10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2014

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 Number 000-19364

HEALTHWAYS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	62-1117144
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer  Identification No.)

701 Cool Springs Boulevard, Franklin, TN  37067

(Address of Principal Executive Offices) (Zip Code)

615-614-4929

(Registrant's Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

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 12 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x
Non-accelerated filer   o	(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of November 3, 2014, there were outstanding 35,389,651 shares of the registrant's common stock, par value $.001 per share ("common stock").

2

Healthways, Inc.

Form 10-Q

Table of Contents

			Page
Part I
	Item 1.	Financial Statements	4
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
	Item 4.	Controls and Procedures	28
Part II
	Item 1.	Legal Proceedings	28
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3.	Defaults Upon Senior Securities	29
	Item 4.	Mine Safety Disclosures	29
	Item 5.	Other Information	29
	Item 6.	Exhibits	30

3

Part I

Item 1. Financial Statements

HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

	September 30, 2014			December 31, 2013
Current assets:
Cash and cash equivalents	$	1,708		$	2,584
Accounts receivable, net		114,223			89,484
Prepaid expenses		10,138			9,228
Other current assets		6,599			6,857
Income taxes receivable		1,704			1,402
Deferred tax asset		7,631			9,667
Total current assets		142,003			119,222
Property and equipment:
Leasehold improvements		38,957			37,463
Computer equipment and related software		311,157			290,392
Furniture and office equipment		23,558			22,881
Capital projects in process		38,914			25,228
		412,586			375,964
Less accumulated depreciation		(248,576	)		(217,766	)
		164,010			158,198
Other assets		61,162			53,629
Intangible assets, net		71,466			79,162
Goodwill, net		338,800			338,800
Total assets	$	777,441		$	749,011

See accompanying notes to the consolidated financial statements.

4

HEALTHWAYS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY

	September 30, 2014			December 31, 2013
Current liabilities:
Accounts payable	$	36,729		$	33,125
Accrued salaries and benefits		17,376			20,157
Accrued liabilities		51,701			32,065
Deferred revenue		8,880			4,496
Contract billings in excess of earned revenue		17,463			17,411
Current portion of long-term debt		19,724			14,340
Current portion of long-term liabilities		1,812			2,822
Total current liabilities		153,685			124,416
Long-term debt		237,370			237,582
Long-term deferred tax liability		27,306			33,320
Other long-term liabilities		59,771			51,003
Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock $.001 par value, 120,000,000 shares authorized, 35,360,327 and 35,107,303 shares outstanding, respectively		35			35
Additional paid-in capital		288,716			283,244
Retained earnings		39,861			48,000
Treasury stock, at cost, 2,254,953 shares in treasury		(28,182	)		(28,182	)
Accumulated other comprehensive loss		(1,121	)		(407	)
Total stockholders' equity		299,309			302,690
Total liabilities and stockholders' equity	$	777,441		$	749,011

See accompanying notes to the consolidated financial statements.

5

HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except earnings per share data)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014			2013
Revenues	$	185,656	$	166,615		$	543,047		$	494,049
Cost of services (exclusive of depreciation and amortization of $9,392, $9,115,  $28,368, and $26,826, respectively, included below)		148,950		131,109			443,574			405,835
Selling, general and administrative expenses		15,756		16,440			49,086			43,816
Depreciation and amortization		13,378		12,952			40,250			39,499
Legal settlement charges		—		—			9,363			—
Operating income		7,572		6,114			774			4,899
Interest expense		4,574		5,006			13,472			11,486
Income (loss) before income taxes		2,998		1,108			(12,698	)		(6,587	)
Income tax expense (benefit)		1,025		(691	)		(4,559	)		(3,336	)
Net income (loss)	$	1,973	$	1,799		$	(8,139	)	$	(3,251	)
Earnings (loss) per share:
Basic	$	0.06	$	0.05		$	(0.23	)	$	(0.09	)
Diluted (1)	$	0.05	$	0.05		$	(0.23	)	$	(0.09	)
Comprehensive income (loss)	$	849	$	2,444		$	(8,853	)	$	(2,444	)
Weighted average common shares and equivalents:
Basic		35,351		34,682			35,263			34,288
Diluted (1)		36,477		35,834			35,263			34,288

⁽¹⁾ The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

See accompanying notes to the consolidated financial statements.

6

HEALTHWAYS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the Nine Months Ended September 30, 2014

(In thousands)

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2013	$	—	$	35	$	283,244		$	48,000		$	(28,182	)	$	(407	)	$	302,690
Comprehensive loss		—		—		—			(8,139	)		—			(714	)		(8,853	)
Exercise of stock options		—		—		1,498			—			—			—			1,498
Tax effect of stock options and restricted stock units		—		—		(2,915	)		—			—			—			(2,915	)
Share-based employee compensation expense		—		—		5,867			—			—			—			5,867
Issuance of CareFirst warrants		—		—		1,022			—			—			—			1,022
Balance, September 30, 2014	$	—	$	35	$	288,716		$	39,861		$	(28,182	)	$	(1,121	)	$	299,309

See accompanying notes to the consolidated financial statements.

7

HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(8,139	)	$	(3,251	)
Adjustments to reconcile net loss to net cash flows provided by operating activities, net of business acquisitions:
Depreciation and amortization		40,250			39,499
Amortization of deferred loan costs		1,390			1,096
Amortization of debt discount		5,018			1,497
Share-based employee compensation expense		5,867			5,207
Deferred income taxes		(6,464	)		45
Excess tax benefits from share-based payment arrangements		(340	)		(572	)
(Increase) decrease in accounts receivable, net		(25,482	)		23,185
Decrease in other current assets		1,867			138
Decrease in accounts payable		(7,591	)		(4,363	)
Decrease in accrued salaries and benefits		(3,404	)		(9,777	)
Increase (decrease) in other current liabilities		20,561			(398	)
Other		8,786			(941	)
Net cash flows provided by operating activities		32,319			51,365
Cash flows from investing activities:
Acquisition of property and equipment		(31,927	)		(32,833	)
Business acquisitions, net of cash acquired		—			(830	)
Other		(6,318	)		(5,754	)
Net cash flows used in investing activities		(38,245	)		(39,417	)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt		350,750			314,800
Payments of long-term debt		(357,962	)		(461,380	)
Deferred loan costs		(88	)		(5,210	)
Excess tax benefits from share-based payment arrangements		340			572
Exercise of stock options		1,498			12,562
Proceeds from cash convertible senior notes		—			150,000
Proceeds from sale of warrants		—			15,150
Payments for convertible note hedge transaction		—			(36,750	)
Change in cash overdraft and other		11,221			104
Net cash flows provided by (used in) financing activities		5,759			(10,152	)
Effect of exchange rate changes on cash		(709	)		(740	)
Net (decrease) increase in cash and cash equivalents		(876	)		1,056
Cash and cash equivalents, beginning of period		2,584			1,759
Cash and cash equivalents, end of period	$	1,708		$	2,815
Noncash Activities:
Assets acquired through capital lease obligation	$	6,620		$	—

See accompanying notes to the consolidated financial statements.

8

HEALTHWAYS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").  In our opinion, the accompanying consolidated financial statements of Healthways, Inc. and its wholly-owned subsidiaries (collectively, "Healthways," the "Company," or such terms as "we," "us," or "our") reflect all adjustments consisting of normal, recurring accruals necessary for a fair statement.

We have omitted certain financial information that is normally included in financial statements prepared in accordance with U.S. GAAP but that is not required for interim reporting purposes. You should read the accompanying consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

(2) Recent Accounting Standards

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, "Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which requires an entity to present in the financial statements an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset resulting from a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, when the above situation is not available at the reporting date or the tax law of the applicable jurisdiction does not require the entity to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013.  We adopted this standard for the interim period beginning January 1, 2014.  The adoption of this standard did not have a material impact on our consolidated results of operations, financial position, cash flows, or notes to the consolidated financial statements.

In May 2014, the FASB issued guidance codified in FASB Accounting Standards Codification ("ASC") Topic 606, "Revenue Recognition - Revenue from Contracts with Customers," which amends the guidance in former ASC Topic 605, "Revenue Recognition." The provisions of ASC Topic 606 provide for a single comprehensive principles-based standard for the recognition of revenue across all industries and expanded disclosure about the nature, amount, timing and uncertainty of revenue, as well as certain additional quantitative and qualitative disclosures. The standard is effective for annual periods beginning after December 15, 2016, including interim periods within those years. We are currently evaluating the impact of adopting ASC Topic 606.

(3) Share-Based Compensation

We have several stockholder-approved stock incentive plans for our employees and directors.  We currently have four types of share-based awards outstanding under these plans: stock options, restricted stock units, restricted stock, and performance share units (beginning in June 2014). Performance share units have a multi-year performance period and vest four years from the grant date. We believe that our share-based awards align the interests of our employees and directors with those of our stockholders.

For the three and nine months ended September 30, 2014, we recognized share-based compensation costs of $2.3 million and $5.9 million, respectively.  For the three and nine months ended September 30, 2013, we recognized share-based compensation costs of $1.7 million and $5.2 million, respectively.

A summary of our stock options as of September 30, 2014 and changes during the nine months then ended is presented below:

	Shares (000s)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Value ($000s)
Options
Outstanding at January 1, 2014		4,325		$	15.09
Granted		98			16.60
Exercised		(119	)		12.58
Forfeited		(71	)		12.83
Expired		(494	)		26.80
Outstanding at September 30, 2014		3,739			13.70		6.52		$	14,810
Exercisable at September 30, 2014		1,982		$	15.67		5.43		$	6,672

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2014 was $9.05. There were no stock options granted during the three months ended September 30, 2014.

The following table shows a summary of our restricted stock, restricted stock units and performance share units ("nonvested shares") as of September 30, 2014, as well as activity during the nine months then ended:

	Restricted Stock and Restricted Stock Units					Performance Share Units
Nonvested Shares	Shares (000s)			Weighted- Average Grant Date Fair Value		Shares (000s)		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2014		841		$	10.44		—	$	—
Granted		430			16.85		333		14.79
Vested		(173	)		11.01		—		—
Forfeited		(35	)		11.39		—		—
Nonvested at September 30, 2014		1,063		$	12.91		333	$	14.79

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(4) Income Taxes

For the three months ended September 30, 2014, the effective tax rate was 34.2%. For the three months ended September 30, 2013, despite having pre-tax income we recorded an income tax benefit of $0.7 million primarily as a result of a $1.1 million reduction to an unrecognized tax benefit due to the expiration of the applicable statute of limitations period for the 2009 tax year. This $1.1 million benefit more than offset the income tax expense for the quarter calculated using our annualized effective tax rate.

For the nine months ended September 30, 2014, the effective tax rate was 35.9% compared to 50.6% for the nine months ended September 30, 2013, which was favorably impacted by the reduction to an unrecognized tax benefit as discussed above.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  Tax years remaining subject to examination in these major jurisdictions include 2011 to present.

(5)Long-Term Debt

1.50% Cash Convertible Senior Notes Due 2018

On July 16, 2013, we issued $150.0 million aggregate principal amount of cash convertible senior notes due 2018 (the "Cash Convertible Notes"), which bear interest at a rate of 1.50% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2014. The Cash Convertible Notes will mature on July 1, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date. The Cash Convertible Notes are convertible into cash based on the conversion rate set forth below and are not convertible into our common stock or any other securities under any circumstances. The initial cash conversion rate is 51.38 shares of our common stock per $1,000 principal amount of Cash Convertible Notes (equivalent to an initial conversion price of approximately $19.46 per share of common stock). The Cash Convertible Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Cash Convertible Notes. As a result of this transaction, we recognized deferred loan costs of approximately $3.9 million, which are being amortized over the term of the Cash Convertible Notes using the effective interest method.

The cash conversion feature of the Cash Convertible Notes (the "Cash Conversion Derivative") requires bifurcation from the Cash Convertible Notes in accordance with FASB Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging, and is recorded in other long-term liabilities as a derivative liability and carried at fair value. The fair value of the Cash Conversion Derivative at the time of issuance of the Cash Convertible Notes was $36.8 million, which was recorded as a debt discount for purposes of accounting for the debt component of the Cash Convertible Notes. The debt discount willl be amortized over the term of the Cash Convertible Notes using the effective interest method. For the nine months ended September 30, 2014, we recorded $5.0 million of interest expense related to the amortization of the debt discount based upon an effective interest rate of 5.7%.

In connection with the issuance of the Cash Convertible Notes, we entered into privately negotiated convertible note hedge transactions (the "Cash Convertible Notes Hedges"), which are cash-settled and are intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the Cash Convertible Notes at a time when our stock price exceeds the conversion price. The initial cost of the Cash Convertible Notes Hedges was $36.8 million. The Cash Convertible Notes Hedges are recorded in other assets as a derivative asset under FASB ASC Topic 815 and are carried at fair value.  See Note 6 for additional information regarding the Cash Convertible Notes Hedges and the Cash Conversion Derivative and their fair values as of September 30, 2014.

In July 2013, we also sold separate privately negotiated warrants (the "Warrants") initially relating, in the aggregate, to a notional number of shares of our common stock underlying the Cash Convertible Notes Hedges. The Warrants have an initial strike price of $25.95 per share, which effectively increases the conversion price of the Notes to a 60% premium to our stock price on July 1, 2013. The Warrants will be net share settled by issuing a number of shares of our common stock per Warrant corresponding to the excess of the market price per share of our common stock (as measured on each warrant exercise date under the terms of the Warrants) over the applicable strike price of the Warrants. The Warrants meet the definition of derivatives under the guidance in ASC Topic 815; however, because these instruments have been determined to be indexed to our own stock and meet the criteria for equity classification under ASC Topic 815-40, the Warrants have been accounted for as an adjustment to our additional paid-in-capital.

If the market value per share of our common stock exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on net income per share, and the "treasury stock" method will be used in calculating the dilutive effect on earnings per share.

 CareFirst Convertible Note

On October 1, 2013, we entered into an Investment Agreement (the "Investment Agreement") with CareFirst Holdings, LLC ("CareFirst"), which is in addition to certain existing commercial agreements between us and CareFirst relating to, among other things, disease management and care coordination services (the "Commercial Agreements"). Pursuant to the Investment Agreement, we issued to CareFirst a convertible subordinated promissory note in the aggregate original principal amount of $20 million (the "CareFirst Convertible Note") for a purchase price of $20 million. The CareFirst Convertible Note bears interest at a rate of 4.75% per year, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each calendar year, beginning on December 31, 2013. The CareFirst Convertible Note may be prepaid only under limited circumstances and upon the terms and conditions specified therein. If the CareFirst Convertible Note has not been fully converted or redeemed in accordance with its terms, it will mature on October 1, 2019.  The CareFirst Convertible Note is subordinate in right of payment to the prior payment in full of (a) all of our indebtedness under the Fifth Amended Credit Agreement (as defined below), and (b) any other of our senior debt, which currently includes only the Cash Convertible Notes.

The CareFirst Convertible Note is convertible into shares of our common stock at the conversion rate determined by dividing (a) the sum of the portion of the principal to be converted and accrued and unpaid interest with respect to such principal by (b) the conversion price equal to $22.41 per share of our common stock.  The conversion price is subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications and similar events.

CareFirst has an opportunity to earn warrants to purchase shares of our common stock ("CareFirst Warrants") based on achievement of certain quarterly thresholds (the "Revenue Thresholds") for revenue derived from both the Commercial Agreements and from new business to us from third parties as a result of an introduction or referral to us by CareFirst (collectively, the "Quarterly Revenue").  If the Quarterly Revenue is greater than or equal to the applicable Revenue Threshold for any quarter ending on or prior to September 30, 2017, then we will issue to CareFirst a certain number of warrants exercisable for the number of shares of our common stock ("CareFirst Warrant Shares") determined in accordance with the terms of the Investment Agreement unless (i) CareFirst elects to receive a cash payment in accordance with the terms of the Investment Agreement or (ii) there is a change of control. The aggregate number of CareFirst Warrant Shares in any single 12-month period beginning on October 1, 2013 cannot exceed 400,000, and the aggregate number of CareFirst Warrant Shares issuable pursuant to the Investment Agreement cannot exceed 1,600,000. The CareFirst Warrants issued prior to September 30, 2014 totaling 125,520 may have a dilutive effect on net income per share, and the "treasury stock" method is used in calculating the dilutive effect on earnings per share. 

10

Also on October 1, 2013, in connection with the execution of the Investment Agreement, we entered into a Registration Rights Agreement with CareFirst, pursuant to which we agreed to use commercially reasonable efforts to cause any registration statement covering an underwritten offering of our common stock for our own account or for the account of any holder of our common stock (other than a registration statement on Form S-4 or Form S-8 or any successor thereto) to include those registrable common shares that any holder of such registrable common shares has requested to be registered. 

The term of the Investment Agreement expires on the earlier of (a) December 31, 2017 and (b) the first date on which no Commercial Agreement is in effect.

Credit Facility

On June 8, 2012, we entered into the Fifth Amended and Restated Revolving Credit and Term Loan Agreement(as amended, the "Fifth Amended Credit Agreement").  The Fifth Amended Credit Agreement provides us with a $200.0 million revolving credit facility that expires on June 8, 2017 and includes a swingline sub facility of $20.0 million and a $75.0 million sub facility for letters of credit.  The Fifth Amended Credit Agreement also provides a $200.0 million term loan facility that matures on June 8, 2017, $101.3 million of which remained outstanding at September 30, 2014, and an uncommitted incremental accordion facility of $200.0 million.

Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) the one-month, two-month, three-month or six-month rate (or with the approval of affected lenders, nine-month or twelve-month rate) for Eurodollar deposits ("LIBOR") or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50%, and (c) one-month LIBOR plus 1.00% (the "Base Rate"), as selected by the Company.  The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio.  The Fifth Amended Credit Agreement also provides for an annual fee ranging between 0.30% and 0.50% of the unused commitments under the revolving credit facility.  Extensions of credit under the Fifth Amended Credit Agreement are secured by guarantees from all of the Company's active domestic subsidiaries and by security interests in substantially all of the Company's and such subsidiaries' assets.

On July 1, 2013, we entered into an amendment to the Fifth Amended Credit Agreement, which provided for, among other things, the amendment of certain negative covenants to permit the issuance of and payments related to the Cash Convertible Notes, Cash Convertible Notes Hedges and Warrants described above as well as increases in the maximum required levels of total funded debt to EBITDA beginning with the quarter ended June 30, 2013.

On April 15, 2014, in connection with the agreement to resolve the contract dispute with Blue Cross Blue Shield of Minnesota ("BCBSMN") as discussed in Note 8, we entered into an additional amendment to the Fifth Amended Credit Agreement that provided for an add-back to our consolidated EBITDA, which is used for purposes of calculating financial covenants under the Fifth Amended Credit Agreement, for the $9.4 million charge incurred as a result of the settlement of the dispute with BCBSMN. As of September 30, 2014, availability under the revolving credit facility totaled $44.8 million as calculated under the most restrictive covenant.

