee (“HIF”) relative to the reduced level of earnings of the period. Congress repealed the HIF effective for plan years after December 31, 2020.

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.

The Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law on December 27, 2020 and The American Rescue Plan Act of 2021 was signed March 11, 2021. All three acts provide widespread emergency relief for the economy and aid to corporations including several significant provisions related to taxes. As of March 31, 2021, the Company has not utilized (nor does it anticipate utilizing) any of the provisions that would result in a material impact on its results.

State Net Operating Loss Carryforwards

The Company and its subsidiaries have $75.0 million of net operating loss carryovers (“NOLs”) available to reduce state and local taxable income at certain subsidiaries in 2021 and subsequent years. Most of these NOLs will expire in 2021 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.

Deferred tax assets as of December 31, 2020 and March 31, 2021 are shown net of valuation allowances of $0.9 million and $0.9 million, respectively. 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

The Patient Protection and the Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Law”), imposed a mandatory annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The Company obtained rate adjustments from customers which the Company expects will cover the direct costs of these fees and the impact from non-deductibility of such fees for federal and state income tax purposes. Congress repealed the HIF fee effective for plan years after December 31, 2020. For 2020 the HIF fee was $36.2 million, of which $12.4 related to continuing operations, which was paid in 2020.

Goodwill

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

Stock Compensation

Stock Compensation

At December 31, 2020 and March 31, 2021, 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, 2020, which was filed with the SEC on February 26, 2021. The Company recorded stock compensation expense of $7.1 million for the three months ended March 31, 2021. Stock compensation expense recognized in the consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2021 has been reduced for forfeitures, estimated at between zero and four percent for all periods.

For the three months ended March 31, 2020, tax expense on deficiencies (net of the tax deductions in excess of recognized stock compensation expense) was $1.4 million, which was included as an increase to income tax expense. For the three months ended March 31, 2021, the benefit of tax deductions in excess of recognized stock compensation expense (net of deficiencies) was $1.1 million, which was included as a reduction of income tax expense.

Summarized information related to the Company’s stock options for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(19,960)		89.13
Exercised	(109,381)		68.26
Outstanding, end of period	915,942	$	76.05
Vested and expected to vest at end of period	914,068	$	76.07
Exercisable, end of period	816,244	$	77.24

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	—		—
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	54,314		77.33

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	428,362	$	65.83
Awarded	275,619		92.85
Vested	(148,546)		67.77
Forfeited	(887)		70.40
Outstanding, ending of period	554,548		78.73

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 three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

Long Term Debt and Finance Lease Obligations

Long-Term Debt and Finance Lease Obligations

The following table shows the components of debt and finance lease obligations, including the current component, at December 31, 2020 and March 31, 2021 (in thousands):

	December 31,		March 31,
	2020		2021
Senior Notes	$	359,632	$	359,656
Term loan		263,125		158,750
Other loan		2,154		2,154
Finance leases - land and equipment		16,359		15,238
Finance leases - software as service arrangements		1,298		1,288
Deferred loan costs		(4,192)		(3,861)
Total debt and finance lease obligations	$	638,376	$	533,225

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, and is 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. Since the public offering, the Company purchased and subsequently retired $40.0 million of it’s Notes, of which $28.9 million was purchased and subsequently retired in March 2020 that resulted in a loss on retirement of $0.7 million that is included in interest expense. The Notes were issued at a discount and had a carrying value of $359.6 million and $359.7 million at December 31, 2020 and March 31, 2021, 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 interest rate on the Notes on March 31, 2021 was 4.900%. 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 through December 31, 2019, and which was necessary in order for the Company 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-half of one percent in excess of the overnight “federal funds” rate, or the Eurodollar rate for one month plus 1.000 percent, or (ii) in the case of Eurodollar rate loans, the sum of an initial borrowing margin of 1.500 percent plus the Eurodollar rate for the selected interest period. The borrowing margin is subject to adjustment based on the Company’s debt rating as provided

by certain rating agencies. The Company has the option to borrow in base rate loans or Eurodollar rate loans at its discretion. The Company has elected to borrow in Eurodollar rate loans that currently have a borrowing margin of 1.75 percent plus the Eurodollar rate for the selected interest period. For three months ended March 31, 2021, the weighted average interest rate on the term loan facility was approximately 2.01 percent. The interest rate on the term loan facility was 1.86% on March 31, 2021. The term loan facility balance under the 2017 Credit Agreement totaled $263.1 million and $158.8 million as of December 31, 2020 and March 31, 2021, respectively.

In March 2021, the Company made voluntary term loan repayments of $100.0 million. As of March 31, 2021, the contractual maturities, totaling $158.8 million of the term loan under the 2017 Credit Agreement were as follows: 2021—$0.0 million; 2022—$0.0 million; and 2023—$158.8 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, 2020 and March 31, 2021, the Company had no revolving loans, resulting in borrowing capacity of $400.0 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, 2020 and March 31, 2021 of $4.2 million and $3.9 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, 2020 and March 31, 2021 of $32.1 million and $33.0 million, respectively.

Finance Lease and Deferred Financing Obligations

There were $16.4 million and $15.2 million of finance lease and deferred financing obligations at December 31, 2020 and March 31, 2021, 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 $43.0 million and $43.0 million at December 31, 2020 and March 31, 2021, respectively.

Redeemable Non-Controlling Interest

Redeemable Non-Controlling Interest

As of March 31, 2021, the Company held a 70% equity interest in Aurelia Health, LLC (“Aurelia”). The other shareholders of Aurelia have the right to exercise put options, requiring the Company to purchase up to 33.3% of the remaining shares during the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter. In addition, for the thirty-day period beginning on January 15, 2022 and each subsequent anniversary thereafter, the Company has the right to purchase 33.3% of the remaining shares (“call option”). The redemption price for these put and call options is based on a fixed multiple of the trailing twelve-month EBITDA at the redemption date. Non-controlling interests with redemption features, such as put options, that are not solely within the Company’s control are considered redeemable non-controlling interests. Redeemable non-controlling interest is considered to be temporary and is therefore reported in a mezzanine level between liabilities and stockholders’ equity on the Company’s consolidated balance sheet at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of net income or loss or its redemption value. The carrying value of the non-controlling interest as of December 31, 2020 and March 31, 2021 was $33.1 million and $33.3 million, respectively. The Company evaluates the redemption value on a quarterly basis. If the redemption value is greater than the carrying value, the Company will adjust the carrying amount of the non-controlling interest to equal the redemption value at the end of each reporting period. Under this method, this is viewed at the end of the reporting period as if it were also the redemption date for the non-controlling interest. The Company will reflect redemption value adjustments in the earnings per share (“EPS”) calculation if redemption value is in excess of the carrying value of the non-controlling interest. As of March 31, 2021, the carrying value of the non-controlling interest exceeded the redemption value and therefore no adjustment to the carrying value was required.

XML

General (Tables)

3 Months Ended

Mar. 31, 2021

General

Schedule of disaggregation of revenue by major service line, type of customer and timing of revenue recognition

	Three Months Ended March 31, 2020
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	349,845	$	—	$	(90)	$	349,755
EAP risk-based		79,938		—		—		79,938
ASO		59,123		11,534		(83)		70,574
PBM, including dispensing		—		518,112		(4,567)		513,545
Medicare Part D		—		55,666		—		55,666
PBA		—		30,129		—		30,129
Formulary management		—		22,161		—		22,161
Other		—		611		—		611
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Type of Customer
Government	$	227,102	$	203,957	$	—	$	431,059
Non-government		261,804		434,256		(4,740)		691,320
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	573,778	$	(4,567)	$	569,211
Transferred over time		488,906		64,435		(173)		553,168
Total net revenue	$	488,906	$	638,213	$	(4,740)	$	1,122,379

	Three Months Ended March 31, 2021
	Healthcare		Pharmacy Management		Elimination		Total
Major Service Lines
Behavioral & Specialty Health
Risk-based, non-EAP	$	373,442	$	—	$	(86)	$	373,356
EAP risk-based		88,120		—		—		88,120
ASO		71,448		11,817		(75)		83,190
PBM, including dispensing		—		538,796		(3,399)		535,397
Medicare Part D		—		176		—		176
PBA		—		49,882		—		49,882
Formulary management		—		29,183		—		29,183
Other		—		2,345		—		2,345
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Type of Customer
Government	$	256,292	$	156,038	$	—	$	412,330
Non-government		276,718		476,161		(3,560)		749,319
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649
Timing of Revenue Recognition
Transferred at a point in time	$	—	$	538,972	$	(3,399)	$	535,573
Transferred over time		533,010		93,227		(161)		626,076
Total net revenue	$	533,010	$	632,199	$	(3,560)	$	1,161,649

Schedule of accounts receivable, contract assets and contract liabilities

	December 31,		March 31,
	2020		2021		$ Change		% Change
Accounts receivable	$	799,803	$	824,067	$	24,264		3.0%
Contract assets		3,566		4,678		1,112		31.2%
Contract liabilities - current		6,772		6,968		196		2.9%
Contract liabilities - long-term		11,073		11,453		380		3.4%

Schedule of customers generating in excess of ten percent of net revenues for respective segment

Segment	Term Date	2020		2021
Healthcare
Customer A	December 31, 2021	$	88,539	$	92,982
Customer B	December 31, 2022		49,438		55,486
Pharmacy Management
Customer C	March 31, 2024		98,617		88,651

Schedule of leases

	Three Months Ended March 31, 2021
Operating lease cost	$	2,408
Finance lease cost:
Amortization of right-of-use asset		707
Interest on lease liabilities		166
Total finance lease cost		873
Short-term lease cost		40
Variable lease cost		224
Total lease cost		3,545
Sublease income		(7)
Net lease cost	$	3,538

	March 31, 2021
Operating leases:
Other long-term assets	$	32,053
Accrued liabilities	$	10,597
Deferred credits and other long-term liabilities		33,626
Total operating lease liabilities	$	44,223
Finance leases:
Property and equipment, net	$	12,183
Current debt, finance lease and deferred financing obligations	$	4,455
Long-term debt, finance lease and deferred financing obligations		10,783
Total finance lease liabilities	$	15,238

	March 31, 2021
Weighted average remaining lease term years
Operating leases		4.98
Finance leases		3.52
Weighted average discount rate
Operating leases		3.18%
Finance leases		4.40%

Year ended March 31, 2021

Schedule of maturity dates of leases

	March 31, 2021
2021	$	11,819
2022		14,893
2023		12,399
2024		10,616
2025		5,358
2026 and beyond		5,556
Total lease payments		60,641
Less interest		(1,180)
Present value of lease liabilities	$	59,461

Schedule of fair value of financial assets and liabilities

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (1)	$	—	$	679,554	$	—	$	679,554
Investments:
U.S. Government and agency securities		42,399		—		—		42,399
Corporate debt securities		—		99,749		—		99,749
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	42,399	$	780,614	$	—	$	823,013

	March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents (2)	$	—	$	447,627	$	—	$	447,627
Investments:
U.S. Government and agency securities		332,403		—		—		332,403
Corporate debt securities		—		296,716		—		296,716
Certificates of deposit		—		1,311		—		1,311
Total assets held at fair value	$	332,403	$	745,654	$	—	$	1,078,057

(1) Excludes $464.9 million of cash held in bank accounts by the Company.

(2) Excludes $8.7 million of cash held in bank accounts by the Company.