We are required to repay outstanding revolving loans under the revolving credit facility in full on June 8, 2017. We are required to repay term loans in quarterly principal installments aggregating (1) 1.250% of the original aggregate principal amount of the term loans during each of the eight quarters beginning with the quarter ended September 30, 2012, (2) 1.875% of the original aggregate principal amount of the term loans during each of the next four quarters beginning with the quarter ending September 30, 2014, and (3) 2.500% of the original aggregate principal amount of the term loans during each of the remaining quarters prior to maturity on June 8, 2017, at which time the entire unpaid principal balance of the term loans is due and payable.

The Fifth Amended Credit Agreement contains financial covenants that require us to maintain, as defined, specified ratios or levels of (1) total funded debt to EBITDA and (2) fixed charge coverage.  As of September 30, 2014, we were in compliance with all of the financial covenant requirements of the Fifth Amended Credit Agreement.

The Fifth Amended Credit Agreement contains various other affirmative and negative covenants that are typical for financings of this type.  Among other things, the Fifth Amended Credit Agreement limits repurchases of our common stock and the amount of dividends that we can pay to holders of our common stock.

11

(6) Derivative Investments and Hedging Activities

We use derivative instruments to manage risks related to variable rate debt, foreign currencies, and the Cash Convertible Notes. We account for derivatives in accordance with FASB ASC Topic 815, which establishes accounting and reporting standards requiring that certain derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative's fair value will be recognized currently in earnings unless specific hedge accounting criteria are met. As permitted under our master netting arrangements, the fair value amounts of our interest rate swaps and foreign currency options and/or forward contracts are presented on a net basis by counterparty in the consolidated balance sheets.

Derivative Instruments Designated as Hedging Instruments

Cash Flow Hedges

Derivative instruments that are designated and qualify as cash flow hedges are recorded at estimated fair value in the consolidated balance sheets, with the effective portion of the gains and losses being reported in accumulated other comprehensive income or loss ("accumulated OCI").  Cash flow hedges for all periods presented consist solely of interest rate swap agreements, which effectively modify our exposure to interest rate risk by converting a portion of our floating rate debt to fixed rate obligations, thus reducing the impact of interest rate changes on future interest expense. Under these agreements, we receive a variable rate of interest based on LIBOR (as defined in Note 5), and we pay a fixed rate of interest with interest rates ranging from 0.690% to 1.480% plus a spread (see Note 5).  We maintain interest rate swap agreements with current notional amounts of $145.0 million and termination dates ranging from November 2015 to December 2016.  Of this amount, $95.0 million was effective at September 30, 2014, and $50.0 million will become effective in December 2015, as older interest rate swap agreements expire. Gains and losses on these interest rate swap agreements are reclassified to interest expense in the same period during which the hedged transaction affects earnings or the period in which all or a portion of the hedge becomes ineffective.  As of September 30, 2014, we expect to reclassify $0.3 million of net losses on interest rate swap agreements from accumulated OCI to interest expense within the next 12 months due to the scheduled payment of interest associated with our debt.

The following table shows the effect of our cash flow hedges on the consolidated balance sheets during the three and nine months ended September 30, 2014 and 2013:

(In $000s)	For the Three Months Ended							For the Nine Months Ended
Derivatives in Cash Flow Hedging Relationships	September 30, 2014				September 30, 2013			September 30, 2014		September 30, 2013
(Gain) loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect		$	(118	)		$	72	$	164	$	(624	)
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect		$	130			$	452	$	386	$	1,632

Gains and losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.  During the three and nine months ended September 30, 2014 and 2013, there were no gains or losses on cash flow hedges recognized in our consolidated statements of comprehensive income (loss) resulting from hedge ineffectiveness.

Derivative Instruments Not Designated as Hedging Instruments

Our Cash Conversion Derivative, Cash Convertible Notes Hedges, and foreign currency options and/ or forward contracts do not qualify for hedge accounting treatment under U.S. GAAP and are measured at fair value with gains and losses recognized immediately in the consolidated statements of comprehensive income (loss). These derivative instruments not designated as hedging instruments did not have a material impact on our consolidated statements of comprehensive income (loss) during the three and nine months ended September 30, 2014 and 2013.

Cash Conversion Derivative and Cash Convertible Notes Hedges

The Cash Conversion Derivative is accounted for as a derivative liability and carried at fair value. In order to offset the risk associated with the Cash Conversion Derivative, we entered into Cash Convertible Notes Hedges which are cash-settled and are intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the Cash Convertible Notes at a time when our stock price exceeds the conversion price. The Cash Convertible Notes Hedges are accounted for as a derivative assetand carried at fair value.

The gains and losses resulting from a change in fair values of the Cash Conversion Derivative and the Cash Convertible Notes Hedges are reported in the consolidated statements of comprehensive income (loss) as follows:

(In $000s)	Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014				Statements of Comprehensive Income (Loss) Classification
Cash Convertible Notes Hedges:
Net unrealized gain (loss)		$	(3,338	)		$	6,242		Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized gain (loss)		$	3,338			$	(6,242	)	Selling, general and administrative expenses

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Foreign Currency Exchange Contracts

We also enter into foreign currency options and/or forward contracts in order to minimize our earnings exposure to fluctuations in foreign currency exchange rates.  Our foreign currency exchange contracts require current period mark-to-market accounting, with any change in fair value being recorded each period in the consolidated statements of comprehensive income (loss) in selling, general and administrative expenses. At September 30, 2014, we had forward contracts with notional amounts of $29.6 million to exchange foreign currencies, primarily the Australian dollar and Euro, that were entered into to hedge forecasted foreign net income (loss) and intercompany debt. We routinely monitor our foreign currency exposures to maximize the overall effectiveness of our foreign currency hedge positions.  We do not execute transactions or hold derivative financial instruments for trading or other purposes.

The estimated gross fair values of derivative instruments at September 30, 2014 and December 31, 2013, excluding the impact of netting derivative assets and liabilities when a legally enforceable master netting agreement exists, were as follows:

	September 30, 2014						December 31, 2013
(In $000s)	Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative		Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative
Assets:
Derivatives not designated as hedging instruments:
Other current assets	$	341	$	—	$	—	$	178	$	—	$	—
Other assets		—		—		34,008		—		—		27,766
Total assets	$	341	$	—	$	34,008	$	178	$	—	$	27,766
Liabilities:
Derivatives not designated as hedging instruments:
Accrued liabilities	$	163	$	—	$	—	$	67	$	—	$	—
Other long-term liabilities		—		—		34,008		—		—		27,766
Derivatives designated as hedging instruments:
Accrued liabilities		—		—		—		—		—		—
Other long-term liabilities		—		361		—		—		505		—
Total liabilities	$	163	$	361	$	34,008	$	67	$	505	$	27,766

See also Note 7.

(7) Fair Value Measurements

We account for certain assets and liabilities at fair value.  Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

Fair Value Hierarchy

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1:  Quoted prices in active markets for identical assets or liabilities;

Level 2:  Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuation techniques in which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:  Unobservable inputs that are supported by little or no market activity and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013:

(In $000s) September 30, 2014	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	341	$	—	$	341	$	(110	)	$	231
Cash Convertible Notes Hedges		—		34,008		34,008		—			34,008
Liabilities:
Foreign currency exchange contracts	$	163	$	—	$	163	$	(110	)	$	53
Interest rate swap agreements		361		—		361		—			361
Cash Conversion Derivative		—		34,008		34,008		—			34,008

(In $000s) December 31, 2013	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	178	$	—	$	178	$	(57	)	$	121
Cash Convertible Notes Hedges		—		27,766		27,766		—			27,766
Liabilities:
Foreign currency exchange contracts	$	67	$	—	$	67	$	(57	)	$	10
Interest rate swap agreements		505		—		505		—			505
Cash Conversion Derivative		—		27,766		27,766		—			27,766

⁽¹⁾ This column reflects the impact of netting derivative assets and liabilities by counterparty when a legally enforceable master netting agreement exists.

The fair values of forward foreign currency exchange contracts are valued using broker quotations of similar assets or liabilities in active markets.  The fair values of interest rate swap agreements are primarily determined based on the present value of future cash flows using internal models and third-party pricing services with observable inputs, including interest rates, yield curves and applicable credit spreads. The fair values of the Cash Convertible Notes Hedges and the Cash Conversion Derivative are measured using Level 3 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data for inputs, such as expected time to maturity of the derivative instruments, the risk-free interest rate, the expected volatility of our common stock and other factors. The Cash Convertible Notes Hedges and the Cash Conversion Derivative were designed such that changes in their fair values would offset one another, with minimal impact to the consolidated statements of comprehensive income (loss). Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is mitigated.

The following table presents our financial instruments measured at fair value on a recurring basis using unobservable inputs (Level 3):

(In $000s)	Balance at December 31, 2013			Purchases of Level 3 Instruments		Issuances of Level 3 Instruments		Gains/(Losses) Included in Earnings			Balance at September 30, 2014
Cash Convertible Notes Hedges	$	27,766		$	—	$	—	$	6,242		$	34,008
Cash Conversion Derivative		(27,766	)		—		—		(6,242	)		(34,008	)

The gains and losses included in earnings noted above represent the change in the fair value of these financial instruments and are recorded each period in the consolidated statements of comprehensive income (loss) as selling, general and administrative expenses.

Fair Value of Other Financial Instruments

In addition to foreign currency exchange contracts, interest rate swap agreements, the Cash Convertible Notes Hedges, and the Cash Conversion Derivative, the estimated fair values of which are disclosed above, the estimated fair value of each class of financial instruments at September 30, 2014 was as follows:

• Cash and cash equivalents – The carrying amount of $1.7 million approximates fair value because of the short maturity of those instruments (less than three months).

• Long-term debt – The estimated fair value of outstanding borrowings under the Fifth Amended Credit Agreement, which includes a revolving credit facility and a term loan facility (see Note 5), and the Cash Convertible Notes are determined based on the fair value hierarchy as discussed above.  The revolving credit facility and the term loan facility are not actively traded and therefore are classified as Level 2 valuations based on the market for similar instruments.  The estimated fair value is based on the average of the prices set by the issuing bank given current market conditions and is not necessarily indicative of the amount we could realize in a current market exchange. The estimated fair value and carrying amount of outstanding borrowings under the Fifth Amended Credit Agreement at September 30, 2014 are $108.4 million and $108.9 million, respectively.

The Cash Convertible Notes are actively traded and therefore are classified as Level 1 valuations. The estimated fair value at September 30, 2014 was $154.5 million, which is based on the last traded price of the Cash Convertible Notes on September 30, 2014, and the par value was $150.0 million. The carrying amount of the Cash Convertible Notes at September 30, 2014 was $121.4 million, which is net of the debt discount discussed in Note 5.

The CareFirst Convertible Note was issued at its fair value of $20.0 million on October 1, 2013. It is not actively traded and is not based upon either an observable market, other than the market for our common stock, or on an observable index and is therefore classified as a Level 3 valuation. At September 30, 2014, the carrying amount of the CareFirst Convertible Note of $20.0 million approximates fair value.

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(8) Commitments and Contingencies

Contract Disputes

On January 25, 2010, BCBSMN issued notice of arbitration with the American Arbitration Association in Minneapolis in accordance with the terms of the contract alleging violations of certain contract provisions and seeking recoupment of an unspecified amount of payments made to us under the contract. We believe we performed our services in compliance with the terms of our agreement and that the assertions made in the arbitration notice are without merit.  On August 3, 2011, we asserted numerous counterclaims against BCBSMN. On April 15, 2014, we entered into an agreement with BCBSMN to resolve this dispute.  Under the terms of the agreement, we agreed to pay BCBSMN in two separate installments: $4 million which was paid in April 2014 and $5.5 million to be paid in January 2015. BCBSMN has an option to receive discounts on our well-being improvement services in lieu of the January 2015 payment. 

We are involved in a contractual dispute with Plastipak Packaging, Inc. ("Plastipak"). On September 10, 2012, Plastipak filed suit in the Circuit Court for Wayne County, Michigan seeking damages relating to an alleged breach of a services agreement with us.  The discovery phase has concluded, and the parties anticipate a trial to be scheduled in January 2015. We deny Plastipak's claims and intend to vigorously defend the action.

Junk Fax Prevention Act Lawsuit

On September 16, 2014, Healthways and its wholly owned subsidiary, Healthways WholeHealth Networks, Inc. ("HWHN"), were named in a putative class action law suit filed in the Superior Court for Los Angeles County, California, seeking damages relating to alleged violations of the Junk Fax Prevention Act 2005 in connection with fax communications between HWHN and the members of its network of complementary and alternative care practitioners.  The complaint seeks damages in excess of $5,000,000.  The case was removed to the United States District Court of California, Western Division on October 16, 2014.  We deny the claims and intend to vigorously defend the action.

Performance Award Lawsuit

On September 4, 2012, Milton Pfeiffer ("Plaintiff"), claiming to be a stockholder of the Company, filed a putative derivative action against the Company and the Board of Directors (the "Board") in Delaware Chancery Court (the "Court") alleging that the Compensation Committee of the Board and the Board breached their fiduciary duties and violated the Company's 2007 Stock Incentive Plan (the "Plan") by granting Ben R. Leedle, Jr., Chief Executive Officer and President of the Company, discretionary performance awards under the Plan in the form of options to purchase an aggregate of 500,000 shares of the Company's common stock, which consisted of a performance award in November 2011 granting Mr. Leedle the right to purchase 365,000 shares and a performance award in February 2012 granting Mr. Leedle the right to purchase 135,000 shares (the "Performance Awards").  Plaintiff alleges that the Performance Awards exceeded what is authorized by the Plan and that the Company's 2012 proxy statement, in which the Performance Awards are disclosed, is false and misleading.  Plaintiff also alleges that Mr. Leedle breached his fiduciary duties and was unjustly enriched by receiving the Performance Awards.  Plaintiff is seeking, among other things, the rescission or disgorgement of all alleged "excess" awards granted to Mr. Leedle under the Performance Awards, to recover any incidental damages to the Company, and an award of attorneys' fees and expenses.  On November 2, 2012, the Company and the Board filed a Motion to Dismiss because Plaintiff failed to make a demand upon the Board as required by Delaware law.  On November 8, 2013, the Court denied the Company's Motion to Dismiss. On February 21, 2014, the Company filed its answer and intends to vigorously defend the allegations.

Outlook

We are also subject to other contractual disputes, claims and legal proceedings that arise from time to time in the ordinary course of our business.  While we are unable to estimate a range of potential losses, we do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition.  As these matters are subject to inherent uncertainties, our view of these matters may change in the future.

Contractual Commitments

In January 2008, we entered into a 25-year strategic relationship agreement with Gallup and a global joint venture agreement with Gallup in October 2012 that requires us to make payments over a 5-year period beginning January 2013.  We have minimum remaining contractual cash obligations of $36.4 million related to these agreements.

In May 2011, we entered into a ten-year applications and technology services outsourcing agreement with HP Enterprise Services, LLC that contains minimum fee requirements.  Total payments over the remaining term, including an estimate for future contractual cost of living adjustments, must equal or exceed a minimum level of approximately $129.6 million; however, based on initial required service and equipment level assumptions, we estimate that the remaining payments will be approximately $267.7 million.  The agreement allows us to terminate all or a portion of the services after the first two years provided we pay certain termination fees, which could be material to the Company.

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(9) Earnings Per Share

The following is a reconciliation of the numerator and denominator of basic and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013:

(In 000s, except per share data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,			September 30,
	2014		2013		2014			2013
Numerator:
Net income (loss) - numerator for basic earnings (loss) per share	$	1,973	$	1,799	$	(8,139	)	$	(3,251	)
Denominator:
Shares used for basic earnings (loss) per share		35,351		34,682		35,263			34,288
Effect of dilutive securities outstanding:
Non-qualified stock options (1)		770		784		—			—
Restricted stock units (1)		318		368		—			—
Performance stock units (1)		34		—		—			—
CareFirst Warrants (1)		4		—		—			—
Shares used for diluted earnings (loss) per share (1)		36,477		35,834		35,263			34,288
Earnings (loss) per share:
Basic	$	0.06	$	0.05	$	(0.23	)	$	(0.09	)
Diluted (1)	$	0.05	$	0.05	$	(0.23	)	$	(0.09	)
Dilutive securities outstanding not included in the computation of earnings (loss) per share because their effect is antidilutive:
Non-qualified stock options		1,131		1,682		2,153			3,343
Restricted stock units		54		—		390			331
Performance stock units		2		—		16			—
Warrants related to Cash Convertible Notes		7,707		—		7,707			—
CareFirst Convertible Note		892		—		892			—
CareFirst Warrants		83		—		86			—

⁽¹⁾ The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

(10) Accumulated OCI

The following tables summarize the changes in accumulated OCI, net of tax, for the nine months ended September 30, 2014 and 2013:

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2014	$	(513	)	$	106		$	(407	)
Other comprehensive loss before reclassifications, net of tax		(68	)		(879	)		(947	)
Amounts reclassified from accumulated OCI, net of tax		233			—			233
Net increase (decrease) in other comprehensive income (loss), net of tax		165			(879	)		(714	)
Accumulated OCI, net of tax, as of September 30, 2014	$	(348	)	$	(773	)	$	(1,121	)

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2013	$	(1,790	)	$	861		$	(929	)
Other comprehensive income (loss) before reclassifications, net of tax		377			(557	)		(180	)
Amounts reclassified from accumulated OCI, net of tax		987			—			987
Net increase (decrease) in other comprehensive income (loss), net of tax		1,364			(557	)		807
Accumulated OCI, net of tax, as of September 30, 2013	$	(426	)	$	304		$	(122	)

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The following table provides details about reclassifications out of accumulated OCI for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,								Statement of Comprehensive
(In $000s)	2014				2013				Loss Classification
Interest rate swaps		$	386			$	1,632		Interest expense
			(153	)			(645	)	Income tax benefit
		$	233			$	987		Net of tax

See Note 6 for further discussion of our interest rate swaps.

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

Overview

Founded and incorporated in Delaware in 1981, Healthways, Inc., together with its wholly-owned subsidiaries, provides specialized, comprehensive solutions to help people improve their well-being, thereby improving their health and productivity and reducing their health-related costs.

We believe well-being consists of five essential elements:

·   Physical: Having good health and enough energy to get things done daily

·   Financial: Managing your economic life to reduce stress and increase security

·   Social: Having supportive relationships and love in your life

·   Community: Liking where you live, feeling safe and having pride in your community

·   Purpose: Liking what you do each day and being motivated to achieve your goals

Our programs provide highly specific and personalized interventions for each individual in a population, irrespective of health status, age or paying sponsor.  These programs improve the well-being status of member populations and reduce the short- and long-term health-related costs for participants, including associated costs from the loss of employee productivity.  As described further below, our programs are designed to change behaviors to improve well-being across an entire population over time in order to (1) keep healthy people healthy, (2) eliminate or reduce lifestyle risks and (3) optimize care for persistent or chronic conditions.