Summary of short-term and long-term investments

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	42,389	$	11	$	(1)	$	42,399
Corporate debt securities		99,861		3		(115)		99,749
Certificates of deposit		1,311		—		—		1,311
Total investments at December 31, 2020	$	143,561	$	14	$	(116)	$	143,459

	March 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
U.S. Government and agency securities	$	332,375	$	29	$	(1)	$	332,403
Corporate debt securities		296,833		14		(131)		296,716
Certificates of deposit		1,311		—		—		1,311
Total investments at March 31, 2021	$	630,519	$	43	$	(132)	$	630,430

Summary of maturity dates of investments

	Amortized		Estimated
	Cost		Fair Value
2021	$	625,439	$	625,350
2022		5,080		5,080
Total investments at March 31, 2021	$	630,519	$	630,430

Schedule of stock option activity

Summarized information related to the Company’s stock options for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(19,960)		89.13
Exercised	(109,381)		68.26
Outstanding, end of period	915,942	$	76.05
Vested and expected to vest at end of period	914,068	$	76.07
Exercisable, end of period	816,244	$	77.24

Summarized information related to the Company’s nonvested restricted stock awards (“RSAs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	—		—
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	54,314		77.33

Summarized information related to the Company’s nonvested restricted stock units (“RSUs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	428,362	$	65.83
Awarded	275,619		92.85
Vested	(148,546)		67.77
Forfeited	(887)		70.40
Outstanding, ending of period	554,548		78.73

Schedule of nonvested restricted stock award activity

		Weighted
		Average
		Exercise
	Options	Price
Outstanding, beginning of period	1,045,283	$	75.48
Granted	—		—
Forfeited	(19,960)		89.13
Exercised	(109,381)		68.26
Outstanding, end of period	915,942	$	76.05
Vested and expected to vest at end of period	914,068	$	76.07
Exercisable, end of period	816,244	$	77.24

Schedule of nonvested restricted stock units

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	54,314	$	77.33
Awarded	—		—
Vested	—		—
Forfeited	—		—
Outstanding, ending of period	54,314		77.33

Schedule of nonvested restricted performance stock units

Summarized information related to the Company’s nonvested restricted performance stock units (“PSUs”) for the three months ended March 31, 2021 is as follows:

		Weighted
		Average
		Grant Date
	Shares	Fair Value
Outstanding, beginning of period	278,945	$	99.80
Awarded	—		—
Vested	—		—
Forfeited	(63,324)		141.61
Outstanding, end of period	215,621		87.51

Schedule of the components of debt and finance lease obligations

	December 31,		March 31,
	2020		2021
Senior Notes	$	359,632	$	359,656
Term loan		263,125		158,750
Other loan		2,154		2,154
Finance leases - land and equipment		16,359		15,238
Finance leases - software as service arrangements		1,298		1,288
Deferred loan costs		(4,192)		(3,861)
Total debt and finance lease obligations	$	638,376	$	533,225

XML

Net Income per Common Share Attributable to Magellan Health, Inc. (Tables)

3 Months Ended

Mar. 31, 2021

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 months ended March 31:

	Three Months Ended
	March 31,
	2020		2021
Numerator:
Net (loss) income from continuing operations	$	(1,070)	$	28,509
Income (loss) from discontinued operations, net of tax		19,320		(682)
Net income	$	18,250	$	27,827
Denominator:
Weighted average number of common shares outstanding—basic		24,728		25,948
Common stock equivalents—stock options		61		186
Common stock equivalents—RSAs		21		19
Common stock equivalents—RSUs		50		196
Common stock equivalents—PSUs		—		201
Common stock equivalents—employee stock purchase plan		9		3
Weighted average number of common shares outstanding—diluted		24,869		26,553
Net (loss) income per common share—basic:
Continuing operations	$	(0.04)	$	1.10
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.07
Net (loss) income per common share—diluted:
Continuing operations	$	(0.04)	$	1.07
Discontinued operations		0.78		(0.03)
Consolidated operations	$	0.74	$	1.04

XML

Business Segment Information (Tables)

3 Months Ended

Mar. 31, 2021

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 March 31, 2020
Managed care and other revenue	$	488,906	$	64,435	$	(173)	$	553,168
PBM revenue		—		573,778		(4,567)		569,211
Cost of care		(349,108)		—		—		(349,108)
Cost of goods sold		—		(537,574)		4,333		(533,241)
Direct service costs and other		(105,936)		(81,866)		(16,439)		(204,241)
Stock compensation expense (1)		1,761		2,107		1,929		5,797
Segment Profit (Loss)	$	35,623	$	20,880	$	(14,917)	$	41,586

					Corporate
			Pharmacy		and
	Healthcare		Management		Elimination		Consolidated
Three Months Ended March 31, 2021
Managed care and other revenue	$	533,010	$	93,227	$	(161)	$	626,076
PBM revenue		—		538,972		(3,399)		535,573
Cost of care		(379,191)		—		—		(379,191)
Cost of goods sold		—		(495,593)		3,223		(492,370)
Direct service costs and other		(114,993)		(104,596)		(11,432)		(231,021)
Legal matter settlement		—		9,000		—		9,000
Stock compensation expense (1)		2,519		2,696		1,842		7,057
Segment Profit (Loss)	$	41,345	$	43,706	$	(9,927)	$	75,124

(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
	March 31,
	2020		2021
Income from continuing operations before income taxes	$	4,692	$	39,414
Stock compensation expense		5,797		7,057
Depreciation and amortization		23,358		21,417
Interest expense		8,958		6,426
Interest and other income		(1,219)		(341)
Special charges		—		1,151
Segment Profit from continuing operations	$	41,586	$	75,124

XML

Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies

Schedule of stock repurchases made

	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 - December 31, 2020	—		—		—
January 1, 2021 - March 31, 2021	—		—		—
	3,359,140			$	213.7

XML

Discontinued Operations (Tables)

3 Months Ended

Mar. 31, 2021

Discontinued Operations

Summary of the components of income from discontinued operation

	Three Months Ended
	March 31,
	2020		2021
Managed care and other revenue	$	720,034	$	—
Costs and expenses:
Cost of care		602,534		—
Direct service costs and other operating expenses (1)(2)(3)		84,497		926
Depreciation and amortization		5,326		—
Interest expense		71		—
Interest and other income		(2,540)		—
Total costs and expenses		689,888		926
Income (loss) from discontinued operation before income taxes		30,146		(926)
Provision (benefit) for income taxes		10,826		(244)
Net income (loss) from discontinued operations	$	19,320	$	(682)

(1) Includes stock compensation expense of $260 for the three months ended March 31, 2020.

(2) Includes divestiture related expenses of $605 for the three months ended March 31, 2020.

(3) Includes changes in estimates and transition support services for the three months ended March 31, 2021.

XML

Special Charges (Tables)

3 Months Ended

Mar. 31, 2021

Special Charges

Summary of the components of special charges

Non-cash related special charges
Right-of-use assets	$	1,263
Fixed assets		14
Total non-cash related special charges		1,277
Cash related special charges
Employee severance and termination benefits		(209)
Lease shutdown costs		83
Total cash related special charges		(126)
Total special charges	$	1,151

Roll-forward of the Transformation Initiative liabilities

	Balance						Balance
	December 31,						March 31,
	2020		Additions		Payments		2021
Employee severance and termination benefits	$	10,983	$	(209)	$	(1,019)	$	9,755
Lease shutdown costs		610		83		(83)		610
	$	11,593	$	(126)	$	(1,102)	$	10,365

XML

General - Discontinued Operations (Details) - USD ($) $ / shares in Units, $ in Millions	Jan. 04, 2021	Mar. 31, 2021	Dec. 31, 2020
Merger Agreement
Discontinued Operations
Cash price paid per share	$ 95.00
MCC Business | Discontinued Operations, Disposed of by Sale
Discontinued Operations
Disposal Group, Including Discontinued Operation, Consideration		$ 850	$ 850
Disposal Group, Including Discontinued Operation, Consideration, Closing Adjustments		$ 158	$ 158

XML

General - Business Overview (Details)	3 Months Ended
	Mar. 31, 2021 segment
General
Number of segments	3

XML

General - Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating results by business segment
Net revenue	$ 1,161,649	$ 1,122,379
Transferred at a point in time
Operating results by business segment
Net revenue	535,573	569,211
Transferred over time
Operating results by business segment
Net revenue	626,076	553,168
Government
Operating results by business segment
Net revenue	412,330	431,059
Non-government
Operating results by business segment
Net revenue	749,319	691,320
Behavioral & Specialty Health, risk-based, non-EAP
Operating results by business segment
Net revenue	373,356	349,755
Behavioral & Specialty Health, EAP risk-based
Operating results by business segment
Net revenue	88,120	79,938
Behavioral & Specialty Health, ASO
Operating results by business segment
Net revenue	83,190	70,574
PBM, including dispensing
Operating results by business segment
Net revenue	535,397	513,545
Medicare Part D
Operating results by business segment
Net revenue	176	55,666
PBA
Operating results by business segment
Net revenue	49,882	30,129
Formulary management
Operating results by business segment
Net revenue		22,161
Formulary management | Government
Operating results by business segment
Net revenue	29,183
Other service lines
Operating results by business segment
Net revenue		611
Other service lines | Non-government
Operating results by business segment
Net revenue	2,345
Healthcare
Operating results by business segment
Net revenue	533,010	488,906
Healthcare | Transferred over time
Operating results by business segment
Net revenue	533,010	488,906
Healthcare | Government
Operating results by business segment
Net revenue	256,292	227,102
Healthcare | Non-government
Operating results by business segment
Net revenue	276,718	261,804
Healthcare | Behavioral & Specialty Health, risk-based, non-EAP
Operating results by business segment
Net revenue	373,442	349,845
Healthcare | Behavioral & Specialty Health, EAP risk-based
Operating results by business segment
Net revenue	88,120	79,938
Healthcare | Behavioral & Specialty Health, ASO
Operating results by business segment
Net revenue	71,448	59,123
Pharmacy Management
Operating results by business segment
Net revenue	632,199	638,213
Pharmacy Management | Transferred at a point in time
Operating results by business segment
Net revenue	538,972	573,778
Pharmacy Management | Transferred over time
Operating results by business segment
Net revenue	93,227	64,435
Pharmacy Management | Government
Operating results by business segment
Net revenue	156,038	203,957
Pharmacy Management | Non-government
Operating results by business segment
Net revenue	476,161	434,256
Pharmacy Management | Behavioral & Specialty Health, ASO
Operating results by business segment
Net revenue	11,817	11,534
Pharmacy Management | PBM, including dispensing
Operating results by business segment
Net revenue	538,796	518,112
Pharmacy Management | Medicare Part D
Operating results by business segment
Net revenue	176	55,666
Pharmacy Management | PBA
Operating results by business segment
Net revenue	49,882	30,129
Pharmacy Management | Formulary management
Operating results by business segment
Net revenue		22,161
Pharmacy Management | Formulary management | Government
Operating results by business segment
Net revenue	29,183
Pharmacy Management | Other service lines
Operating results by business segment
Net revenue		611
Pharmacy Management | Other service lines | Non-government
Operating results by business segment
Net revenue	2,345
Elimination
Operating results by business segment
Net revenue	(3,560)	(4,740)
Elimination | Transferred at a point in time
Operating results by business segment
Net revenue	(3,399)	(4,567)
Elimination | Transferred over time
Operating results by business segment
Net revenue	(161)	(173)
Elimination | Non-government
Operating results by business segment
Net revenue	(3,560)	(4,740)
Elimination | Behavioral & Specialty Health, risk-based, non-EAP
Operating results by business segment
Net revenue	(86)	(90)
Elimination | Behavioral & Specialty Health, ASO
Operating results by business segment
Net revenue	(75)	(83)
Elimination | PBM, including dispensing
Operating results by business segment
Net revenue	$ (3,399)	$ (4,567)

XML

General - Per Member Per Month Revenue (Details)	3 Months Ended
	Mar. 31, 2021
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

XML

General - Pharmacy Benefit Management Revenue (Details)	3 Months Ended
	Mar. 31, 2021
Minimum
Operating results by business segment
Expected term of PBM relationship	1 year

XML

General - Pharmacy Benefit Administration Revenue (Details)	3 Months Ended
	Mar. 31, 2021
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

XML

General - Formulary Management Revenue (Details)	3 Months Ended
	Mar. 31, 2021
Minimum
Operating results by business segment
Term of formulary management contract	1 year

XML

General - Accounts Receivable, Contract Assets and Contract Liabilities - Tabular Disclosure (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Summary of Significant Accounting Policies
Accounts receivable	$ 824,067	$ 799,803
Change in accounts receivable	$ 24,264
Change in accounts receivable (as a percent)	3.00%
Contract assets	$ 4,678	3,566
Change in contract assets	$ (1,112)
Change in contract assets (as a percent)	31.20%
Contract liabilities - current	$ 6,968	6,772
Change in contract liabilities - current	$ 196
Change in contract liabilities - current (as a percent)	2.90%
Contract liabilities - long-term	$ 11,453	$ 11,073
Change in contract liabilities - long-term	$ 380
Change in contract liabilities - long-term (as a percent)	3.40%