Our population health platform using our proprietary analytics and predictive models enables us to stratify the population, develop individualized well-being plans and actions, and deliver solutions to improve individual and organizational well-being. Through this data-driven process, we identify the needs of each individual in a population and determine the right level of support. This allows us to deploy successful strategies efficiently to sustain engagement, to use the best science to drive behavior change and ultimately deliver meaningful, measurable outcomes. Our services are delivered using a range of methods including venue-based face-to-face interactions; print; phone; mobile and remote devices with unique applications; on-line including social networks; and any combination thereof to motivate and sustain healthy behaviors.

First, our programs are designed to keep healthy people healthy by:

· fostering wellness and disease prevention through total population screening and well-being assessments;

· engaging people in our well-being improvement programs, such as fitness, weight management, stress management, and financial and lifestyle management; and

· providing access to our fitness, chiropractic, and complementary and alternative medicine networks.

Our wellness and prevention programs focus on education, physical fitness, nutrition, health coaching, and tools that support behavior change.  Many of our programs for lifestyle support, management and education are delivered through web-based portals and mobile applications and may also offer a social networking opportunity. Our web-based tools, mobile applications, and educational capabilities include the Well-Being Connect® portal, the Dave Ramsey Core™ Financial Wellness program, wellbeingGO®, Well-Being Tracker™, Daily Challenge®, and Walkadoo™.

Second, our programs are designed to eliminate or reduce lifestyle risks by:

·  promoting personal change and improvement in the lifestyle behaviors that lead to poor health or chronic conditions; and  

·  providing personal interactions with highly trained healthcare professionals and educational materials to create and sustain healthier behaviors for those individuals at risk or in the early stages of chronic conditions.

Our programs for reducing or eliminating lifestyle risks are designed to motivate people to make positive lifestyle changes and accomplish individual goals, such as increasing physical activity for seniors through the Healthways SilverSneakers® fitness solution, overcoming nicotine addiction through the QuitNet® on-line smoking cessation community, or generating sustainable weight loss through our Innergy® solution.

Third, our programs are designed to help people optimize care for persistent or chronic conditions by:

·  incorporating the latest, evidence-based clinical guidelines into interventions to optimize patient health outcomes;  

·  developing care support plans and motivating members to set attainable goals for themselves;  

·  providing local market resources to address acute episodic interventions;  

·  coordinating members' care as an extension of their healthcare providers;  

·  providing software technology solutions and management consulting in support of well-being improvement services; and  

·  providing high-risk care management for members at risk for hospitalization due to complex conditions.

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Specific examples of interventions aimed at optimizing care include our Care Transitions hospital readmissions avoidance program, the Dr. Dean Ornish Program for Reversing Heart Disease™, and our disease management programs.

We recognize that each individual in a given population plays a variety of roles in his or her pursuit of improved well-being, often simultaneously.  By providing the full spectrum of services to meet each individual's needs, we believe our interventions can be delivered at scale and in a manner that reflects those unique needs over time.  We believe that real and sustainable behavior change generates measurable, long-term cost savings and improved individual and business performance for our customers.

In North America, our customers include health plans, both commercial and Medicare Advantage, large self-insured employers, including state and municipal government entities, and providers of healthcare, including integrated healthcare systems, hospitals, and physician groups, in all 50 states and the District of Columbia. We also provide services to commercial healthcare businesses and/or government entities in Brazil, Australia, and France.  All of our interventions were developed with over 30 years of experience based in science and ongoing innovation. Our technology-driven infrastructure is compatible with, and integrated into, our customer and other vendor systems. We operate domestic and international well-being improvement call centers staffed with a wide range of licensed health professionals.  Our fitness center network encompasses approximately 16,000 U.S. locations.  We also maintain an extensive network of over 88,000 complementary, alternative and physical medicine practitioners, which offers convenient access to the significant number of individuals who seek health services outside of the traditional healthcare system.

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which are based upon current knowledge, assumptions, beliefs, estimates and expectations, involve a number of risks and uncertainties, and are subject to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief, or expectations of the Company, including, without limitation, all statements regarding the Company's future earnings and results of operations, and can be identified by the use of words like "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan," or "continue" and similar expressions.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may vary from those in the forward-looking statements as a result of various factors, including, but not limited to:

· the effectiveness of management's strategies and decisions;  

· our ability to sign and implement new contracts for our solutions;

· our ability to accurately forecast the costs required to successfully implement new contracts;  

· our ability to renew and/or maintain contracts with our customers under existing terms or restructure these contracts on terms that would not have a material negative impact on our results of operations;  

· our ability to effectively compete against other entities, whose financial, research, staff, and marketing resources may exceed our resources;  

· our ability to accurately forecast our revenues, margins, earnings and net income, as well as any potential charges that we may incur as a result of changes in our business;  

· our ability to accurately forecast performance and the timing of revenue recognition under the terms of our customer contracts ahead of data collection and reconciliation;  

· the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, "PPACA") on our operations and/or the demand for our services;  

· our ability to anticipate change and respond to emerging trends in the domestic and international markets for healthcare and the impact of the same on demand for our services;  

· the risks associated with deriving a significant concentration of our revenues from a limited number of customers;    

· the risks associated with foreign currency exchange rate fluctuations and our ability to hedge against such fluctuations;  

· our ability to achieve and reach mutual agreement with customers with respect to the contractually required performance metrics, cost savings and clinical outcomes improvements, or to achieve such metrics, savings and improvements within the timeframes contemplated by us;

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· our ability to achieve estimated annualized revenue in backlog in the manner and within the timeframe we expect, which is based on certain estimates regarding the implementation of our services;  

· our ability and/or the ability of our customers to enroll participants and to accurately forecast their level of enrollment and participation in our programs in a manner and within the timeframe anticipated by us;

· the ability of our customers to provide timely and accurate data that is essential to the operation and measurement of our performance under the terms of our contracts;  

· our ability to favorably resolve contract billing and interpretation issues with our customers;  

· our ability to service our debt, make principal and interest payments as those payments become due, and remain in compliance with our debt covenants;  

· the risks associated with changes in macroeconomic conditions, which may reduce the demand and/or the timing of purchases for our services from customers or potential customers, reduce the number of covered lives of our existing customers, or restrict our ability to obtain additional financing;  

· counterparty risk associated with the Cash Convertible Notes Hedges, interest rate swap agreements, and foreign currency exchange contracts;

· the risks associated with valuation of the Cash Convertible Notes Hedges and the Cash Conversion Derivative, which may result in volatility to our consolidated statements of comprehensive income (loss) if these transactions do not completely offset one another;  

· our ability to integrate new or acquired businesses, services (including outsourced services), or technologies into our business and to accurately forecast the related costs;  

· our ability to anticipate and respond to strategic changes, opportunities, and emerging trends in our industry and/or business and to accurately forecast the related impact on our revenues and earnings;  

· the impact of any impairment of our goodwill or other intangible assets;  

· our ability to develop new products and deliver and report outcomes on those products;  

· our ability to implement our integrated data and technology solutions platform within the required timeframe and expected cost estimates and to develop and enhance this platform and/or other technologies to meet evolving customer and market needs;  

· our ability to obtain adequate financing to provide the capital that may be necessary to support our operations and to support or guarantee our performance under new contracts;  

· unusual and unforeseen patterns of healthcare utilization by individuals with diseases or conditions for which we provide services;  

· the ability of our customers to maintain the number of covered lives enrolled in the plans during the terms of our agreements;  

· the risks associated with data privacy or security breaches, computer hacking, network penetration and other illegal intrusions of our information systems or those of third-party vendors or other service providers, which may result in unauthorized access by third parties to customer, employee or our information or patient health information and lead to enforcement actions, fines and other litigation against us;  

· the impact of any new or proposed legislation, regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and any legislative or regulatory changes with respect to Medicare Advantage;  

· the impact of future state, federal, and international legislation and regulations applicable to our business, including PPACA, on our ability to deliver our services and on the financial health of our customers and their willingness to purchase our services;

· current geopolitical turmoil, the continuing threat of domestic or international terrorism, and the potential emergence of a health pandemic;

· the impact of legal proceedings involving us and/or our subsidiaries; and

· other risks detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

We undertake no obligation to update or revise any such forward-looking statements.

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 Customer Contracts

Our fees are generally billed on a per member per month ("PMPM") basis or upon member participation.  For PMPM fees, we generally determine our contract fees by multiplying the contractually negotiated PMPM rate by the number of members covered by our services during the month.  We typically set PMPM rates during contract negotiations with customers based on the value we expect our programs to create and a sharing of that value between the customer and the Company.  In addition, some of our services, such as the Healthways SilverSneakers fitness solution, include fees that are based upon member participation.

Our contracts with health plans and integrated healthcare systems generally range from three to five years with several comprehensive strategic agreements extending up to ten years in length.  Contracts with self-insured employers typically have two to four-year terms.  Some of our contracts allow the customer to terminate early.

Some of our contracts place a portion of our fees at risk based on achieving certain performance metrics, cost savings, and/or clinical outcomes improvements ("performance-based").  Approximately 4% of revenues recorded during the nine months ended September 30, 2014 were performance-based and 2% of revenues were subject to final reconciliation as of September 30, 2014.

At the end of 2013, we had four individual contracts, each representing more than 2% of fiscal 2013 consolidated revenues, and collectively representing 19.9% of fiscal 2013 consolidated revenues, that were up for renewal during fiscal 2014. All four of these contracts have been renewed.

Technology

Our solutions require sophisticated analytical, data management, Internet, and computer-telephony capabilities based on state-of-the-art technology. These solutions help us deliver our services to large populations within our customer base at scale. Our predictive modeling capabilities, including insights gained from well-being assessments such as the Gallup-Healthways Well-Being 5™ diagnostic tool, allow us to identify and stratify those participants who are most at risk for an adverse health event. We incorporate behavior-change science with consumer-friendly interactions to facilitate consumer preferences for engagement and convenience supporting improvement across all five elements of well-being: physical, financial, social, purpose and community. We use sophisticated data analytical and reporting solutions to validate the impact of our programs on clinical and financial outcomes. Our application offerings support integrating the primary care physician into the team of well-being experts working on behalf of participants.

We have recently completed a strategic transformation from a business that solely provided disease management services almost exclusively to health plans to a business that now provides a much broader array of population health services to a broader set of end customer markets - a process that has been underway for approximately seven years. While our transformation-related infrastructure and technology investments are complete, we continue to invest in technology, as evidenced by our long-term applications and technology services outsourcing agreement with HP Enterprise Services, LLC, and are continually refining our proprietary clinical, data management, and reporting systems to continue to meet the information management requirements of our services. The behavior change techniques and predictive modeling incorporated in our technology identify an individual's readiness to change and provide personalized support through appropriate interactions using a range of methods desired by an individual, including venue-based face-to-face; print; phone; mobile and remote devices with unique applications; on-line, including social networks; and any combination thereof to motivate and sustain healthy behaviors.

Business Strategy

The World Health Organization defines health as "…not only the absence of infirmity and disease, but also a state of physical, mental, and social well-being."

Our business strategy reflects our fundamental belief that people with higher well-being result in reduced overall health-related costs, improved workforce engagement and improved productivity, which yields better performance for individuals, families, health plans, governments, employers, integrated healthcare systems, and communities. We believe well-being consists of five essential elements: physical, financial, social, community, and purpose. Our solutions are designed to improve well-being across the five elements by helping to (1) keep healthy people healthy, (2) eliminate or reduce lifestyle risks and (3) optimize care for persistent or chronic conditions.

 We believe it is critical to impact an entire population's well-being and underlying health status in a long-term, cost-effective way.  Through our exclusive, 25-year relationship with Gallup that began in 2008, we have created a definitive measure and empiric database of changes in the well-being of the U.S. population based on over two million completed surveys to date, known as the Gallup-Healthways Well-Being Index® ("WBI"), that supports our understanding of the causes and effects of well-being for a population.  In 2012, we created a global joint venture with Gallup that has developed the next generation of Gallup-Healthways individual well-being assessment tools, known as the Gallup-Healthways Well-Being 5, to provide employers, health providers, insurers and other interested parties with a validated capability to assess, measure and report on changes in the well-being of their employees, patients, members and customers.

To enhance well-being within their respective populations, our current and prospective customers, who typically bear risk for the higher cost and lower productivity associated with lower well-being, require solutions that focus on the underlying drivers of healthcare demand; address worsening health status; reverse or slow unsustainable cost trends; foster healthy behaviors; mitigate health risk factors; and manage chronic conditions.  Our strategy is to deliver programs that engage individuals and help them enhance their well-being and underlying health status regardless of their starting point.  Published, peer-reviewed studies prove that we can achieve well-being improvements in a population that generate significant cost savings and increases in productivity by providing effective programs that support the individual throughout his or her well-being journey.

As previously mentioned in describing our technology, we have completed a strategic transformation from a business that solely provided disease management services to a business that now provides a much broader array of population health and well-being services—a process that has been underway for approximately seven years. Our strategy includes the ongoing refinement of our value proposition through our total population management capabilities.  We continue to enhance our well-being improvement solutions to extend our reach and effectiveness and to meet increasing demand for individualized, integrated solutions.  The flexibility of our programs allows customers to provide a range of services they deem appropriate for their organizations.  Customers may select from certain single program options up to a total-population approach, in which all members of a customer's population are eligible to receive our services.  Our strategy also includes the ongoing enhancement and deployment of our proprietary technology platform known as Embrace®.  This platform, which is essential to our total population management solution, enables us to integrate data from the healthcare organizations and other entities interacting with an individual.  Embrace provides for the delivery of our integrated solutions and ongoing communications between the individual and his or her medical and health experts, using a range of methods, including venue-based face-to-face interactions; print; phone; mobile and remote devices with unique applications; on-line, including social networks; and any combination thereof to motivate and sustain healthy behaviors.

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Today we have a number of customer markets for our well-being improvement solutions, including health plans, self-insured employers, integrated health systems/hospitals/physician groups, and international entities.

Health Plans

A number of contracts signed since 2011 have expanded both the level of integration and breadth of services provided to major regional commercial health plans, in some cases as they develop and implement a number of patient-centered medical home models.  Our services extend beyond chronic care and wellness programs to include a full range of care management functions, as well as a variety of health promotion, prevention and quality improvement solutions. Examples include our collaboration with Blue Zones, LLC in delivering a scaled well-being improvement solution to support our customers' initiatives to improve the well-being of their populations; our wholly-owned subsidiary MeYou Health, LLC in bringing to market well-being improvement tools in the social media space through Internet and personal device delivery methods; and our exclusive partnership with Dr. Ornish that is creating access to the Dr. Dean Ornish Program for Reversing Heart Disease for a growing number of health plans and health systems. We expect our opportunities to grow in this market based upon the competitive advantage our total population management approach provides health plans and their customers in addition to the external market forces orienting this market toward outcome-driven solutions.

We also provide a variety of services to most of the major Medicare Advantage health plans. We expect this market to grow due to the continuing trend of enrollment growth in Medicare Advantage as the size of the Medicare-eligible population increases. Our Silver Sneakers program is the largest single program within our current services. In addition, some of our Medicare Advantage health plan customers are adding additional services including web-based and mobile applications for personal support and social networking as more of the senior population becomes interested in these modalities of interaction.

Self-Insured Employers

Self-insured employers, including state and municipal government entities as employers, continue to demand services that focus across the entire population of employees and their dependent family members. Our well-being improvement solution, in addition to improving individuals' health and reducing direct healthcare costs, targets a much larger improvement in employer performance and profitability by reducing the impact of productivity lost for health-related reasons.  With the success of our work aimed at total population management, we expect to enhance our competitive advantage in responding to employers' needs for a healthier, higher-performing, and less costly workforce.

Integrated Health Systems / Hospitals / Physician Groups

Significant changes in healthcare payment structures from fee for service to outcomes–based payments have expanded our opportunities to provide services to integrated healthcare systems, hospitals, and physicians. In 2011, we acquired Navvis & Company, a well-established provider of strategic counsel and change management services, enabling its healthcare system clients to become future-ready clinical enterprises within healthcare's rapidly emerging value-based reimbursement system.  Our strategy includes providing integrated healthcare systems, hospitals, and physician enterprises with both consultative strategic planning services and a range of capabilities that enable and support the delivery of Physician-Directed Population Health solutions. We expect to continue to grow the number and size of our health systems relationships through the ongoing deployment of services including, for example, consulting, the American Hospital Association-endorsed acute to post-acute Care Transitions Solution^TM and the Dr. Dean Ornish Program for Reversing Heart Disease, in addition to the aggregation of risk lives within health systems for our total population management services.

International Entities

Our international strategy is to pursue opportunities in countries with a relatively developed healthcare infrastructure, including the existence of one or more payors with a large volume of at risk lives. This approach allows us to partner either directly with government payors or with the private insurers and service providers that operate in those countries.

We plan to increase our competitive advantage in delivering our services by leveraging the scope of our well-being improvement capabilities, including our medical information content, behavior change processes and techniques, strategic relationships, health provider networks, and fitness center relationships.  We also plan to continue to scale the delivery of our solutions employing a blend of our scalable, state-of-the-art well-being improvement call centers and proprietary technologies, modalities, and techniques. While our core population health infrastructure and technology investments are complete and our highly scalable platform is in place, we may add new capabilities and technologies through internal development, strategic alliances with other entities, and/or selective acquisitions or investments.  

Critical Accounting Policies

We describe our accounting policies in Note 1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.  We prepare the consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from those estimates.

We believe the following accounting policies are the most critical in understanding the estimates and judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

Revenue Recognition

Our fees are generally billed on a per member per month ("PMPM")  basis or upon member participation.  For PMPM fees, we generally determine our contract fees by multiplying the contractually negotiated PMPM rate by the number of members covered by our services during the month.  We typically set PMPM rates during contract negotiations with customers based on the value we expect our programs to create and a sharing of that value between the customer and the Company.  In addition, some of our services, such as the Healthways SilverSneakers fitness solution, include fees that are based upon member participation.

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Our performance-based contracts place a portion of our fees at risk based on achieving certain performance metrics, cost savings, and/or clinical outcomes improvements. Approximately 4% of revenues recorded during the nine months ended September 30, 2014 were performance-based and 2% of revenues were subject to final reconciliation as of September 30, 2014. 

We recognize revenue as follows: (1) we recognize the fixed portion of PMPM fees and fees for service as revenue during the period in which we perform our services; and (2) we recognize performance-based revenue based on the most recent assessment of our performance, which represents the amount that the customer would legally be obligated to pay if the contract were terminated as of the latest balance sheet date.

We generally bill our customers each month for the entire amount of the fees contractually due for the prior month's enrollment, which typically includes the amount, if any, that is performance-based and may be subject to refund should we not meet performance targets.  Fees for service are typically billed in the month after the services are provided.  Deferred revenues arise from contracts that permit upfront billing and collection of fees covering the entire contractual service period, generally 12 months.  A limited number of our contracts provide for certain performance-based fees that we cannot bill until we reconcile them with the customer.