XML

General - Accounts Receivable, Contract Assets and Contract Liabilities - Additional Information (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($)
Contract liabilities
Revenue recognized previously included in current contract liabilities	$ 2.0

XML

General - Accounts Receivable, Contract Assets and Contract Liabilities - Performance Obligation (Details) $ in Millions	Mar. 31, 2021 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-04-01
Performance obligation
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	9 months
Estimated revenue to be recognized	$ 6.0
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	$ 4.0
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	12 months
Estimated revenue to be recognized	$ 3.6
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01
Performance obligation
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	0 months
Estimated revenue to be recognized	$ 4.8

XML

General - Customers Exceeding Ten Percent of Consolidated Net Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Significant customers
Revenue from Contract with Customer, Including Assessed Tax	$ 1,161,649	$ 1,122,379
MCC Business | Discontinued Operations, Held-for-sale
Significant customers
Managed care and other revenue		$ 720,034
Maximum
Significant customers
Term of contracts with customers	3 years
Term of contract extensions or renewals	2 years

XML

General - Customers Exceeding Ten Percent of Segment Revenues (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Significant customers
Revenues	$ 1,161,649	$ 1,122,379
Healthcare
Significant customers
Revenues	533,010	488,906
Healthcare | Customer A
Significant customers
Revenues	92,982	88,539
Healthcare | Customer B
Significant customers
Revenues	55,486	49,438
Pharmacy Management
Significant customers
Revenues	632,199	638,213
Pharmacy Management | Customer C
Significant customers
Revenues	$ 88,651	$ 98,617

XML

General - Concentration of Business (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Significant customers
Net revenue	$ 1,161,649	$ 1,122,379
Accounts receivable, net	$ 793,504		$ 743,502
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	$ 152,700	137,000
CMS
Significant customers
Net revenue	200	55,700
Accounts receivable, net	55,200		$ 69,600
United States federal government
Significant customers
Net revenue	$ 77,700	$ 69,900

XML

General - Leases - General Information (Details)	3 Months Ended
	Mar. 31, 2021 lease
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

XML

General - Leases - Lease Expenses (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Components of leases expenses:
Operating lease cost	$ 2,408
Amortization of right-of-use asset	707
Interest on lease liabilities	166
Total finance lease cost	873
Short-term lease cost	40
Variable lease cost	224
Total lease cost	3,545
Sublease income	(7)
Net lease cost	$ 3,538

XML

General - Leases - Assets and Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Components of lease assets and liabilities
Operating lease right-of-use assets	$ 32,053
Operating Lease, Right-of-Use Asset, Statement of Financial Position	Other long-term assets
Current operating lease liabilities	$ 10,597
Operating Lease, Liability, Current, Statement of Financial Position	Accrued liabilities
Long-term operating lease liabilities	$ 33,626
Operating Lease, Liability, Noncurrent, Statement of Financial Position	Deferred credits and other long-term liabilities
Total operating lease liabilities	$ 44,223
Operating Lease, Liability, Statement of Financial Position	us-gaap:AccruedLiabilitiesCurrent us-gaap:DeferredCreditsAndOtherLiabilitiesNoncurrent
Finance lease assets	$ 12,183
Finance Lease, Right-of-Use Asset, Statement of Financial Position	Property and equipment, net
Current finance lease liabilities	$ 4,455
Finance Lease, Liability, Current, Statement of Financial Position	Current debt, finance lease and deferred financing obligations
Long-term finance lease liabilities	$ 10,783
Finance Lease, Liability, Noncurrent, Statement of Financial Position	Long-term debt, finance lease and deferred financing obligations
Total finance lease liabilities	$ 15,238	$ 16,400
Total lease liabilities	$ 59,461

XML

General - Leases - Maturity Dates (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Leases
2020	$ 11,819
2021	14,893
2022	12,399
2023	10,616
2024	5,358
2025 and beyond	5,556
Total lease payments	$ 60,641

XML

General - Leases - Gross Difference (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Leases
Total lease payments	$ 60,641
Less interest	(1,180)
Present value of lease liabilities	$ 59,461

XML

General - Leases - Weighted Average Remaining Lease Term and Discount Rate (Details)	Mar. 31, 2021
Leases
Weighted average remaining lease term, operating leases	4 years 11 months 23 days
Weighted average remaining lease term, finance leases	3 years 6 months 7 days
Weighted average discount rate, operating leases	3.18%
Weighted average discount rate, finance leases	4.40%

XML

General - Leases - Supplemental Cash Flow Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Leases
Operating cash flows from operating leases	$ 4,661
Operating cash flows from finance leases	1,121
Financing cash flows from finance leases	$ 166

XML

General - Fair Value Measurements (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Assets
Investments	$ 630,430	$ 143,459
Cash held in bank accounts	8,700	464,900
U.S. Government and agency securities
Assets
Investments	332,403	42,399
Corporate debt securities
Assets
Investments	296,716	99,749
Certificates of deposit
Assets
Investments	1,311	1,311
Level 1 | 4.400% Senior Notes due 2024
Liabilities
Long-term Debt, Fair Value	387,400
Level 2 | 2017 Credit Agreement, senior unsecured term loan facility
Liabilities
Long-term Debt, Fair Value	158,800
Fair Value, Recurring
Assets
Total assets held at fair value	1,078,057	823,013
Fair Value, Recurring | Other Than Cash In Entity Bank Accounts Member
Assets
Cash and cash equivalents	447,627	679,554
Fair Value, Recurring | U.S. Government and agency securities
Assets
Investments	332,403	42,399
Fair Value, Recurring | Corporate debt securities
Assets
Investments	296,716	99,749
Fair Value, Recurring | Certificates of deposit
Assets
Investments	1,311	1,311
Fair Value, Recurring | Level 1
Assets
Total assets held at fair value	332,403	42,399
Fair Value, Recurring | Level 1 | U.S. Government and agency securities
Assets
Investments	332,403	42,399
Fair Value, Recurring | Level 2
Assets
Total assets held at fair value	745,654	780,614
Fair Value, Recurring | Level 2 | Other Than Cash In Entity Bank Accounts Member
Assets
Cash and cash equivalents	447,627	679,554
Fair Value, Recurring | Level 2 | Corporate debt securities
Assets
Investments	296,716	99,749
Fair Value, Recurring | Level 2 | Certificates of deposit
Assets
Investments	$ 1,311	$ 1,311