We generally assess our level of performance for our contracts based on medical claims and other data that the customer is contractually required to supply, interim assessments of achievement against performance targets, or metrics available from our operating platforms.  A minimum of four to nine months' data is typically required for us to measure performance.  In assessing our performance, we may include estimates such as medical claims incurred but not reported. In addition, we may also provide contractual allowances for billing adjustments (such as data reconciliation differences) as appropriate.

If data is insufficient or incomplete to measure performance, or interim performance measures indicate that we are not meeting performance targets, we do not recognize performance-based fees subject to refund as revenues but instead record them in a current liability account entitled "contract billings in excess of earned revenue."  Only in the event we do not meet performance levels by the end of the measurement period, typically one year, are we contractually obligated to refund some or all of the performance-based fees.  We would only reverse revenues that we had already recognized if performance to date in the measurement period, previously above targeted levels, subsequently dropped below targeted levels.  Historically, any such adjustments have been immaterial to our financial condition and results of operations.

During the settlement process under a contract, which generally occurs six to eight months after the end of a contract year, we settle any performance-based fees and reconcile healthcare claims and clinical data.  As of September 30, 2014, cumulative performance-based revenues that have not yet been settled with our customers but that have been recognized in the current and prior years totaled approximately $23.8 million, all of which were based on actual data. Data reconciliation differences, for which we provide contractual allowances until we reach agreement with respect to identified issues, can arise between the customer and us due to customer data deficiencies, omissions, and/or data discrepancies.

Performance-related adjustments (including any amounts recorded as revenue that were ultimately refunded), changes in estimates, or data reconciliation differences may cause us to recognize or reverse revenue in a current fiscal year that pertains to services provided during a prior fiscal year.  During the nine months ended September 30, 2014, we recognized a net increase in revenue of $4.8 million related to services provided prior to 2014.

Impairment of Intangible Assets and Goodwill

We review goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable.  We may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.  If we conclude during the qualitative assessment that this is the case or if we elect not to perform a qualitative assessment, we perform a quantitative review as described below. 

During a quantitative review of goodwill, we estimate the fair value of each reporting unit using a combination of a discounted cash flow model and a market-based approach, and we reconcile the aggregate fair value of our reporting units to our consolidated market capitalization.  Estimating fair value requires significant judgments, including management's estimate of future cash flows, which is dependent on internal forecasts, estimation of the long-term growth rate for our business, the useful life over which cash flows will occur, and determination of our weighted average cost of capital, as well as relevant comparable company earnings multiples for the market-based approach.  Changes in these estimates and assumptions could materially affect the estimate of fair value and potential goodwill impairment for each reporting unit.

If we determine that the carrying value of goodwill is impaired based upon an impairment review, we calculate any impairment using a fair-value-based goodwill impairment test as required by U.S. GAAP.  The fair value of a reporting unit is the price that would be received upon a sale of the unit as a whole in an orderly transaction between market participants at the measurement date.

Except for a trade name that has an indefinite life and is not subject to amortization, we amortize identifiable intangible assets, such as acquired technologies and customer contracts, over their estimated useful lives using the straight-line method.  We assess the potential impairment of intangible assets subject to amortization whenever events or changes in circumstances indicate that the carrying values may not be recoverable.  If we determine that the carrying value of other identifiable intangible assets may not be recoverable, we calculate any impairment using an estimate of the asset's fair value based on the estimated price that would be received to sell the asset in an orderly transaction between market participants.

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We review intangible assets not subject to amortization, which consist of a trade name, on an annual basis or more frequently whenever events or circumstances indicate that the assets might be impaired.  We estimate the fair value of the trade name using a present value technique, which requires management's estimate of future revenues attributable to this trade name, estimation of the long-term growth rate for these revenues, and determination of our weighted average cost of capital.  Changes in these estimates and assumptions could materially affect the estimate of fair value for the trade name.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns.  Accounting for income taxes requires significant judgment in determining income tax provisions, including determination of deferred tax assets, deferred tax liabilities, and any valuation allowances that might be required against deferred tax assets, and in evaluating tax positions.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  U.S. GAAP also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.  Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our consolidated financial position, results of operations, and cash flows.

Share-Based Compensation

We measure and recognize compensation expense for all share-based payment awards over the required vesting period based on estimated fair values at the date of grant.  Determining the estimated fair value of stock options at the grant date requires judgment in developing assumptions, which involve a number of variables.  These variables include, but are not limited to, the expected stock price volatility over the term of the awards and expected stock option exercise behavior. In addition, we also use judgment in estimating the number of share-based awards that are expected to be forfeited. 

Results of Operations

The following table shows the components of the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2014 and 2013 expressed as a percentage of revenues.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of services (exclusive of depreciation
and amortization included below)	80.2	%	78.7	%	81.7	%	82.1	%
Selling, general and administrative expenses	8.5	%	9.9	%	9.0	%	8.9	%
Depreciation and amortization	7.2	%	7.8	%	7.4	%	8.0	%
Legal settlement charges	—		—		1.7	%	—
Operating income (loss) (1)	4.1	%	3.7	%	0.1	%	1.0	%
Interest expense	2.5	%	3.0	%	2.5	%	2.3	%
Income (loss) before income taxes (1)	1.6	%	0.7	%	(2.3	)%	(1.3	)%
Income tax expense (benefit)	0.6	%	(0.4	)%	(0.8	)%	(0.7	)%
Net income (loss) (1)	1.1	%	1.1	%	(1.5	)%	(0.7	)%

⁽¹⁾ Figures may not add due to rounding.

Revenues

Revenues increased $19.0 million, or 11.4%, and $49.0 million, or 9.9%, respectively, for the three and nine months ended September 30, 2014 compared to the same periods in 2013, primarily due to the following:

• the commencement of contracts with new customers and growth with existing customers; and  

• an increase in participation in our fitness solutions, as well as in the number of members eligible to participate in such solutions.

These increases were somewhat offset by terminations of contracts with certain customers.

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Cost of Services

Cost of services (excluding depreciation and amortization) as a percentage of revenues increased to 80.2% for the three months ended September 30, 2014, compared to 78.7% for the three months ended September 30, 2013, primarily due to the following:

• an increase in royalty expense related to certain strategic relationships and agreements;  

 •  our ability during the three months ended September 30, 2013 to measure and recognize a higher percentage of the full year targeted performance-based revenues compared to the same period in 2014; and  

•  an increase in the level of long-term incentive compensation expense based on the Company's actual and projected financial performance against established targets.

These increases in cost of services were partially offset by decreases due to economies of scale resulting from certain types of costs that remain relatively fixed or do not increase at the same rate as revenues.

Cost of services (excluding depreciation and amortization) as a percentage of revenues remained relatively consistent at 81.7% for the nine months ended September 30, 2014, compared to 82.1% for the nine months ended September 30, 2013.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenues decreased to 8.5% for the three months ended September 30, 2014 compared to 9.9% for the three months ended September 30, 2013 primarily due to the fees incurred during the three months ended September 30, 2013 in connection with entering into the Cash Convertible Notes Hedges.

Selling, general and administrative expenses as a percentage of revenues remained relatively consistent at 9.0% for the nine months ended September 30, 2014 compared to 8.9% for the nine months ended September 30, 2013.

Depreciation and Amortization

Depreciation and amortization expense increased $0.4 million and $0.8 million, or 3.3% and 1.9%, respectively, for the three and nine months ended September 30, 2014 compared to the same periods in 2013, primarily due to increased depreciation expense related to our Embrace platform, partially offset by decreased amortization expense due to certain intangible assets becoming fully amortized during 2013.

Legal Settlement Charges

On April 17, 2014, we entered into an agreement with BCBSMN to resolve a contractual dispute. As a result of this settlement, we incurred charges of approximately $9.4 million during the nine months ended September 30, 2014.

Interest Expense

Interest expense decreased $0.4 million for the three months ended September 30, 2014 compared to the same period in 2013, primarily due to the expiration of certain interest rate swap agreements that had a higher fixed interest rate than our current interest rate swap agreements.   

Interest expense increased $2.0 million for the nine months ended September 30, 2014 compared to the same period in 2013, primarily due to amortization of the debt discount related to the Cash Convertible Notes.

Income Tax Expense

For the three months ended September 30, 2014, the effective tax rate was 34.2%. For the three months ended September 30, 2013, despite having pre-tax income we recorded an income tax benefit of $0.7 million primarily as a result of a $1.1 million reduction to an unrecognized tax benefit due to the expiration of the applicable statute of limitations period for the 2009 tax year. This $1.1 million benefit more than offset the income tax expense for the quarter calculated using our annualized effective tax rate.

For the nine months ended September 30, 2014, the effective tax rate was 35.9% compared to 50.6% for the nine months ended September 30, 2013, which was favorably impacted by the reduction to an unrecognized tax benefit as discussed above.

Liquidity and Capital Resources

Operating activities for the nine months ended September 30, 2014 provided cash of $32.3 million compared to $51.4 million for the nine months ended September 30, 2013, primarily due to the following:

• an increase in days sales outstanding in accounts receivable from 47 days at September 30, 2013 to 57 days at September 30, 2014; and  

• the timing of several significant vendor payments.

Investing activities during the nine months ended September 30, 2014 used $38.2 million in cash which primarily consisted of capital expenditures associated with our Embrace platform.

Financing activities during the nine months ended September 30, 2014 provided $5.8 million in cash primarily due to the change in our cash overdraft position partially offset by net payments under the Fifth Amended Credit Agreement.

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Credit Facility

For a detailed description of the Fifth Amended Credit Agreement, refer to Note 5 of the Notes to Consolidated Financial Statements in this report.  The Fifth Amended Credit Agreement contains financial covenants that require us to maintain specified ratios or levels at September 30, 2014 of (1) a maximum total funded debt to EBITDA of 4.50 and (2) a minimum total fixed charge coverage of 1.50.  As of September 30, 2014, our total funded debt to EBITDA ratio was 3.85, and our total fixed charge coverage ratio was 1.94, each as defined in the Fifth Amended Credit Agreement. We were in compliance with all of the financial covenant requirements of the Fifth Amended Credit Agreement as of September 30, 2014.

Cash Convertible Senior Notes

For a detailed description of the Cash Convertible Notes, Cash Convertible Notes Hedges, Cash Conversion Derivative, and Warrants entered into in July 2013, refer to Note 5 of the Notes to Consolidated Financial Statements in this report. Aside from the initial premium paid, we will not be required to make any cash payments under the Cash Convertible Notes Hedges and could be entitled to receive an amount of cash from the option counterparties generally equal to the amount by which the market price per share of common stock exceeds the strike price of the Cash Convertible Note Hedges during the relevant valuation period. The strike price under the Cash Convertible Notes Hedges is initially equal to the conversion price of the Cash Convertible Notes. Additionally, if the market price per share of our common stock exceeds the strike price of the Warrants on any warrant exercise date, we will be obligated to issue to the option counterparties a number of shares based on the amount by which the then-current market price per share of our common stock exceeds the then-effective strike price of each Warrant. We will not receive any additional proceeds if the Warrants are exercised.

CareFirst Convertible Note

For a description of the CareFirst Convertible Note and CareFirst Warrants, refer to Note 5 of the Notes to Consolidated Financial Statements in this report.

We believe that cash flows from operating activities, our available cash, and our anticipated available credit under the Fifth Amended Credit Agreement will continue to enable us to meet our contractual obligations and fund our current operations for at least the next twelve months.  We cannot assure you that we would always be able to secure additional financing if needed and, if such funds were available, whether the terms or conditions would be acceptable to us.

If contract development accelerates or acquisition opportunities arise, we may need to issue additional debt or equity securities to provide the funding for these increased growth opportunities. We may also issue debt or equity securities in connection with future acquisitions or strategic alliances.  We cannot assure you that we would be able to issue additional debt or equity securities on terms that would be acceptable to us.

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Recently Issued Accounting Standards

In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which requires an entity to present in the financial statements an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset resulting from a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, when the above situation is not available at the reporting date or the tax law of the applicable jurisdiction does not require the entity to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013.  We adopted this standard for the interim period beginning January 1, 2014.  The adoption of this standard did not have a material impact on our consolidated results of operations, financial position, cash flows, or notes to the consolidated financial statements.

In May 2014, the FASB issued guidance codified in FASB ASC Topic 606, "Revenue Recognition - Revenue from Contracts with Customers," which amends the guidance in former ASC Topic 605, "Revenue Recognition." The provisions of ASC Topic 606 provide for a single comprehensive principles-based standard for the recognition of revenue across all industries and expanded disclosure about the nature, amount, timing and uncertainty of revenue, as well as certain additional quantitative and qualitative disclosures. The standard is effective for annual periods beginning after December 15, 2016, including interim periods within those years. We are currently evaluating the impact of adopting ASC Topic 606.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk related to interest rate changes, primarily as a result of the Fifth Amended Credit Agreement.  Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) one-month, two-month, three-month or six-month (or with the approval of affected lenders, nine-month or twelve-month) LIBOR or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50%, and (c) the Base Rate, as selected by the Company.  The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio. 

In order to reduce our interest rate exposure under the Fifth Amended Credit Agreement, we have entered into interest rate swap agreements effectively converting a portion of our floating rate debt to fixed obligations with interest rates ranging from 0.690% to 1.480% plus a spread.

We estimate that a one-point interest rate change would have resulted in a change in interest expense of approximately $0.3 million for the nine months ended September 30, 2014.

As a result of our investment in international initiatives, we are also exposed to foreign currency exchange rate risks. Because a significant portion of these risks is economically hedged with currency options and forwards contracts and because our international initiatives are not yet material to our consolidated results of operations, a 10% change in foreign currency exchange rates would not have had a material impact on our consolidated results of operations, financial position, or cash flows for the nine months ended September 30, 2014.  We do not execute transactions or hold derivative financial instruments for trading purposes.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has reviewed and evaluated the effectiveness of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of September 30, 2014. Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were not effective as a result of the material weakness that existed in the Company's internal control over financial reporting as previously described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

The remediation of the material weakness mentioned above is ongoing. We have implemented a standard process for preparing contemporaneous documentation of accounting conclusions reached for revenue recognition in customer contracts. Further remediation will include additional annual training for appropriate personnel on the accounting treatment for these arrangements and further centralization of contracting activity. We believe that our efforts, when fully implemented, will be effective in remediating such material weakness by the end of fiscal 2014. In addition, we will continue to monitor the results of the remediation activities and test the new controls as part of our review of internal control over financial reporting for fiscal 2014.

Changes in Internal Control over Financial Reporting

Except for the remediation taken to date with respect to the material  weakness described above in this Item 4, there were no changes in our internal controls over financial reporting during the three months ended September 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

Contract Disputes

On January 25, 2010, BCBSMN issued notice of arbitration with the American Arbitration Association in Minneapolis in accordance with the terms of the contract alleging violations of certain contract provisions and seeking recoupment of an unspecified amount of payments made to us under the contract. We believe we performed our services in compliance with the terms of our agreement and that the assertions made in the arbitration notice are without merit.  On August 3, 2011, we asserted numerous counterclaims against BCBSMN. On April 15, 2014, we entered into an agreement with BCBSMN to resolve this dispute.  Under the terms of the agreement, we agreed to pay BCBSMN in two separate installments: $4 million which was paid in April 2014 and $5.5 million to be paid in January 2015. BCBSMN has an option to receive discounts on our well-being improvement services in lieu of the January 2015 payment. 

We are involved in a contractual dispute with Plastipak Packaging, Inc. ("Plastipak"). On September 10, 2012, Plastipak filed suit in the Circuit Court for Wayne County, Michigan seeking damages relating to an alleged breach of a services agreement with us.  The discovery phase has concluded, and the parties anticipate a trial to be scheduled in January 2015. We deny Plastipak's claims and intend to vigorously defend the action. 

Junk Fax Prevention Act Lawsuit

On September 16, 2014, Healthways and its wholly owned subsidiary, Healthways WholeHealth Networks, Inc. ("HWHN"), were named in a putative class action law suit filed in the Superior Court for Los Angeles County, California, seeking damages relating to alleged violations of the Junk Fax Prevention Act 2005 in connection with fax communications between HWHN and the members of its network of complementary and alternative care practitioners.  The complaint seeks damages in excess of $5,000,000.  The case was removed to the United States District Court of California, Western Division on October 16, 2014.  We deny the claims and intend to vigorously defend the action.

Performance Award Lawsuit

On September 4, 2012, Milton Pfeiffer ("Plaintiff"), claiming to be a stockholder of the Company, filed a putative derivative action against the Company and the Board of Directors (the "Board") in Delaware Chancery Court (the "Court") alleging that the Compensation Committee of the Board and the Board breached their fiduciary duties and violated the Company's 2007 Stock Incentive Plan (the "Plan") by granting Ben R. Leedle, Jr., Chief Executive Officer and President of the Company, discretionary performance awards under the Plan in the form of options to purchase an aggregate of 500,000 shares of the Company's common stock, which consisted of a performance award in November 2011 granting Mr. Leedle the right to purchase 365,000 shares and a performance award in February 2012 granting Mr. Leedle the right to purchase 135,000 shares (the "Performance Awards").  Plaintiff alleges that the Performance Awards exceeded what is authorized by the Plan and that the Company's 2012 proxy statement, in which the Performance Awards are disclosed, is false and misleading.  Plaintiff also alleges that Mr. Leedle breached his fiduciary duties and was unjustly enriched by receiving the Performance Awards.  Plaintiff is seeking, among other things, the rescission or disgorgement of all alleged "excess" awards granted to Mr. Leedle under the Performance Awards, to recover any incidental damages to the Company, and an award of attorneys' fees and expenses.  On November 2, 2012, the Company and the Board filed a Motion to Dismiss because Plaintiff failed to make a demand upon the Board as required by Delaware law.  On November 8, 2013, the Court denied the Company's Motion to Dismiss. On February 21, 2014, the Company filed its answer and intends to vigorously defend the allegations.

Outlook

We are also subject to other contractual disputes, claims and legal proceedings that arise from time to time in the ordinary course of our business.  While we are unable to estimate a range of potential losses, we do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition. As these matters are subject to inherent uncertainties, our view of these matters may change in the future.

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Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties previously reported under the caption "Part I — Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, the occurrence of which could materially and adversely affect our business, prospects, financial condition and operating results. The risks previously reported and described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in this report are not the only risks facing our business. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business operations.

There have been no material changes to our risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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

Pursuant to the Investment Agreement with CareFirst (as described under "Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – CareFirst Convertible Note"), CareFirst has an opportunity to earn warrants based on achievement of Revenue Thresholds for Quarterly Revenue.  On September 17, 2014, we issued to CareFirst warrants to purchase 51,759 shares of our common stock at an exercise price of $17.95 per share in accordance with the terms of the Investment Agreement. The issuance of the CareFirst Warrants was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, because it was a transaction not involving a public offering.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

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Item 6. Exhibits

(a) Exhibits

10.1	Employment Agreement dated September 2, 2014 between the Company and Matthew Michela
10.2	Employment Agreement dated September 2, 2014 between the Company and Michael R. Farris
10.3	Amendment to Employment Agreement dated September 2, 2014 between the Company and Peter Choueiri
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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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 hereunto duly authorized.