XML

General - Cash And Cash Equivalents (Details) $ in Millions	Mar. 31, 2021 USD ($)
Cash and Cash Equivalents
Book overdrafts	$ 2.1
Excess capital and undistributed earnings for regulated subsidiaries included in cash and cash equivalents	$ 50.0

XML

General - Investments - Realized Gains or Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Realized gains or losses
Realized gains or losses	$ 0	$ 0	$ 0	$ 0

XML

General - Investments - Amortized Cost (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Amortized cost
Amortized Cost	$ 630,519	$ 143,561
Gross Unrealized Gains	43	14
Gross Unrealized Losses	(132)	(116)
Estimated Fair Value	630,430	143,459
U.S. Government and agency securities
Amortized cost
Amortized Cost	332,375	42,389
Gross Unrealized Gains	29	11
Gross Unrealized Losses	(1)	(1)
Estimated Fair Value	332,403	42,399
Corporate debt securities
Amortized cost
Amortized Cost	296,833	99,861
Gross Unrealized Gains	14	3
Gross Unrealized Losses	(131)	(115)
Estimated Fair Value	296,716	99,749
Certificates of deposit
Amortized cost
Amortized Cost	1,311	1,311
Estimated Fair Value	$ 1,311	$ 1,311

XML

General - Investments by Maturity Date (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Amortized Cost
2020	$ 625,439
2021	5,080
Amortized Cost	630,519	$ 143,561
Estimated Fair Value
2020	625,350
2021	5,080
Estimated Fair Value	$ 630,430	$ 143,459

XML

General - Income Taxes - Effective Income Tax Rates (Details)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Taxes
Effective income tax rates (as a percent)	27.70%	122.80%

XML

General - Net Operating Loss Carryforwards (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Operating loss carryforwards
Deferred tax assets	$ 0.9	$ 0.9
State and Local
Operating loss carryforwards
Operating Loss Carryforwards	$ 75.0

XML

General - Health Care Reform (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($)
Summary of Significant Accounting Policies
HIF fees	$ 36.2
HIF fees, continuing operations	$ 12.4

XML

General - Stock Compensation - Stock Compensation Expense (Details) - USD ($) $ in Millions	3 Months Ended				9 Months Ended
	Mar. 31, 2021	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stock Compensation
Stock compensation expense			$ 7.1
Benefits of tax deductions (tax on deficiencies) in excess of recognized stock compensation expense	$ 1.1		$ 1.4
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%

XML

General - Stock Compensation - Options - Benefit of Tax (Tax on Deficiencies) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Stock Compensation
Benefits of tax deductions (tax on deficiencies) in excess of recognized stock compensation expense	$ 1.1	$ 1.4

XML

General - Stock Compensation - Options - Activity (Details)	3 Months Ended
	Mar. 31, 2021 $ / shares shares
Options
Outstanding, beginning of period (in shares) | shares	1,045,283
Forfeited (in shares) | shares	(19,960)
Exercised (in shares) | shares	(109,381)
Outstanding, end of period (in shares) | shares	915,942
Weighted Average Exercise Price
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 75.48
Forfeited (in dollars per share) | $ / shares	89.13
Exercised (in dollars per share) | $ / shares	68.26
Outstanding, end of period (in dollars per share) | $ / shares	$ 76.05
Vested and Expected to Vest
Vested and expected to vest end of period (in shares) | shares	914,068
Vested and expected to vest end of period (in dollars per share) | $ / shares	$ 76.07
Exercisable, end of period (in shares) | shares	816,244
Exercisable, end of period (in dollars per share) | $ / shares	$ 77.24

XML

General - Stock Compensation - Nonvested - Activity (Details)	3 Months Ended
	Mar. 31, 2021 $ / shares shares
Restricted Stock Awards
Shares
Outstanding, beginning of period (in shares) | shares	54,314
Outstanding, end of period (in shares) | shares	54,314
Weighted Average Grant Date Fair Value
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 77.33
Outstanding, end of period (in dollars per share) | $ / shares	$ 77.33
Restricted Stock Units (RSUs)
Shares
Outstanding, beginning of period (in shares) | shares	428,362
Awarded (in shares) | shares	275,619
Vested (in shares) | shares	(148,546)
Forfeited (in shares) | shares	(887)
Outstanding, end of period (in shares) | shares	554,548
Weighted Average Grant Date Fair Value
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 65.83
Awarded (in dollars per share) | $ / shares	92.85
Vested (in dollars per share) | $ / shares	67.77
Forfeited (in dollars per share) | $ / shares	70.40
Outstanding, end of period (in dollars per share) | $ / shares	$ 78.73
Performance Based Restricted Stock Units ("PSUs")
Shares
Outstanding, beginning of period (in shares) | shares	278,945
Forfeited (in shares) | shares	(63,324)
Outstanding, end of period (in shares) | shares	215,621
Weighted Average Grant Date Fair Value
Outstanding, beginning of period (in dollars per share) | $ / shares	$ 99.80
Forfeited (in dollars per share) | $ / shares	141.61
Outstanding, end of period (in dollars per share) | $ / shares	$ 87.51

XML

General - Stock Compensation - Restricted Stock Units (Details)	3 Months Ended
	Mar. 31, 2021
Restricted Stock Units (RSUs)
Stock Compensation
Vesting period	3 years

XML

General - Goodwill (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Summary of Significant Accounting Policies
Goodwill	$ 873,830	$ 873,779

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Tabular Disclosure (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Debt and finance lease obligations
Senior Notes	$ 359,656	$ 359,632
Term loan	158,750	263,125
Other loan	2,154	2,154
Finance leases	15,238	16,400
Deferred loan costs	(3,861)	(4,192)
Total debt and finance lease obligations	533,225	638,376
Land and equipment
Debt and finance lease obligations
Finance leases	15,238	16,359
Software as a service
Debt and finance lease obligations
Finance leases	$ 1,288	$ 1,298