			Healthways, Inc.
			(Registrant)
Date	November 7, 2014	By	/s/ Alfred Lumsdaine
			Alfred Lumsdaine
			Chief Financial Officer
			(Principal Financial Officer)

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EX-10.1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT dated as of January 15, 2013 (the "Agreement"), is by and between Healthways, Inc., a Delaware corporation (the "Company"), and Matt Michela (the "Executive"). This Agreement replaces and supersedes any other employment agreement between the Company and Executive.

WHEREAS, the Company desires that the Executive serve or continue to serve as Market Executive Officer ("Market Executive Officer") and the Executive desires to hold such position under the terms and conditions of this Agreement; and

WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Executive with the Company.

NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows:

I. EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.

II. TERM. Subject to termination as stated in Section VI, the term of employment of the Executive pursuant to this Agreement (as the same may be extended, the "Term") shall commence on February 11, 2013 (the "Effective Date"), and shall have a continuous term of two (2) years thereafter.

III. POSITION. During the Term, the Executive shall serve as Market Executive Officer of the Company performing duties commensurate with the position and such additional duties as the Company shall determine. If asked, the Executive agrees to serve, without any additional compensation, as a director on the Board of Directors of the Company (the "Board") and/or the board of directors of any subsidiary of the Company, and/or in one or more officer positions with the Company and/or any subsidiary of the Company. If the Executive's employment is terminated for any reason, whether such termination is voluntary or involuntary, the Executive shall resign as a director and officer of the Company (and any of its subsidiaries), such resignation to be effective no later than the date of termination of the Executive's employment with the Company.

IV. DUTIES. During the Term, the Executive shall devote the Executive's full time and attention during normal business hours to the business and affairs of the Company; provided, however, that it shall not be a violation of this Agreement for the Executive with the approval of the Company to devote reasonable periods of time to charitable and community activities and industry or professional activities, and/or to manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities under this Agreement.

V.COMPENSATION

A. Base Salary. The Executive's initial base salary as of the Effective Date is $355,000 per year. Effective January 1 of each calendar year after the Effective Date during the Term of this Agreement, upon the recommendation of the Chief Executive Officer ("CEO"), the Board (or a committee of the Board) shall review the Executive's base salary and may increase such amount if and as it may deem advisable. Such initial base salary, as it may be increased during the Term, is defined as the "Base Salary." The Base Salary shall be payable in substantially equal installments in accordance with the Company's normal payroll practices, and is subject to all proper taxes and withholding. The Base Salary rate at which the Executive is being compensated on the Date of Termination (as defined below) shall be the Base Salary rate used in determining all severance amounts payable to the Executive hereunder.

B. Bonus Plan. Such bonus, if any, as shall be determined, upon the recommendation of the CEO, by the Board (or any designated Committee of the Board comprised solely of independent directors), and shall be paid in accordance with the terms and conditions of the bonus plan established for the Company ("Bonus Plan").

C. Long Term Incentive Awards. During the Term, upon the recommendation of the CEO, the Board (or any designated committee of the Board comprised solely of independent directors) will consider, in its sole discretion, long term incentive awards to the Executive pursuant to the Company's equity incentive plans.

D. Other Benefits. In addition to the benefits specifically provided for herein, during the Term the Executive shall be entitled to participate in all benefit plans maintained by the Company for officers generally according to the terms of such plans.

VI. TERMINATION OF AGREEMENT. The Executive's employment under this Agreement shall not be terminated except as set forth in this Section VI. Any reference to the date of delivery of a notice of termination or resignation by either the Company or the Executive in this Section VI shall constitute the "Date of Termination," unless otherwise set forth herein.  For purposes of this Agreement, the Executive will be deemed to have terminated employment when the Executive has a "separation from service" from the Company as determined in accordance with Treasury Regulation 1.409A-1(h).

A. By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive upon such terms as are agreed upon between the parties.

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B. Death. If Executive dies during the Term of this Agreement, the Company shall pay the Executive's Base Salary due through the date of the Executive's death to the Executive's designated beneficiary plus a pro-rata portion of any Bonus Plan or other compensation to which the Executive is otherwise entitled as of the time of the Executive's death, which Bonus Plan amount will be determined and paid after the end of the fiscal year for which the Bonus Plan was in place.  The amount of Base Salary due through the date of the Executive's death shall be paid to the Executive's designated beneficiary within thirty (30) days of the Executive's death, with the date of such payment chosen by the Company in its sole discretion. Any bonus shall be paid at such time designated in the Bonus Plan. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties at the time of the Executive's death. In addition, all amounts contributed by the Company to the Capital Accumulation Plan ("CAP") for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect at the time of the Executive's death. The Company shall then have no further obligations to the Executive or any representative of the Executive's estate or heirs except that Executive's estate or beneficiaries, as the case may be, shall be paid such amounts as may be payable under the Company's life insurance policies and other plans as they relate to benefits following death then in effect.

C. Disability

1. The Executive's employment may be terminated by written notice by either party to the other party, when:

a. the Executive suffers a physical or mental disability entitling the Executive to long-term disability benefits under the Company's long-term disability plan, if any, or

b. in the absence of a Company long-term disability plan, the Executive is unable, as determined by the Board (or any designated Committee of the Board), to perform the essential functions of the Executive's regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.

2. If the Executive's employment is terminated under this Section VI.C, the Executive shall be entitled to receive:

a. all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which the Executive is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

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b. an amount equal to the Executive's Base Salary for a total of eighteen (18) months following the Date of Termination; and

c. if permitted under the Company's group medical insurance, group medical benefits at the same rate as then in effect for the Company's employees for two (2) years after the Date of Termination; provided, that if the Executive instead elects continuation of group benefits under COBRA, the Company shall pay the full cost of the premiums for two (2) years following the Date of Termination.  The costs of the Company's portion of any premiums due under this Section VI.C.2.c shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the "Code").

3. The amounts in Section VI.C.2.b above shall be reduced by any disability insurance payments the Executive receives as a result of the Executive's disability, and shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the eighteen (18) month period described in Section VI.C.2.b above) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits under this Section VI.C.3.Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

D. By the Company for Cause

1. The Executive's employment may be terminated by the Company, by written notice to the Executive specifying the event(s) relied upon for such termination upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination):

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a. the continued failure by the Executive to substantially perform the Executive's duties after written notice and failure to cure within sixty (60) days;

b. conviction of a felony or engaging in misconduct which is materially injurious to the Company, monetarily or to its reputation or otherwise, or which would damage Executive's ability to effectively perform the Executive's duties;

c. theft or dishonesty by the Executive;

d. intoxication while on duty; or

e. willful violation of Company policies or procedures after written notice and failure to cure within thirty (30) days.

2. If the Executive's employment is terminated under this Section VI.D, the Executive shall be entitled to receive all Base Salary and benefits to be paid or provided to the Executive under this Agreement through the Date of Termination, and no more.

3. Notwithstanding the foregoing, the Executive will receive a severance amount consisting of six (6) months of the Executive's Base Salary (payable periodically at regular payroll intervals, and commencing upon the first payroll period occurring after the For Cause Release Period (defined below) expires) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of Date of Termination (the "For Cause Release Period") in order for the Executive to receive the Executive's six (6) months of severance benefits under this Section VI.D.3.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.

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E. By the Company Without Cause

1. The Executive's employment may be terminated by the Company at any time without Cause by delivery of a written notice of termination to the Executive. If the Executive's employment is terminated under this Section VI.E, the Executive shall be entitled to receive:

a. all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which the Executive is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

b. an amount equal to the Executive's Base Salary for a total of eighteen (18) months following the Date of Termination; and

c. group medical benefits for eighteen (18) months after the Date of Termination. The costs of the Company's portion of any premiums due under this Section VI.E.1.c shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Code.

2. The amount in Section VI.E.1.b above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the eighteen (18) month period described in Section VI.E.1.b above) upon the Executive's execution of a full release of claims in favor of the Company.Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

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F. By the Executive for Good Reason

1. The Executive's employment may be terminated by the Executive by written notice of the Executive's resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute "Good Reason" for resignation:

a. a material reduction in the Executive's Base Salary (unless such reduction is part of an across the board reduction affecting all Company executives with a comparable title);

b. a requirement by the Company to relocate the Executive to a location that is greater than twenty-five (25) miles from the location of the office in which the Executive performs the Executive's duties hereunder at the time of such relocation;

c. in connection with a Change in Control, a failure by the successor person or entity, or the Board, either to honor this Agreement or to present the Executive with an employment agreement containing provisions substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or

d. a material reduction in the Executive's title, or a material and adverse change in Executive's status and responsibilities, or the assignment to Executive of duties or responsibilities which are materially inconsistent with Executive's status and responsibilities.

2. The Executive shall give the Company written notice of the Executive's intention to resign for Good Reason (stating the reason therefor) within sixty (60) days after the occurrence of one of the events stated in Section VI.F.1.a, b, c or d above (the "Good Reason Events") and the Company shall have sixty (60) days (the "Cure Period") thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived.   If the Executive resigns for Good Reason as defined in this Section VI.F, the Executive shall be entitled to receive:

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a. all Base Salary and benefits due to the Executive under this Agreement through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and a pro-rata portion of any Bonus Plan or other compensation to which the Executive is otherwise entitled as of the Date of Termination, which Bonus Plan amount will be determined after the end of the fiscal year for which the Bonus Plan was in place and paid in accordance with the terms of such Bonus Plan;

b. an amount equal to Executive's Base Salary for a total of eighteen (18) months following the Date of Termination; and

c. group medical benefits for eighteen (18) months after the Date of Termination.  The costs of the Company's portion of any premiums due under this Section VI.F.2.c shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Code.

3. The amount in Section VI.F.2.b above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the remaining term of the non-compete covenant in Section IX hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the eighteen (18) month period described in Section VI.F.2.b above) upon the Executive's execution of a full release of claims in favor of the Company.  Such release must be executed and become effective any and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

G. By the Executive Without Good Reason

1. The Executive may terminate the Executive's employment at any time by delivery of a written notice of resignation to the Company no less than sixty (60) days and no more than ninety (90) days prior to the effective date of the Executive's resignation. The Executive shall receive all Base Salary and benefits due under this Agreement through the next payroll date following the Date of Termination, and no more.

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2. Although the Executive is not entitled to any severance amount in the event of termination pursuant to this Section VI.G, the Executive may reduce the term of the non-compete and non-solicitation covenants in Section IX hereof, from twenty-four (24) months to eighteen (18) months, upon execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive that have vested shall be paid out in accordance with the terms of the CAP as in effect on the Date of Termination. The Executive shall not be entitled to receive any unvested Company contributions to the CAP.

H. Following a Change in Control

1. If the Executive's termination of employment without Cause (pursuant to Section VI.E) or for Good Reason (pursuant to Section VI.F) occurs within twelve (12) months following a Change in Control, then the amounts payable pursuant to Section VI.E or Section VI.F above, as the case may be, shall be referred to as the "Change in Control Severance Amount," and shall be paid to Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals, and commencing upon the first payroll period occurring after the Change in Control Release Period (defined below) expires) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination (the "Change in Control Release Period") in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits.  Payments pursuant to this Section VI.H shall be made in lieu of, but not in addition to, any payment under any other paragraph of this Section VI.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. In addition, all amounts contributed by the Company to the CAP for the benefit of the Executive shall vest and thereafter be paid out in accordance with the terms of the CAP as in effect on the Date of Termination.

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2. For the purposes of this Agreement, a "Change in Control" shall mean any of the following events:

a. any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Company's securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);

b. as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company's securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or

c. during any period of two (2) consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.

Notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon or following the occurrence of a Change in Control and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, a Change in Control shall mean a "change in the ownership of the Company," a "change in the effective control of the Company," or a "change in the ownership of a substantial portion of the assets of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the Treasury Regulations.

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3. Excise Tax Payment. If, in connection with a Change in Control, the Internal Revenue Service asserts, or if the Executive or the Company is advised in writing by an established accounting firm, that any payment in the nature of compensation to, or for the benefit of, the Executive from the Company (or any successor in interest) constitutes an "excess parachute payment" under Section 280G of the Code, whether paid pursuant to this Agreement or any other agreement, and including property transfers pursuant to securities and other employee benefits that vest upon a Change in Control (collectively, the "Excess Parachute Payments") the Company shall pay to the Executive, a cash sum equal to the amount of excise tax due under Section 4999 of the Code on the entire amount of the Excess Parachute Payments (excluding any payment pursuant to this Section VI.H.3) (the "Gross-up Amount").  The payment of the "Gross-up Amount" due to the Executive under this Section VI.H.3 shall be paid as soon as reasonably possible following demand of payment by the Executive, but in no event later than December 31 of the year following the year (A) any tax is paid to the Internal Revenue Service regarding this Section VI.H.3 or (B) any tax audit or litigation brought by the Internal Revenue Service or other relevant taxing authority related to this Section VI.H.3 is completed or resolved in accordance with Treasury Regulation 1.409A-3(i)(1)(v).

I. Delay of Payments Pursuant to Section 409A.  It is intended that (1) each installment of the payments provided under this Agreement is a separate "payment" for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v).  Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executive's employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a "specified employee" (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then such payments shall be delayed until the date that is six months after the date of the Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company, or, if earlier, the date of the Executive's death.  Any payments delayed pursuant to this Section VI.I shall be made in a lump sum on the first day of the seventh month following the Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executive's death. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executive's employment or thereafter provides for a "deferral of compensation" within the meaning of Section 409A of the Code, such amount shall be paid in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations, including (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) any such reimbursement or payment may not be subject to liquidation or exchange for another benefit.  In addition, notwithstanding any other provision to the contrary, in no event shall any payment under this Agreement that constitutes "deferred compensation" for purposes of Section 409A of the Code and the Treasury Regulations promulgated thereunder be subject to offset by any other amount unless otherwise permitted by Section 409A of the Code.  For the avoidance of doubt, any payment due under this Agreement within a period following Executive's termination of employment or other event, shall be made on a date during such period as determined by the Company in its sole discretion.

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VII. REPRESENTATIONS. The Executive represents and warrants that the Executive is not a party to any agreement or instrument which would prevent the Executive from entering into or performing the Executive's duties in any way under this Agreement.

VIII. ASSIGNMENT, BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by the Executive, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there is no such designee, to the Executive's estate.

IX.CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION

A. The Executive acknowledges that:

1. the business of providing Healthcare and/or well-being support services, coaching or management in which the Company is engaged (the "Business") is intensely competitive and that the Executive's employment by the Company will require that the Executive have access to and knowledge of confidential information of the Company relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by the Executive;

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2. the use or disclosure of such information other than in furtherance of the Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and

3. the engaging by the Executive in any of the activities prohibited by this Section IX shall constitute improper appropriation and/or use of such information. The Executive expressly acknowledges the trade secret status of the Company's confidential information and that the confidential information constitutes a protectable business interest of the Company. Other than as may be required in the performance of the Executive's duties, Executive expressly agrees not to divulge such confidential information to anyone outside the Company without prior permission.

B. The "Company" (which shall be construed to include the Company, its subsidiaries and their respective affiliates) and the Executive agree that for a period of eighteen (18) months after the Date of Termination if the Executive's employment is terminated under Sections VI.C, D, E, F or H, and for a period of twenty-four (24) months after the Date of Termination if the Executive's employment is terminated under Section VI.G, the Executive shall not:

1. engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting the Business at the time of termination of the Executive's employment hereunder. For purposes of this Agreement, "Competition" by the Executive shall mean the Executive's being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting the Executive's name to be used in connection with the activities of any entity engaged in the Business, provided that, it shall not be a violation of this Section IX.B.1 for the Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the Exchange Act, provided that, the Executive does not participate in the business of such corporation until such time as this covenant expires; and

2. The Executive further agrees that the Executive will not, directly or indirectly, for the Executive's benefit or for the benefit of any other person or entity, do any of the following:

a. solicit from any customer, doing business with the Company as of the Date of Termination, business of the same or of a similar nature to the Business of the Company with such customer;

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b. solicit from any known potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of the Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within eighteen (18) months prior to the Date of Termination; or

c. recruit or solicit the employment or services of any person who was employed by the Company as of the Date of Termination and is employed by the Company at the time of such recruitment or solicitation.

3. The Executive acknowledges that the services to be rendered by the Executive to the Company are of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by the Executive of any of the provisions contained in this Section IX will cause the Company irreparable injury. The Executive therefore agrees that the Company will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Executive from any such violation or threatened violations. The Executive acknowledges that the terms of this Section IX and its obligations are reasonable and will not prohibit the Executive from being employed or employable in the health care industry.

C. If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.

X. ENTIRE AGREEMENT. This Agreement, together with Exhibit A attached hereto, contains all the understandings between the parties pertaining to the matters referred to herein, and supersedes any other undertakings and agreements, whether oral or written, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, the Executive does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise and that Executive has had the opportunity to be represented by counsel of the Executive's choosing.

XI. AMENDMENT OR MODIFICATION; WAIVER. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.

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XII. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier, facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice in writing:

To the Executive at:To the Company at:

Matt Michela Address on file Healthways, Inc. 701 Cool Springs Blvd. Franklin, TN 37067 Attn: CEO w/copy to Legal Department

Any notice delivered personally or by courier shall be deemed given on the date delivered. Any notice sent by facsimile, registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed.

XIII. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.

XIV. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

XV. GOVERNING LAW; VENUE. This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the principles of conflicts of law thereof, and venue shall be the United States District Court for the Middle District of Tennessee.

XVI. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.

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XVII. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement effective as of date set forth above.

HEALTHWAYS, INC.

By:  /s/ Ross Scott

Name:  Ross Scott

Title:   Senior Vice President, Human Resources

EXECUTIVE

/s/ Matt Michela

Matt Michela

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EXHIBIT A

Exceptions

Notwithstanding anything in the Agreement to the contrary, the following terms are also part of the Agreement and supersede any contradictory term contained therein:

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EX-10.2

Exhibit 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated September 2, 2014 ("Agreement"), by and between Healthways, Inc., a Delaware corporation (the "Company"), and Michael R. Farris ("Executive").

WHEREAS, the Company and Navvis Healthcare, LLC ("Navvis") previously entered into a Purchase Agreement, dated as of August 24, 2011 ("Purchase Agreement"), pursuant to which the Company acquired 100% of the membership interests of Navvis ("Transaction");

WHEREAS, in connection with the Transaction,the Company and Executive entered into an Employment Agreement, dated August 31, 2011, which agreement was subsequently amended pursuant to that certain Amendment to Employment Agreement, dated December 1, 2012 (collectively, "Original Employment Agreement");

WHEREAS, the Company and Executive desire to further amend and restate the Original Employment Agreement;

WHEREAS, the Company and Executive mutually agree that this Amended and Restated Employment Agreement shall take effect on January 1, 2015, following the expiration of the Original Employment Agreement as further described herein.

NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows:

I. EMPLOYMENT. The Company hereby employs the Executive and the Executive hereby accepts employment with the Company, upon the terms and subject to the conditions set forth herein.

II. TERM.  Subject to termination as stated in Section V, the term of employment of the Executive pursuant to this Agreement shall commence on January 1, 2015 and expire on December 29, 2015 (the "Term").  The Company may renew this Agreement for an additional term of one (1) year each (each, a "Renewal Term"), if the Company gives written notice to the Executive not less than sixty (60) days prior to the end of the Term or the then current Renewal Term of its intent to renew this Agreement as of the end of the Term or the then current Renewal Term.  Nothing contained in this Section shall limit or restrict Executive's ability to provide notice of termination pursuant to Section V(G)(1).

III. POSITION AND DUTIES. During the Term, the Executive shall serve as the Chief Commercial Officer of the Company, reporting to the Company's Chief Executive Officer ("Company CEO") and shall perform the duties assigned by the Company CEO, including but not limited to sales, marketing, and product management.  During the Term, the Executive shall devote his full time and attention during normal business hours to the business and affairs of the Company; provided, however, that it shall not be a violation of this Agreement for the Executive with the approval of the Company to devote reasonable periods of time to charitable and community activities and industry or professional activities, and/or to manage personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities under this Agreement.

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IV. COMPENSATION.

A. Base Salary:  Executive's annual base salary is $700,000 and will be paid in equal installments in accordance with the Company's regular payroll practices.

B. Bonus Plan:  The provisions of this Section IV(B) shall comprise the Executive's Bonus Plan for the Term.  All payments under this Bonus Plan are subject to the review and approval of the Compensation Committee.

For calendar year 2015, the Executive shall be entitled to an incentive payment of one percent (1%) of that portion of the Company's Domestic Net Revenues in 2015 that exceed the Company's Domestic Net Revenues for the previous calendar year (the "2015 Bonus").

1.The 2015 Bonus shall be paid within a reasonable period after the Company has concluded the audit of its financial statements for the 2015 calendar year, but in any event between January 1 and March 15, 2016.

2.For the purposes of this sub-section 3, the term "Domestic Net Revenues" means all domestic revenue calculated under U.S. GAAP, excluding pass through revenues, revenues from business combinations and the minority interest portion of any revenue from consolidated entities.

3.Notwithstanding any other provision of this Agreement to the contrary, in the event the Executive's termination of employment (i) due to the Executive's Death pursuant to Section V(B), (ii) due to the Executive's Disability pursuant to Section V(C), (iii) without Cause pursuant to Section V(E), (iv) by the Executive for Good Reason pursuant to Section (V)(F), (v) without Cause or by the Executive for Good Reason within 12 (twelve) months of a Change of Control pursuant to Section V(H), or (vi) by the Executive without Good reason pursuant to Section (V)(G) occurs during 2015, the payments under this Section IV(B) with regard to the 2015 Bonus shall be calculated as described above, except using the period of months from January up to and including the end of the month of the Date of Termination compared to  the same  period of months in 2014 (the "Prorated Bonus Period Amount").  For example, if the Executive's employment is terminated in April 2015, the actual domestic net revenue for that period (January to April 2015) would be compared to the actual domestic net revenue for the matching period (January to April 2014) and the excess, if any, would be the basis for the bonus calculation of 1% for the 2015 Bonus and the Executive will not be eligible to earn any additional incentive payments under this Section IV(B).  The Executive shall be paid the Prorated Bonus Period Amount within thirty (30) days of the Executive's Date of Termination, with the payment date determined by the Company in its sole discretion. No portion of the 2015 Bonus (including the Prorated Bonus Period Amount) shall be payable in the event of a termination of the Executive's employment for Cause.

C. Vacation:  During each calendar year of this Agreement, the Executive shall be entitled to vacation in accordance with Company policy.  The current Company policy allows the Executive to take vacation as needed and is not set at a certain number of vacation days per year.

D. Other Benefits:  During the Term the Executive shall be entitled to participate in all health and welfare benefit plans maintained by the Company for employees generally according to the terms of such plans.

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E. Retention:  Executive shall be entitled to receive a retention payment of $500,000 (five hundred thousand) paid in full on or immediately before December 31, 2015 (the "Retention Payment").  In the event the Executive's employment is terminated (i) due to the Executive's Death pursuant to Section V(B), (ii) due to the Executive's Disability pursuant to Section V(C), (iii) without Cause pursuant to Section V(E) or (iv) without Cause or by the Executive for Good Reason within 12 (twelve) months of a Change of Control pursuant to Section V(H), the Executive is entitled to the full amount of the Retention Payment, which amount shall be payable withinthirty (30) days of the Executive's Date of Termination, with the payment date determined by the Company in its sole discretion.  The Retention Payment shall be reduced pro-rata on a monthly basis (by $41,667 for each month not employed) in the event of a termination of the Executive's employment for Good Reason (not in connection with a Change of Control) or without Good Reason, which amount shall be payable withinthirty (30) days of the Executive's Date of Termination, with the payment date determined by the Company in its sole discretion.  The Retention Payment shall not be payable in the event of a termination of the Executive's employment for Cause.

V.TERMINATION OF AGREEMENT. The Executive's employment under this Agreement shall not be terminated except as set forth in this Section. Any reference to the date of delivery of a notice of termination or resignation by either the Company or the Executive in this Section V shall constitute the "Date of Termination," unless otherwise set forth herein.  For purposes of this Agreement, the Executive will be deemed to have terminated employment when the Executive has a "separation from service" from the Company as determined in accordance with Treasury Regulation 1.409A-1(h).

A. By Mutual Consent. The Executive's employment pursuant to this Agreement may be terminated at any time by the mutual written agreement of the Company and the Executive upon such terms as are agreed upon between the parties.

B. Death. If Executive dies during the Term of this Agreement, the Company shall pay his Base Salary due through the date of his death to the Executive's designated beneficiary.  The amount of Base Salary due through the date of the Executive's death shall be paid to his designated beneficiary within thirty (30) days of the Executive's death, with the date of such payment chosen by the Company in its sole discretion.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.  The Company shall then have no further obligations to the Executive or any representative of his estate or his heirs except that Executive's estate or beneficiaries, as the case may be, shall be paid such amounts as may be payable under the Company's life insurance policies and other plans as they relate to benefits following death then in effect.

C. Disability

1. The Executive's employment may be terminated by written notice by either party to the other party, when:

a. the Executive suffers a physical or mental disability entitling the Executive to long-term disability benefits under the Company's long-term disability plan, if any, or

b. in the absence of a Company long-term disability plan, the Executive is unable, as determined by the Board (or any designated Committee of the Board), to perform the essential functions of his regular duties and responsibilities, with or without reasonable accommodation, due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six (6) consecutive months.

2. If the Executive's employment is terminated under this Section (C), the Executive shall be entitled to receive:

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a. all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion);

b. an amount equal to the Executive's Base Salary for a total of twelve (12) months following the Date of Termination; and

c. if permitted under the Company's group medical insurance, group medical benefits at the same rate as then in effect for the Company's employees for twelve (12) months after the Date of Termination; provided, that if the Executive instead elects continuation of group benefits under COBRA, the Company shall pay the full cost of the premiums for twelve (12) months following the Date of Termination.  The costs of the Company's portion of any premiums due under this clause (c) shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the "Code").

The amounts in Section V.C.2.b above shall be reduced by any disability insurance payments the Executive receives as a result of the Executive's disability, and shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the initial twelve (12) months of the non-compete covenant in Section VIII hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the twelve (12) month period described in Section V.C.2.b above) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits under this Section V.C.3. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.

D. By the Company for Cause

1. The Executive's employment may be terminated by the Board upon recommendation of the CEO, both acting in good faith, by written notice to the Executive specifying the event(s) relied upon for such termination upon the occurrence of any of the following events (each of which shall constitute "Cause" for termination):

a. the continued failure by the Executive to substantially perform his duties after written notice and failure to cure within sixty (60) days;

b. conviction of a felony or engaging in misconduct which is materially injurious to the Company, monetarily or to its reputation or otherwise, or which would damage Executive's ability to effectively perform his duties;

c. theft or dishonesty by the Executive;

d. intoxication while on duty; or

e.willful violation of Company policies or procedures after written notice and failure to cure within thirty (30) days.

2.Upon the Executive's termination for Cause, the Executive shall be entitled to all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) and no more.

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3.Notwithstanding the foregoing, the Executive will receive a severance amount consisting of six (6) months of the Executive's Base Salary (payable periodically at regular payroll intervals and commencing upon the first payroll period occurring after the For Cause Release Period (defined below) expires) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination (the "For Cause Release Period") in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits under this Section V.D.3. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.  All unvested equity incentives shall terminate on the Date of Termination.

E. By the Company Without Cause

1. The Executive's employment may be terminated by the Board upon recommendation of the CEO at any time without Cause by delivery of a written notice of termination to the Executive. If the Executive's employment is terminated under this Section (E), the Executive shall be entitled to receive:

a. all Base Salary and benefits due to the Executive through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion) ;

b. an amount equal to the Executive's Base Salary for a total of twelve (12) months following the Date of Termination; and

c. group medical benefits for twelve (12) months after the Date of Termination. The costs of the Company's portion of any premiums due under this clause (c) shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the "Code").

2. The amounts in Section V.E.1.b above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the initial twelve (12) months of the non-compete covenant in Section VIII hereof.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the twelve (12) month period described in Section V.E.1.b above) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits under this Section V.E.3. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.

F. By the Executive for Good Reason

1. The Executive's employment may be terminated by the Executive by written notice of his resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute "Good Reason" for resignation:

a. a material reduction in the Executive's Base Salary (unless such reduction is part of an across the board reduction affecting all Company executives with a comparable title);

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b. a requirement by the Company to relocate the Executive to a location that is greater than twenty-five (25) miles from the location of the office in which the Executive performs his duties hereunder at the time of such relocation;

c. in connection with a Change in Control, a failure by the successor person or entity, or the Board, either to honor this Agreement or to present the Executive with an employment agreement containing provisions substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or

d. a material reduction in the Executive's title, or a material and adverse change in Executive's status and responsibilities, or the assignment to Executive of duties or responsibilities which are materially inconsistent with Executive's status and responsibilities.

2. The Executive shall give the Company written notice of his intention to resign for Good Reason (stating the reason therefor) within sixty (60) days after the occurrence of one of the events stated in subparagraphs (a), (b), (c) or (d) above (the "Good Reason Events") and the Company shall have sixty (60) days (the "Cure Period") thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived.  If the Executive resigns for Good Reason as defined in this Section V(F), the Executive shall be entitled to receive:

a. all Base Salary and benefits due to the Executive under this Agreement through the Date of Termination (payable within thirty (30) days of the Date of Termination, with the date of such payment determined by the Company in its sole discretion);

b. an amount equal to Executive's Base Salary for a total of twelve (12) months following the Date of Termination; and

c. group medical benefits for twelve (12) months after the Date of Termination.  The costs of the Company's portion of any premiums due under this clause (c) shall be included in the Executive's gross income to the extent the provision of such benefits is deemed to be discriminatory under Section 105(h) of the Internal Revenue Code of 1986, as amended (the "Code").

3. The amounts in Section V.F.2.b above shall be paid to the Executive periodically at the regular payroll dates commencing as of the Date of Termination and for the initial twelve (12) months of the non-compete covenant in Section VIII hereof. In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals following the end of the twelve (12) month period described in Section V.F.2.b above) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits under this Section V.F.3. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.

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G. By the Executive Without Good Reason

1. The Executive may terminate his employment at any time by delivery of a written notice of resignation to the Company no less than ninety (90) days prior to the effective date of the Executive's resignation ("Transition Period").  During the Transition Period, the Executive shall continue to serve as the CCO of the Company and shall otherwise provide an orderly transition of his duties as requested by the CEO.  The Executive shall receive all Base Salary and benefits due under this Agreement through the next payroll date following the Date of Termination, including any prorated amount of the 2015 Bonus or the Retention Payment pursuant to Section IV(B) or Section IV(E), respectively.

2. The Executive may reduce the term of the non-compete and non-solicitation covenants in Section VIII hereof, from eighteen (18) months to twelve (12) months, upon execution of a full release of claims in favor of the Company. Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other vested equity incentives shall remain exercisable solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination. All unvested equity incentives shall terminate on the Date of Termination.

H. Following a Change in Control

1. If the Executive's termination of employment without Cause (pursuant to Section V.E) or for Good Reason (pursuant to Section V.F) occurs within twelve (12) months following a Change in Control, then the amounts payable pursuant to Section V.E or Section V.F above, as the case may be, shall be referred to as the "Change in Control Severance Amount," and shall be paid to Executive in a lump sum no later than sixty (60) days following the Date of Termination, with the date of such payment determined by the Company in its sole discretion.  In addition, the Executive will receive an enhanced severance amount consisting of six (6) additional months of the Executive's Base Salary (payable periodically at regular payroll intervals, and commencing upon the first payroll period occurring after the Change in Control Release Period (defined below) expires) upon the Executive's execution of a full release of claims in favor of the Company. Such release must be executed and become effective and any revocation period must expire within sixty (60) days of the Date of Termination (the "Change in Control Release Period") in order for the Executive to receive the Executive's additional six (6) months of enhanced severance benefits.  Payments pursuant to this Section V.H. shall be made in lieu of, but not in addition to, any payment under any other paragraph of this Section V.  Furthermore, all outstanding stock options, restricted stock, restricted stock units and any other unvested equity incentives shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the award agreements to which the Company and the Executive are parties on the Date of Termination.

2. For the purposes of this Agreement, a "Change in Control" shall mean any of the following events:

a. any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan of the Company or any of its subsidiaries, becomes the beneficial owner of the Company's securities having 35% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business);

b. as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sales of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction are held in the aggregate by the holders of the Company's securities entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or

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c. during any period of two (2) consecutive years, individuals who at the beginning of any such period constitute the Board cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company's stockholders, of each director of the Company first elected during such period was approved by a vote of at least two-thirds of the directors of the Company then still in office who were directors of the Company at the beginning of any such period.

Notwithstanding the foregoing, to the extent that (i) any payment under this Agreement is payable solely upon or following the occurrence of a Change in Control and (ii) such payment is treated as "deferred compensation" for purposes of Code Section 409A, a Change in Control shall mean a "change in the ownership of the Company," a "change in the effective control of the Company," or a "change in the ownership of a substantial portion of the assets of the Company" as such terms are defined in Section 1.409A-3(i)(5) of the Treasury Regulations.

3.Certain Reductions in Payment

(a)Notwithstanding anything contained in this Agreement to the contrary, if any payment or benefit the Executive would receive from the Company pursuant to this Agreement or otherwise ("Payment", "Payments" in the aggregate) would, as determined by tax counsel to the Company reasonably acceptable to the Executive ("Tax Counsel"), (i) constitute a "parachute payment" within the meaning of Section 280G of the Code, and (ii) but for this subparagraph 3(a), be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Payments will be adjusted to equal the Reduced Amount.  The "Reduced Amount" will be either (1) the largest portion of the Payments that would result in no portion of the Payments (after reduction) being subject to the Excise Tax or (2) the entire amount of the Payments, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in the Executive's receipt, on an after-tax basis, of the greatest amount of the Payments.  If a reduction in Payments is to be made so that the Payments equal the Reduced Amount, (x) the Payments will be paid only to the extent permitted under the Reduced Amount alternative, and the Executive will have no rights to any additional payments and/or benefits constituting the Payments.  In no event will the Company or any stockholder be liable to the Executive for any amounts not paid as a result of the operation of this subparagraph 3(i).  No portion of any Payment shall be taken into account which in the opinion of Tax Counsel does not constitute a "parachute payment" within the meaning of Code Section 280G(b)(2), including by reason of Code Section 280G(b)(4)(A) (regarding reasonable compensation for services rendered after a change in control).

(ii)The Company shall reduce or eliminate the Payments by (i) first reducing or eliminating those payments or benefits which are payable in cash and (ii) then reducing or eliminating non-cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the furthest in time from the Change in Control. Any reduction made pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing Executive's rights and entitlements to any benefits or compensation.  In applying these principles, any reduction or elimination of the Payments shall be made in a manner consistent with the requirements of Section 409A of the Code and where two economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.

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I. Delay of Payments Pursuant to Section 409A.  It is intended that (1) each installment of the payments provided under this Agreement is a separate "payment" for purposes of Section 409A of the Code and (2) that the payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(9)(iii), and 1.409A-1(b)(9)(v).  Notwithstanding anything to the contrary in this Agreement, if the Company determines (i) that on the date the Executive's employment with the Company terminates or at such other time that the Company determines to be relevant, the Executive is a "specified employee" (as such term is defined under Treasury Regulation 1.409A-1(i)) of the Company and (ii) that any payments to be provided to the Executive pursuant to this Agreement are or may become subject to the additional tax under Section 409A(a)(1)(B) of the Code or any other taxes or penalties imposed under Section 409A of the Code if provided at the time otherwise required under this Agreement then such payments shall be delayed until the date that is six months after the date of the Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)) with the Company, or, if earlier, the date of the Executive's death.  Any payments delayed pursuant to this Section V.I shall be made in a lump sum on the first day of the seventh month following the Executive's "separation from service" (as such term is defined under Treasury Regulation 1.409A-1(h)), or, if earlier, the date of the Executive's death. In addition, to the extent that any reimbursement, fringe benefit or other, similar plan or arrangement in which the Executive participates during the term of Executive's employment or thereafter provides for a "deferral of compensation" within the meaning of Section 409A of the Code, such amount shall be paid in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations, including (i) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), (ii) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (iii) any such reimbursement or payment may not be subject to liquidation or exchange for another benefit.  In addition, notwithstanding any other provision to the contrary, in no event shall any payment under this Agreement that constitutes "deferred compensation" for purposes of Section 409A of the Code and the Treasury Regulations promulgated thereunder be subject to offset by any other amount unless otherwise permitted by Section 409A of the Code.  For the avoidance of doubt, any payment due under this Agreement within a period following Executive's termination of employment or other event, shall be made on a date during such period as determined by the Company in its sole discretion.

VI. REPRESENTATIONS. The Executive represents and warrants that he is not a party to any agreement or instrument which would prevent him from entering into or performing his duties in any way under this Agreement.

VII. ASSIGNMENT, BINDING AGREEMENT. This Agreement is a personal contract and the rights and interests of the Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to him hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate.