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Senior Notes (Details) - Senior Notes - 4.400% Senior Notes due 2024 - USD ($) $ in Millions		3 Months Ended
	Sep. 22, 2017	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020
Debt
Debt instrument, face amount	$ 400.0
Stated interest rate (as a percent)	4.40%
Debt instrument, repurchased face amount	$ 40.0			$ 28.9
Gain (loss) on repurchase of debt instrument	$ 0.7
Long-term debt		$ 359.7	$ 359.6
Interest rate during the period (as a percent)		4.90%
Debt instrument, maturity date		Sep. 22, 2024
Redemption price of the principal amount redeemed (as a percent)		100.00%

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - General Information (Details) - Unsecured Debt - USD ($) $ in Millions		1 Months Ended	3 Months Ended
	Sep. 22, 2017	Mar. 31, 2020	Mar. 31, 2021	Dec. 31, 2020
2017 Credit Agreement
Debt
Voluntary term loan repayments		$ 100.0
Debt instrument, maturity date			Sep. 22, 2023
Borrowings outstanding			$ 158.8	$ 263.1
2017 Credit Agreement | Federal Funds Rate
Debt
Basis spread on variable rate (as a percent)	0.50%
2017 Credit Agreement, senior unsecured revolving credit facility
Debt
Maximum borrowing capacity	$ 400.0
Basis spread on variable rate (as a percent)			1.75%
Weighted average interest rate (as a percent)			2.01%
Interest rate (as a percent)			1.86%
Borrowings outstanding			$ 0.0	$ 0.0
2017 Credit Agreement, senior unsecured revolving credit facility | Prime rate
Debt
Basis spread on variable rate (as a percent)	0.50%
2017 Credit Agreement, senior unsecured revolving credit facility | Eurodollar rate for one month
Debt
Basis spread on variable rate (as a percent)	1.00%
2017 Credit Agreement, senior unsecured revolving credit facility | Eurodollar rate for selected interest period
Debt
Basis spread on variable rate (as a percent)	1.50%
2017 Credit Agreement, senior unsecured term loan facility
Debt
Maximum borrowing capacity	$ 350.0

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - Contractual Maturities (Details) - Unsecured Debt $ in Millions	Mar. 31, 2021 USD ($)
Long-term Debt, Fiscal Year Maturity
2022	$ 158.8
2017 Credit Agreement
Long-term Debt, Fiscal Year Maturity
2020	0.0
2022	0.0
Long-term debt	$ 158.8

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Credit Agreement - Additional Information (Details) - Unsecured Debt - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
2017 Credit Agreement
Debt
Borrowings outstanding	$ 158.8	$ 263.1
2017 Credit Agreement, senior unsecured revolving credit facility
Debt
Borrowings outstanding	0.0	0.0
Available borrowing capacity	400.0	400.0
Deferred loan issuance cost	$ 3.9	$ 4.2

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Letter of Credit Agreement (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Long Term Debt, Capital Lease and Deferred Financing Obligations
Letters of credit outstanding	$ 33.0	$ 32.1

XML

General - Long-Term Debt, Finance Lease and Deferred Financing Obligations - Finance Lease (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Leases
Finance lease liability	$ 15,238	$ 16,400
Gross cost of finance leased assets	$ 43,000	$ 43,000

XML

General - Redeemable Non controlling Interest (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Temporary Equity [Line Items]
Redeemable Noncontrolling Interest, Equity, Carrying Amount	$ 33,303	$ 33,062
Aurelia Health, LLC
Temporary Equity [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	70.00%
Threshold percentage of the remaining shares to be purchased on exercise the right to put options	33.30%
Period from the redemption date	30 days
Percentage of the remaining shares that can be purchased by the company under the call option	33.30%
Period of EBITDA at the redemption date of redeemable non-controlling interest, used in the calculation of redemption price for put and call option	12 months
Redeemable Noncontrolling Interest, Equity, Carrying Amount	$ 33,300	$ 33,100

XML

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
	Mar. 31, 2021	Mar. 31, 2020
Numerator:
Net income (loss) from continuing operations	$ 28,509	$ (1,070)
Income from discontinued operations, net of tax	(682)	19,320
Net income	27,827	18,250
Net income available to common stockholders, basic	$ 27,827	$ 18,250
Denominator:
Weighted average number of common shares outstanding-basic (in shares)	25,948	24,728
Weighted average number of common shares outstanding-diluted (in shares)	26,553	24,869
Net income per common share - basic:
Continuing operations (in dollars per share)	$ 1.10	$ (0.04)
Discontinued operations (in dollars per share)	(0.03)	0.78
Consolidated operations (in dollars per share)	1.07	0.74
Net income per common share - diluted:
Continuing operations (in dollars per share)	1.07	(0.04)
Discontinued operations (in dollars per share)	(0.03)	0.78
Consolidated operations (in dollars per share)	$ 1.04	$ 0.74
Stock Options
Denominator:
Common stock equivalents (in shares)	186	61
Restricted Stock Awards
Denominator:
Common stock equivalents (in shares)	19	21
Restricted Stock Units (RSUs)
Denominator:
Common stock equivalents (in shares)	196	50
Performance Based Restricted Stock Units ("PSUs")
Denominator:
Common stock equivalents (in shares)	201
Employee Stock
Denominator:
Common stock equivalents (in shares)	3	9

XML

Net Income per Common Share Attributable to Magellan Health, Inc. - Antidilutive Securities (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Net Income per Common Share Attributable to Magellan Health, Inc.
Potential dilutive securities excluded from computation of dilutive securities (in shares)	0.3	1.4