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VIII. CONFIDENTIALITY, NON-COMPETITION, NON-SOLICITATION

A. The Executive acknowledges that:

1. the business of providing care support services and health support services in which the Company is engaged (the "Business") is intensely competitive and that the Executive's employment by the Company will require that the Executive have access to and knowledge of confidential information of the Company relating to its business plans, financial data, marketing programs, client information, contracts and other trade secrets, in each case other than as and to the extent such information is generally known or publicly available through no violation of this Agreement by the Executive;

2. the use or disclosure of such information other than in furtherance of the Business may place the Company at a competitive disadvantage and may do damage, monetary or otherwise, to the Business; and

3. the engaging by the Executive in any of the activities prohibited by this Section shall constitute improper appropriation and/or use of such information. The Executive expressly acknowledges the trade secret status of the Company's confidential information and that the confidential information constitutes a protectable business interest of the Company. Other than as may be required in the performance of his duties, Executive expressly agrees not to divulge such confidential information to anyone outside the Company without prior permission.

B. The "Company" (which shall be construed to include the Company, its subsidiaries and their respective affiliates) and the Executive agree that for a period of eighteen (18) months after the Date of Termination if the Executive's employment is terminated under Sections V(C), (D), (E), (F) or (H), and for a period of twelve (12) months after the Date of Termination if the Executive's employment is terminated under Section V(G), the Executive shall not:

1. engage in Competition, as defined below, with the Company or its subsidiaries within any market where the Company is conducting the Business at the time of termination of the Executive's employment hereunder. For purposes of this Agreement, "Competition" by the Executive shall mean the Executive's being employed by or acting as a consultant or lender to, or being a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or permitting his name to be used in connection with the activities of any entity engaged in the Business, provided that, it shall not be a violation of this sub-paragraph for the Executive to become the registered or beneficial owner of less than five percent (5%) of any class of the capital stock of any one or more competing corporations registered under the 1934 Act, provided that, the Executive does not participate in the business of such corporation until such time as this covenant expires; and

2. The Executive further agrees that he will not, directly or indirectly, for his benefit or for the benefit of any other person or entity, do any of the following:

a. solicit from any customer, doing business with the Company as of the Executive's termination, business of the same or of a similar nature to the Business of the Company with such customer;

b. solicit from any known potential customer of the Company business of the same or of a similar nature to that which, to the knowledge of the Executive, has been the subject of a written or oral bid, offer or proposal by the Company, or of substantial preparation with a view to making such a bid, proposal or offer, within eighteen (18) months prior to the Executive's termination; or

c. recruit or solicit the employment or services of any person who was employed by the Company upon termination of the Executive's employment and is employed by the Company at the time of such recruitment or solicitation.

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3. The Executive acknowledges that the services to be rendered by him to the Company are of a special and unique character, which causes this Agreement to be of significant value to the Company, the loss of which may not be reasonably or adequately compensated for by damages in an action at law, and that a breach or threatened breach by him of any of the provisions contained in this Section will cause the Company irreparable injury. The Executive therefore agrees that the Company will be entitled, in addition to any other right or remedy, to a temporary, preliminary and permanent injunction, without the necessity of proving the inadequacy of monetary damages or the posting of any bond or security, enjoining or restraining the Executive from any such violation or threatened violations. The Executive acknowledges that the terms of this Section VIII and its obligations are reasonable and will not prohibit him from being employed or employable in the health care industry.

C. If any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the fullest extent permitted by law.

IX.ENTIRE AGREEMENT.  This Agreement, together with Exhibit A attached hereto, contains all the understandings between the parties pertaining to the matters referred to herein, and supersedes the Original Employment Agreement and any other undertakings and agreements, whether oral or written, previously entered into by them with respect thereto. The Executive represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter or effect of this Agreement or otherwise and that Executive has had the opportunity to be represented by counsel of his choosing.

X.AMENDMENT OR MODIFICATION; WAIVER. No provision of this Agreement may be amended or waived, unless such amendment or waiver is agreed to in writing, signed by the Executive and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time.

XI.NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier, facsimile or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice in writing.  Any notice delivered personally or by courier shall be deemed given on the date delivered. Any notice sent by facsimile, registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date transmitted by facsimile or mailed.

To the Executive at:	To the Company at:
Michael R. Farris Address on file	Chief Executive OfficerHealthways, Inc.701 Cool Springs Boulevard Franklin, TN 37067

XII.SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable, shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law.

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XIII.SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations.

XIV.GOVERNING LAW; VENUE. This Agreement will be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the principles of conflicts of law thereof, and venue shall be the United States District Court for the Middle District of Tennessee.

XV.HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph.

XVI.  COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement effective as of date set forth above.

/s/ Michael R. Farris	/s/ Ben R. Leedle, Jr.
Michael R. Farris	Healthways, Inc.

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EXHIBIT A

Exceptions

Notwithstanding anything in the Agreement to the contrary, the following terms are also part of the Agreement and supersede any contradictory term contained therein:

Nothing contained herein shall preclude Executive from participating on the Board of Directors of another company so long as the applicable company is not engaged in any activity that is the same as or substantially similar to the Business and such activities do not interfere with Executive's ability to discharge his duties set forth in this Agreement.

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EX-10.3

 

Exhibit 10.3

Änderungsvertrag zum Arbeitsvertrag Dieser Änderungsvertrag zum Arbeitsvertrag ("Änderungsvertrag") wird zwischen Healthways, Inc., einer Delaware Corporation (der "Gesellschaft") und Peter Choueiri(dem "leitenden Angestellten") abgeschlossen und trittzum 2 September, 2014 in Kraft.	Amendment to Employment Contract This Amendment to the Employment Agreement ("Amendment"), is entered into by and between Healthways, Inc., a Delaware corporation(the "Company"), and Peter Choueiri(the "Executive") and shall be effective September 2, 2014.
Präambel Die Gesellschaft und der leitende Angestellte haben am 1. Januar 2012 den Arbeitsvertrag ("Vertrag") abgeschlossen;  und die Gesellschaft und der leitende Angestellte möchten bestimmte Bedingungen des Vertrages ändern. Vor diesem Hintergrund vereinbaren die Parteien sich wie folgt rechtlich zu binden:	WHEREAS, the Company and Executive entered into the Employment Agreement, dated January 1, 2012 ("Agreement"); and WHEREAS, the Company and Executive desire to amend certain provisions of the Agreement; NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows:
I.LAUFZEIT UND URLAUB Ziffer II des Vertrages wird insgesamt wie folgt ersetzt:  Die Laufzeit des Arbeitsverhältnisses des leitenden Angestellten nach diesem Vertrag (die "Laufzeit") beginnt am 1. Januar 2012 ("Einstellungstermin") und endet am 31. Dezember 2019 ("Date of Expiration"). Der leitende Angestellte hat Anspruch auf dreißig (30) Arbeitstage Urlaub pro Jahr.	I.TERM AND VACATION Section II of the Agreement is replaced in its entirety with the following: The term of employment of the Executive pursuant to this Agreement ("Term") shall commence on January 1, 2012 (the "Starting Date"), and shall expire December 31, 2019 ("Date of Expiration").  The Executive shall be entitled to thirty (30) working days vacation per year.

II.VERGÜTUNG   Ziffer V des Vertrages wird geändert, indem die Unterabsätze V.A, V.B und V.C insgesamt durch wie folgt ersetzt werden: A.Grundgehalt   1.Das Grundgehalt des leitenden Ange-stellten beträgt bis zum 31. Dezember 2014 325.000 Euro brutto jährlich.   II.COMPENSATION   Section V of the Agreement shall be amended by replacing sub-sections V.A, V.B, and V.C in their entirety with the following: A.Base Salary   1.The Executive's base salary until December 31, 2014, shall be 325,000 Euros gross annually.

2.Ab dem 1. Januar 2015 und für den Rest der Laufzeit beträgt das Grundgehalt des leitenden Angestellten 500.000 Euro brutto jährlich.	2.Effective January 1, 2015, and for the remainder of the Term, the Executive's base salary shall be 500,000 Euros gross annually.
3.Das jeweils aktuelle Grundgehalt wird als "Grundgehalt" definiert.	3.The base salary effective at any time is defined as the "Base Salary".
4.Das Grundgehalt abzüglich aller Bank-gebühren ist zahlbar in monatlich gleichen Teilzahlungen gemäß der üblichen Gehaltsabrechnungsverfahren der Gesell-schaft und unterliegt sämtlichen anfallenden Steuern und Einbehalten.	4.The Base Salary shall be payable net of all bank fees in monthly equal installments in accordance with the Company's normal payroll practices and is subject to all proper taxes and withholding.
5.Für eine Kündigung der Gesellschaft aus wichtigem Grund im Jahr 2014 gilt das Grundgehalt 2014 als Basis für die Berechnung sämtlicher Abfindungsan-sprüche. Für sämtliche sonstigen Kün-digungen des Arbeitsverhältnisses des leitenden Angestellten zu irgendeiner Zeit während der Laufzeit gilt das Grundgehalt 2015 als Grundgehalt für die Berechnung sämtlicher, nach diesem Vertrag an den leitenden Angestellten zu zahlender Abfindungsbeträge.	5.For a termination by the Company for cause in 2014, the 2014 Base Salary shall be the basis for determining all severance amounts.  For all other terminations of the Executive's employment at any time during the Term, the 2015 Base Salary shall be the Base Salary rate used in determining all severance amounts payable to the Executive hereunder.
B.Bonusplan. Die folgenden Regelungen stellen den "Bonusplan" des leitenden Angestellten dar: 1.Im Jahr 2014 ist der leitende Angestellte berechtigt, einen jährlichen Bonus von 50% seines Grundgehalts gemäß dem Bonusplan des Jahres 2014 der Gesellschaft zu erhalten.	B.Bonus Plan. The following shall constitute the Executive's "Bonus Plan". 1.For 2014, the Executive is entitled to receive an annual bonus of 50% of his Base Salary in accordance with the Company's 2014 annual bonus program.
2.Ab dem 1. Januar 2015 und für den Rest der Laufzeit des Vertrages hat der leitende Angestellte Anspruch auf	2.Effective January 1, 2015, and for the remainder of the Term of the Agreement, the Executive is entitled to receive an annual bonus of
a.Eine Bonuszahlung in Höhe von 30% seines dann gültigen Grundgehalts, wenn der leitende Angestellte bestimmte Zielvorgaben, die jährlich durch den CEO und den leitenden Angestellten festzulegen sind, erreicht.	a.at target, being 30% of his then effective Base Salary when the Executive achieves certain performance targets to be established annually by the CEO and the Executive.

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b.eine Bonuszahlung in Höhe von 25% seines Grundgehalts bei Erreichung der Zielvorgabe, wenn Healthways International jährliche Performance-Größen, die jährlich durch den CEO und den leitenden Angestellten auf Basis eines Maßstabs von Minimum, Zielvorgabe und Maximum festzulegen sind, erreicht. Beispielsweise kann eine Performance-Größe das jährliche EBITDA für Healthways International sein.	b.at target, being 25% of his Base Salary when Healthways International achieves annual performance metrics to be established annually by the CEO and the Executive based on a scale of minimum, target, and maximum.  For example, a metric can be annual EBITDA for Healthways International.
c.für jedes Jahr, in dem die Leistungs-messung für den jährlichen Bonus oder die Zielvorgaben des leitenden Angestellten nicht festgelegt und/oder vereinbart werden (z.B. im Falle einer ordentlichen Kündigung) stehen dem leitenden Angestellten die  jährlichen Bonuszahlungen wie in Ziffer V.B.2 beschrieben zu.	c.For any year that the annual bonus performance measure or the Executive's performance target is not established and/ or agreed (for example, in the event of a termination without cause), the Executive shall be entitled to the annual bonuses as described in this Section V.B.2 at target.
C.Langfristige Leistungsprämien Das folgende stellt die "Langfristige Leistungsprämien" des leitenden Angestellten dar: 1.Für das Jahr 2014 hat der leitende Angestellte eine langfristige Leistungsprämie in Höhe von 850.000 USD (achthundertfünfzigtausend US Dollar) erhalten. Die langfristige Leistungsprämie wird gewährt in der Form von Restricted Stock Units (Belegschaftsaktien mit Sperrfrist) und Performance Stock Units (leistungsabhängige Aktienbezugsrechte).	C.Long Term Incentive Awards The following shall constitute the Executive's "Long Term Incentive Awards": 1.For 2014, the Executive has received a Long Term Incentive Award in the amount of $850,000 (eight hundred fifty thousand US Dollars).  The Long Term Incentive Award is in the form of restricted stock units and performance stock units.
2.Ab dem 1. Januar 2015 und bis zum Date of Expiration hat der leitende Angestellte Anspruch auf Restricted Stock Units ("RSUs") in fest bestimmter Höhe von jährlich 25% seines dann gültigen Grundgehalts im Einklang mit dem Incentive Plan 2014.	2.Effective January 1, 2015, and until the Date of Expiration , the Executive is entitled to receive an annual grant of equity in the form of restricted stock units ("RSUs") in a fixed amount of 25% of his then effective Base Salary in accordance with the 2014 Incentive Plan.

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3.RSUs können nach Ermessen der Gesellschaft entweder in bar oder in Aktien beglichen werden. Diese Leistungen erfolgen zu dem Zeitpunkt, zu dem die Gesellschaft ihren leitenden Angestellten im Allgemeinen langfristige Leistungsprämien gewährt. Die Anzahl von RSUs, die pro Jahr zu gewähren ist, ist wie folgt zu berechnen: Wert der Leistungsprämie geteilt durch den Schlusspreis der Aktien der Gesellschaft am Zuteilungstag.	3.RSUs may be settled in cash or in stock as determined by the Company.  Such grants will be made at the time the Company makes long term incentive award grants to its officers generally.  The number of RSUs to be granted each year shall be determined by dividing the value of the award by the closing price of the Company's stock on the grant date.
III.KÜNDIGUNG DES VERTRAGES Ziffer VI des Vertrages wird geändert, indem Ziffern VI.D und VI.E insgesamt durch den folgenden Text ersetzt werden, und durch Aufnahme einer neuen Ziffer VI.I wie folgt:	III.TERMINATION OF AGREEMENT Section VI of the Agreement shall be amended by replacing Sections VI.D and VI.E in their entirety with the following and by adding a new Section VI.I as follows:
D.Ordentliche Kündigung durch die Gesellschaft 1.Das Arbeitsverhältnis des leitenden Angestellten kann durch den Vorstand auf Empfehlung des CEO jederzeit ordentlich (ohne wichtigen Grund) durch Zustellung einer schriftlichen Kündigungserklärung an den leitenden Angestellten gekündigt werden.	D.By the Company Without Cause 1.The Executive's employment may be terminated by the Board upon recom-mendation of the CEO at any time without cause by delivery of a written notice of termination to the Executive.
2.Wenn das Arbeitsverhältnis des leitenden Angestellten nach dieser Ziffer (D) gekündigt wird, so hat der leitende Angestellte Anspruch auf:	2.If the Executive's employment is terminated under this Section (D), the Executive shall be entitled to receive:
a.das gesamte Grundgehalt, sämtliche Leistungen, Boni und langfristige Leistungsprämien, die dem leitenden Angestellten bis zum Wirksamkeitsdatum zustehen.	a.all Base Salary, benefits, bonus and incentive payments due to the Executive through the Effective Date.
b.ab dem Wirksamkeitsdatum (i) sämtliche Zahlungen aus dem Bonusplan des leitenden Angestellten bis zum Date of Expiration (einschließlich) wie in Ziffer V.B des Vertrages beschrieben und (ii) einen Betrag, der dem Grundgehalt des leitenden Angestellten entspricht, ebenso wie Leistungen ; all dies wird  an den leitenden Angestellten in regelmäßigen Abständen zu den gewöhnlichen Gehaltsabrechnungster-minen bezahlt ab dem Wirksamkeitsdatum bis zum Date of Expiration.	b.on and after the Effective Date, (i) the Executive's Bonus Plan through and including the Date of Expiration as described in Section V.B of the Agreement and (ii) an amount equal to the Executive's Base Salary as well as benefits; all provided to the Executive periodically at the regular payroll dates commencing as of the Effective Date until the Date of Expiration.

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c.sämtliche Zahlungen aus der langfristigen Leistungsprämie gemäß Ziffer V.C des Vertrages bis zum Date of Expiration. Alle RSUs, die gewährt wurden und die vor dem Wirksamkeitsdatum nicht übergegangen sind, gehen unverzüglich auf den leitenden Angestellten über. Für sämtliche RSUs, die die langfristige Leistungsprämie darstellen und die vor dem Wirksamkeitsdatum nicht gewährt wurden, gilt, dass die Gesellschaft diese RSUs nach ihrer Wahl durch Aktien oder in bar am Wirksamkeitsdatum begleichen kann. Wenn die RSUs in bar ausbezahlt werden, so hat der leitende Angestellte Anspruch auf einen Barbetrag, der dem Wert der gesamten langfristigen Leistungsprämie, die zum Wirksamkeitsdatum noch nicht gewährt wurde, entspricht. Sämtliche dieser Beträge sind an den leitenden Angestellten in einer Einmalzahlung oder in regelmäßigen Abständen (nach Wahl der Gesellschaft) zu den üblichen Gehaltsabrechnungsterminen zu zahlen, und zwar ab dem Wirksamkeitsdatum bis zum Date of Expiration.

c.all of the Long Term Incentive Awards as described in Section V.C of the Agreement until the Date of Expiration.  All RSUs that have been granted and that have not vested prior to the Effective Date shall immediately vest.  For all RSUs comprising the Long Term Incentive Awards that have not been granted prior to the Effective Date, the Company may settle such RSUs in stock or in cash at the Company's election on the Effective Date.  If the RSUs are settled in cash, the Executive shall be entitled to an amount in cash that is equivalent to the value of all such Long Term Incentive Awards that have not been granted as of the Effective Date.  Any such amounts shall be paid to the Executive in a lump sum or periodically (at the Company's election) at the regular payroll dates commencing as of the Effective Date until the Date of Expiration.

d.Sämtliche offenen Aktien-optionen, Belegschaftsaktien, Restricted Stock Units und sonstige nicht ausübbaren Eigenkapitalprämien (einschließlich etwaiger Baranteile solcher Prämien), die vor dem Tag dieser Änderungsverein-barung gewährt wurden, werden durch diesen Änderungsvertrag nicht berührt und unterliegen hinsichtlich ihres Übergangs und/oder ihrer Ausübung während ihrer fest-gelegten Laufzeiten ausschließlich den Bedingungen der jeweiligen Prämien-vereinbarungen.

d.all outstanding stock options, restricted stock, restricted stock units and any unvested equity incentives (including any cash portion of such incentives) granted before the date of this Amendment are not affect-ted by this Amendment and shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the respective award agreements.