XML

Business Segment Information - Operating Results by Business Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating results by business segment
Net revenue	$ 1,161,649	$ 1,122,379
Cost of care	(379,191)	(349,108)
Cost of goods sold	(492,370)	(533,241)
Direct service costs and other	(231,021)	(204,241)
Legal matter settlement	9,000
Stock compensation expense	7,057	5,797
Segment Profit (Loss)	75,124	41,586
Managed care and other
Operating results by business segment
Net revenue	626,076	553,168
PBM
Operating results by business segment
Net revenue	535,573	569,211
Healthcare
Operating results by business segment
Net revenue	533,010	488,906
Pharmacy Management
Operating results by business segment
Net revenue	632,199	638,213
Operating Segments | Healthcare
Operating results by business segment
Cost of care	(379,191)	(349,108)
Direct service costs and other	(114,993)	(105,936)
Stock compensation expense	2,519	1,761
Segment Profit (Loss)	41,345	35,623
Operating Segments | Healthcare | Managed care and other
Operating results by business segment
Net revenue	533,010	488,906
Operating Segments | Pharmacy Management
Operating results by business segment
Cost of goods sold	(495,593)	(537,574)
Direct service costs and other	(104,596)	(81,866)
Legal matter settlement	9,000
Stock compensation expense	2,696	2,107
Segment Profit (Loss)	43,706	20,880
Operating Segments | Pharmacy Management | Managed care and other
Operating results by business segment
Net revenue	93,227	64,435
Operating Segments | Pharmacy Management | PBM
Operating results by business segment
Net revenue	538,972	573,778
Corporate and Eliminations
Operating results by business segment
Cost of goods sold	3,223	4,333
Direct service costs and other	(11,432)	(16,439)
Stock compensation expense	1,842	1,929
Segment Profit (Loss)	(9,927)	(14,917)
Corporate and Eliminations | Managed care and other
Operating results by business segment
Net revenue	(161)	(173)
Corporate and Eliminations | PBM
Operating results by business segment
Net revenue	$ (3,399)	$ (4,567)

XML

Business Segment Information - Reconciliation of Segment Profit to Income Before Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Reconciliation of segment profit to income before income taxes
Income (loss) from continuing operations before income taxes	$ 39,414	$ 4,692
Stock compensation expense	7,057	5,797
Depreciation and amortization	21,417	23,358
Interest expense	6,426	8,958
Interest and other income	(341)	(1,219)
Special charges	1,151
Segment Profit (Loss)	$ 75,124	$ 41,586

XML

Commitments and Contingencies - Regulatory Issues (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
AFSC
Acquisitions
Percentage of total revenues attributable to subsidiary	2.40%	2.40%

XML

Commitments and Contingencies - Stock Repurchases - General Information (Details) - October 2015 Share Repurchase Program - USD ($) $ in Millions	Mar. 31, 2021	Oct. 26, 2015
Equity, Class of Treasury Stock [Line Items]
Amount authorized under stock repurchase plan		$ 400.0
Remaining authorized repurchase amount	$ 186.3

XML

Commitments and Contingencies - Stock Repurchases - Tabular Disclosure (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended	2 Months Ended	12 Months Ended				65 Months Ended
	Oct. 31, 2020	Dec. 31, 2015	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Mar. 31, 2021
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	$ 63.0	$ 21.8	$ 106.8	$ 213.7

XML

Acquisitions - General Information (Details) - Aurelia Health, LLC - USD ($) $ in Millions		3 Months Ended
	Dec. 21, 2021	Mar. 31, 2021
Date of Acquisition
Business Acquisition, Date of Acquisition Agreement	Dec. 18, 2020
Business Acquisition, Effective Date of Acquisition	Dec. 21, 2020
Description
Percentage of equity interest acquired (as a percent)	70.00%
Consideration Transferred
Base purchase price	$ 78.4
Measurement period adjustments, increase in goodwill		$ 0.1

XML

Discontinued Operations - General Information (Details) - MCC Business - Discontinued Operations, Disposed of by Sale - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Discontinued Operations
Disposal Group, Including Discontinued Operation, Consideration	$ 850	$ 850
Disposal Group, Including Discontinued Operation, Consideration, Closing Adjustments	$ 158	$ 158

XML

Discontinued Operations - Components of Income from Discontinued Operations - Tabular Disclosure (Details) - MCC Business - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Discontinued Operations, Disposed of by Sale
Discontinued Operations
Direct service costs and other operating expenses	$ 926
Total costs and expenses	926
Income (loss) from discontinued operation before income taxes	(926)
Provision (benefit) for income taxes	(244)
Net income (loss) from discontinued operations	$ (682)
Discontinued Operations, Held-for-sale
Discontinued Operations
Managed care and other revenue		$ 720,034
Cost of care		602,534
Direct service costs and other operating expenses		84,497
Depreciation and amortization		5,326
Interest expense		71
Interest and other income		(2,540)
Total costs and expenses		689,888
Income (loss) from discontinued operation before income taxes		30,146
Provision (benefit) for income taxes		10,826
Net income (loss) from discontinued operations		$ 19,320

XML

Discontinued Operations - Components of Income from Discontinued Operations - Additional Information (Details) - MCC Business - Discontinued Operations, Held-for-sale - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Discontinued Operations
Stock compensation expense		$ 260
Overhead expenses previously allocated		$ 6,700
Divestiture related expenses	$ 605

XML

Special Charges - General Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Restructuring Charges
Restructuring charges	$ (126)
Asset Impairment Charges
Impairment	1,277
Employee severance and termination benefits
Restructuring Charges
Restructuring charges	(209)
Lease shutdown costs
Restructuring Charges
Restructuring charges	83
Transformation Initiative, 2020
Asset Impairment Charges
Impairment	1,300
Transformation Initiative, 2020 | Employee severance and termination benefits
Restructuring Charges
Restructuring charges	200
Transformation Initiative, 2020 | Lease shutdown costs
Restructuring Charges
Restructuring charges	$ 100

XML

Special Charges - Components (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Non-cash related special charges
Right-of-use assets	$ 1,263
Fixed assets	14
Total non-cash related special charges	1,277
Cash related special charges
Restructuring charges	(126)
Total special charges	1,151
Employee severance and termination benefits
Cash related special charges
Restructuring charges	(209)
Lease shutdown costs
Cash related special charges
Restructuring charges	$ 83

XML

Special Charges - Roll Forward (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($)
Special charges
Beginning balance	$ 11,593
Additions	(126)
Payments	(1,102)
Ending balance	10,365
Employee severance and termination benefits
Special charges
Beginning balance	10,983
Additions	(209)
Payments	(1,019)
Ending balance	9,755
Lease shutdown costs
Special charges
Beginning balance	610
Additions	83
Payments	(83)
Ending balance	$ 610