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e.Zusätzlich gilt das nachvertragliche Wettbewerbsverbot einschließlich der jeweiligen Zahlung gemäß Ziffer IX unten.	e.In addition, the post-contractual non-compete including the respective payment as per Section IX. below applies.
E.Kündigung durch den leitenden Ange-stellten aus triftigem Grund 1.Das Dienstverhältnis des leitenden Angestellten kann von dem leitenden Angestellten durch Übergabe einer schriftlichen Mitteilung seiner Kündigung innerhalb von sechzig (60) Tagen nach Eintritt einer der nachfolgenden Gründe gekündigt werden. Jeder dieser Gründe begründet einen "triftigen Grund" für eine Kündigung:	E.By the Executive for Good Reason 1.The Executive's employment may be terminated by the Executive by written notice of his resignation delivered within sixty (60) days after the occurrence of any of the following events, each of which shall constitute "Good Reason" for resignation:
a.eine Anweisung des Unternehmens, den leitenden Angestellten an einen Standort zu versetzen, welcher mehr als fünfundzwanzig (25) Meilen von dem Büro liegt, in welchem der leitende Angestellte seine vertraglich bestehenden Pflichten zum Zeitpunkt einer solchen Versetzung ausübt. Im Sinne dieses Vertrages ist der Standort des leitenden Angestellten München, Deutschland;	a.requirement by the Company to relocate the Executive to a location that is greater than twenty-five (25) miles from the location of the office in which the Executive performs his duties hereunder at the time of such relocation. For the purpose of this Agreement, the location of the Executive is Munich, Germany;
b.wenn in Zusammenhang mit einem Change of Control der Nachfolger (natürliche oder juristische Person) oder das Board die Pflichten aus diesem Vertrag nicht mehr beachtet oder dem leitenden Angestellten keinen Anstellungsvertrag anbietet, welcher Bestimmungen enthält, die im wesentlichen vergleichbar zu diesem Vertrag oder ansonsten für den leitenden Angestellten zufriedenstellend sind, und welcher von dem leitenden Angestellten unterzeichnet wird; oder	b.in connection with a Change in Control, a failure by the successor person or entity, or the Board, either to honor this Agreement or to present the Executive with an employment agreement containing provisions substantially similar to this Agreement or otherwise satisfactory to the Executive and which is executed by the Executive; or
c.eine wesentliche Reduzierung des Titels des leitenden Angestellten oder eine wesentliche und nachteilige Änderung des Status und der Verantwortung des leitenden Angestellten oder die Übertragung von Pflichten und Verantwortung an den leitenden Angestellten, welche im wesentlichen nicht dem Status und der Verantwortung des leitenden Angestellten entsprechen;	c.a material reduction in the Executive's title, or a material and adverse change in Executive's status and responsibilities, or the assignment to Executive of duties or responsibilities which are materially inconsistent with Executive's status and responsibilities;

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d.wenn im Zusammenhang mit einen Change of Control sich das Vorgesetztenverhältnis zum CEO von Healthways ändert, oder	d.in connection with a Change of Control, the Executive's reporting relationship is changed from the CEO of Healthways, or
e.ein wichtiger Grund für eine außeror-dentliche Kündigung nach deutschem Recht.	e.a reason for cause ("außerordentliche Kündigung") as per German law.
2.Der leitende Angestellte hat dem Unternehmen innerhalb von sechzig (60) Tagen nach Auftreten eines der in den obigen Unterabsätzen (a), (b), (c) oder (d) genannten Ereignissen (die "Ereignisse eines triftigen Grundes") schriftlich seine Absicht zu kündigen mitzuteilen. Das Unternehmen hat danach sechzig (60) Tage (die "Behebungsfrist") um das/ die Ereignis(se) eines triftigen Grundes zu beseitigen; in diesem Fall hat dann der leitende Angestellte nicht mehr das Recht aus triftigem Grund zu kündigen. Falls das Unternehmen scheitert das/die Ereignis(se) eines triftigen Grundes vor Ablauf der Behebungsfrist zu beseitigen, kann der leitende Angestellte aus triftigem Grund kündigen und erhält die Leistungen, die nachstehend beschrieben sind, sofern die Kündigung aus triftigem Grund innerhalb von dreißig (30) Tagen nach Ablauf der Behebungsfrist erfolgt, anderenfalls wird davon ausgegangen, dass auf das Recht aus triftigem Grund zu kündigen verzichtet wurde. Im Falle des Unterabsatzes (e) erfolgt die Kündigung aus triftigem Grund sofort und mit sofortiger Wirkung. Falls der leitende Angestellte aus triftigem Grund, wie in diesem Abschnitt (E) definiert, kündigt, hat der leitende Angestellte einen Anspruch auf:	2.The Executive shall give the Company written notice of his intention to resign for Good Reason (stating the reason therefore) within sixty (60) days after the occurrence of one of the events stated in subparagraphs (a), (b), (c), or (d) above (the "Good Reason Events") and the Company shall have sixty (60) days (the "Cure Period") thereafter to rescind the Good Reason Event(s), in which event the Executive no longer shall have the right to resign for Good Reason. If the Company fails to rescind the Good Reason Event(s) before the expiration of the Cure Period, then the Executive may resign for Good Reason and receive the benefits described below so long as the resignation for Good Reason occurs within thirty (30) days following the expiration of the Cure Period, otherwise the right to resign on the basis of that Good Reason Event(s) shall be deemed to have been waived. In case of subparagraph (e) the resignation for Good Reason occurs immediately and with immediate effect.  If the Executive resigns for Good Reason as defined in this Section (E) the Executive is entitled to receive:

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a.das gesamte Grundgehalt, sämtliche Leistungen, Boni und langfristige Leistungsprämien, die dem leitenden Angestellten bis zum Wirksamkeitsdatum zustehen; im Falle einer Kündigung gemäß Unterabsatz 1 (e) dieser Ziffer VI.E wird der hypothetische Wirksamkeitsdatum im Falle der Einhaltung einer Kündigungsfrist berücksichtigt.	a.all Base Salary, benefits, bonus and incentive payments due to the Executive under this Agreement through the Effective Date;  In case of a resignation according to sub-paragraph 1(e) of this Section VI.E, the hypothetical Effective Date in case of an observance of a notice period shall be taken into account.
b.zum oder nach dem Wirksamkeitsdatum (i) sämtliche Zahlungen aus dem Bonusplan des leitenden Angestellten bis zum Date of Expiration (einschließlich) wie in Ziffer V.B des Vertrages beschrieben und (ii) einen Betrag, der dem Grundgehalt des leitenden Angestellten entspricht ebenso wie  Leistungen an Arbeitnehmer; all dies wird  an den leitenden Angestellten in regel-mäßigen Abständen zu den gewöhnlichen Gehaltsabrechnungsterminen bezahlt, jeweils ab dem Wirksamkeitsdatum bis zum Date of Expiration.	b.on and after the Effective Date, (i) the Executive's Bonus Plan through and including the Date of Expiration as described in Section V.B of the Agreement and (ii) an amount equal to the Executive's Base Salary as well as benefits, all provided to the Executive periodically at the regular payroll dates commencing as of the Effective Date until the Date of Expiration.
c.sämtliche Zahlungen aus der langfristigen Leistungsprämie gemäß Ziffer V.C des Vertrages bis zum Date of Expiration. Alle RSUs, die gewährt wurden und die vor dem Wirksamkeitsdatum nicht übergegangen sind, gehen unverzüglich auf den leitenden Angestellten über. Für sämtliche RSUs, die die langfristige Leistungsprämie darstellen und die vor dem Wirksamkeitsdatum nicht gewährt wurden, gilt, dass die Gesellschaft diese RSUs nach ihrer Wahl durch Aktien oder in bar am Wirksamkeitsdatum begleichen kann. Wenn die RSUs in bar ausbezahlt werden, so hat der leitende Angestellte Anspruch auf einen Barbetrag, der dem Wert der gesamten langfristigen Leistungsprämie, die zum Wirksamkeitsdatum noch nicht gewährt wurde, entspricht. Sämtliche dieser Beträge sind an den leitenden Angestellten in einer Einmalzahlung oder in regelmäßigen Abständen (nach Wahl der Gesellschaft) zu den üblichen Gehaltsabrechnungsterminen zu zahlen, und zwar ab dem Wirksamkeitsdatum bis zum Date of Expiration.	c.all the Long Term Incentive Awards as described in Section V.C of the Agreement until the Date of Expiration.  All RSUs that have been granted and that have not vested prior to the Effective Date shall immediately vest.  For all RSUs that comprise the Long Term Incentive Awards that have not been granted prior to the Effective Date, the Company may settle such RSUs in stock or in cash at the Company's election on the Effective Date.  If the RSUs are settled in cash, the Executive shall be entitled to an amount in cash that is equivalent to the value of all such Long Term Incentive Awards that have not been granted as of the Effective Date.  Any such amounts shall be paid to the Executive in a lump sum or periodically (at the Company's election) at the regular payroll dates commencing as of the Effective Date until the Date of Expiration.

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d.Sämtliche offenen Aktien-optionen, Belegschaftsaktien, Restricted Stock Units und sonstige nicht ausübbaren Eigenkapitalprämien (einschließlich etwaiger Baranteile solcher Prämien), die vor dem Tag dieser Änderungsverein-barung gewährt wurden, werden durch diesen Änderungsvertrag nicht berührt und unterliegen hinsichtlich ihres Übergangs und/oder ihrer Ausübung während ihrer fest-gelegten Laufzeiten ausschließlich den Bedingungen der jeweiligen Prämien-vereinbarungen.	d.all  outstanding stock options, restricted stock, restricted stock units and any  unvested equity incentives (including any cash portion of such incentives) granted before the date of this Amendment are not affected by this Amendment and shall vest and/or remain exercisable for their stated terms solely in accordance with the terms of the respective award agreements.
e.Zusätzlich gilt das nachvertragliche Wettbewerbsverbot einschließlich der jeweiligen Zahlung gemäß Ziffer IX unten.	e.In addition, the post-contractual non-compete including the respective payment as per Section IX. below applies.
I.Beendigung dieses Vertrages. 1.Spätestens (12) Monate vor dem Date of Expiration werden die Parteien in redliche Vertragsverhandlungen eintreten, um die Laufzeit dieses Vertrages zu verlängern. Wenn die Parteien sich nicht auf eine Verlängerung der Laufzeit einigen können, so wird die langfristige Leistungsprämie gemäß Ziffer V.C dieses Vertrages, die vor dem Date of Expiration noch nicht  ausübbar war, in der selben Weise ausübbar, als ob der leitende Angestellte kündigen würde, um in den Ruhestand zu gehen, wie dies in den jeweiligen  "Award Agreements" beschrieben ist. Die Zahlung des Bonusplans für 2019 erfolgt zu der Zeit, zu der die Gesellschaft Bonuszahlungen an ihre leitenden Angestellten allgemein vornimmt, und in keinem Fall später als im April 2020.	I.Expiration of this Agreement. 1.At least twelve (12) months before the Date of Expiration, the parties shall enter into good faith negotiations to extend the Term of this Agreement.  Should the parties not reach agreement to extend the Term, the Long Term Incentive Awards as described in Section V.C of this Agreement that have not vested prior to the Date of Expiration, shall vest in the same manner as if the Executive were terminating this Agreement by reason of retirement as described in the respective award agreements. Payment of the Bonus Plan for 2019 will be made at the time the Company makes bonus payments to its officers generally and in any event no later than April 2020.

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2.    Sollte die Gesellschaft sich entscheiden, die Wettbewerbsbeschränkungen nach Ziffer IX des Vertrages im Zeitraum nach dem normalen Ablauf dieses Vertrages (d.h. im Zeitraum nach dem Date of Expiration) durchzusetzen, so hat die Gesellschaft den leitenden Angestellten von dieser Entscheidung in Kenntnis zu setzen, und ist in diesem Fall verpflichtet, die in Ziffer IX vorgesehenen zusätzlichen Zahlungen zu leisten und der leitende Angestellte hat Anspruch auf Weiterzahlung von Zuschüssen zur privaten Kranken-versicherung und einen Firmenwagen für den Zeitraum, währenddessen die Gesellschaft die Wettbewerbsbeschränkungen des Vertrages durchsetzt.	2.Should the Company elect to enforce the non-compete provisions of Section IX of the Agreement in the period following the natural expiration of this Agreement (that period that is after the Date of Expiration), the Company shall notify Executive of its election and in such case shall make the additional payments required by Section IX and the Executive shall be entitled to continue receiving contributions to the private health insurance and the benefit of a company car for any such period that the Company elects to enforce the non-compete provisions of the Agreement.
IV.WIDERSPRÜCHE Im Falle eines Widerspruchs zwischen den Bedingungen eines "Award Agreements" und den Bedingungen dieses Änderungsvertrages im Hinblick auf den Vertragsgegenstand dieses Änderungsvertrages gelten vorrangig die Bestimmungen dieses Änderungsvertrages.	IV.CONFLICTS In the event of a conflict between the provisions of any award agreement and the provisions of this Amendment with respect to the subject matter of this Amendment, the provisions of this Amendment shall govern to the extent of such conflict.
V.ZUSÄTZLICHE ZAHLUNGEN Die Parteien sind sich einig, dass die Gesellschaft die Option hat, die Wettbewerbsbeschränkungen der Ziffer IX des Vertrages durchzusetzen und für den Fall, dass die Gesellschaft diese Wettbewerbs-beschränkungen durchsetzt, hat sie den leitenden Angestellten über diese Entscheidung zu informieren; in diesem Fall hat die Gesellschaft die weiteren Zahlungen gemäß Ziffer IX zu leisten und der leitende Angestellte hat Anspruch auf Weiterzahlung von Zuschüssen zur privaten Krankenversicherung und einen Firmenwagen für den Zeitraum, währenddessen die Gesellschaft die Wettbewerbsbeschränkungen dieses Vertrages durchsetzt.	V.ADDITIONAL PAYMENTS The parties agree that the Company has the option to enforce the non-compete provisions of Section IX of the Agreement and in the case that the Company elects to enforce such provisions, it shall notify Executive of its election and in such case the Company shall make the additional payments required by Section IX and the Executive shall be entitled to continue receiving contributions to the private health insurance and the benefit of a company car for any such period that the Company elects to enforce the non-compete provisions of this Agreement.
VI. ENTRICHTUNG DER STEUERN Ziffer VI. (G) 3., Entrichtung der Steuern, wird vollständig gestrichen.	VI.EXCISE TAX PAYMENT Section VI (G) 3., Excise Tax Payment, is deleted in its entirety.

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ZU URKUND DESSEN, haben die Parteien diesen Änderungsvertrag mit Wirkung zum oben genannten Datum unterzeichnet. IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of date set forth above.

Place, Date	Place, Date
/s/ Peter Choueiri	/s/ Ben R. Leedle, Jr.
Peter Choueiri	Healthways, Inc.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ben R. Leedle, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Healthways, 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(s) 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(s) 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.

Date:    November 7, 2014

/s/ Ben R. Leedle, Jr.

Ben R. Leedle, Jr.

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Alfred Lumsdaine, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Healthways, 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(s) 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(s) 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.

Date: November 7, 2014

/s/ Alfred Lumsdaine

Alfred Lumsdaine

Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Healthways, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Ben R. Leedle, Jr., Chief Executive Officer of the Company, and Alfred Lumsdaine, Chief Financial Officer of 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:

         (1)      The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 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/ Ben R. Leedle, Jr.

Ben R. Leedle, Jr.

Chief Executive Officer

November 7, 2014

/s/ Alfred Lumsdaine

Alfred Lumsdaine

Chief Financial Officer

November 7, 2014

XML

Long-Term Debt (Details) (USD $)	3 Months Ended	9 Months Ended			0 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013	Jul. 16, 2013	Jul. 01, 2018 Cash Convertible Notes [Member]	Jul. 16, 2013 Cash Convertible Notes [Member]	Oct. 01, 2019 CareFirst Convertible Note [Member]	Oct. 01, 2013 CareFirst Convertible Note [Member]
Debt Instrument [Line Items]
Date of Registration Rights Agreement								Oct. 01, 2013
Debt Instrument, Issuance Date						Jul. 16, 2013		Oct. 01, 2013
Debt Instrument, Maturity Date					Jul. 01, 2018		Oct. 01, 2019
Debt Instrument, Interest Rate, Effective Percentage	5.70%	5.70%
Amortization of debt discount	$ 1,714,000	$ 5,018,000	$ 1,497,000
Debt Instrument, Convertible, Conversion Ratio						51.38		22.41
Deferred Finance Costs, Gross						3,939,543
Interest Rate for Notes						1.50%		4.75%
Aggregate Principal of convertible notes						150,000,000		20,000,000
Debt Instrument, Convertible, Conversion Price						$ 19.46
Derivative Asset, Notional Amount	29,600,000	29,600,000
Payments for Hedge, Financing Activities		0	36,750,000			36,750,000
Warrants Strike Price				$ 25.95
Conversion price premium percentage				60.00%
Debt Instrument, Unamortized Discount				$ 36,750,000
CareFirst Warrant Shares for one year period	400,000
CareFirst Warrant Shares Maximum	1,600,000
CareFirst Warrants Issued	125,520	125,520

XML

Recent Accounting Standards

9 Months Ended

Sep. 30, 2014

Recent Accounting Standards [Abstract]

Recent Accounting Standards

(2) Recent Accounting Standards

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, "Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which requires an entity to present in the financial statements an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset resulting from a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, when the above situation is not available at the reporting date or the tax law of the applicable jurisdiction does not require the entity to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU No. 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013.  We adopted this standard for the interim period beginning January 1, 2014.  The adoption of this standard did not have a material impact on our consolidated results of operations, financial position, cash flows, or notes to the consolidated financial statements.

In May 2014, the FASB issued guidance codified in FASB Accounting Standards Codification ("ASC") Topic 606, "Revenue Recognition - Revenue from Contracts with Customers," which amends the guidance in former ASC Topic 605, "Revenue Recognition." The provisions of ASC Topic 606 provide for a single comprehensive principles-based standard for the recognition of revenue across all industries and expanded disclosure about the nature, amount, timing and uncertainty of revenue, as well as certain additional quantitative and qualitative disclosures. The standard is effective for annual periods beginning after December 15, 2016, including interim periods within those years. We are currently evaluating the impact of adopting ASC Topic 606.

XML

Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended		3 Months Ended
	Jan. 31, 2015	Apr. 30, 2014	Sep. 30, 2014
Contractual Commitment [Abstract]
Legal Settlement Amount paid in April 2014		$ 4
Legal Settlement Amount due January 2015	5.5
Minimum remaining contractual cash obligations			36.4
Total minimum payments required under outsourcing agreement over remaining term			129.6
Estimate of remaining payments pursuant to outsourcing agreement			267.7
Junk Fax Prevention Act Lawsuit [Abstract]
Junk Fax Prevention Act Lawsuit Damages being sought			$ 5

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Fair Value Measurements (Details) (USD $)					3 Months Ended	9 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2014 Cash Convertible Notes Hedge [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member]	Sep. 30, 2014 Cash Convertible Notes [Member]	Sep. 30, 2014 Cash Conversion Derivative [Member]	Sep. 30, 2014 Cash Conversion Derivative [Member]	Sep. 30, 2014 CareFirst Convertible Note [Member]	Sep. 30, 2014 Recurring [Member] Foreign Exchange Contract [Member]	Dec. 31, 2013 Recurring [Member] Foreign Exchange Contract [Member]	Sep. 30, 2014 Recurring [Member] Foreign Exchange Contract [Member] Level 2 [Member]	Dec. 31, 2013 Recurring [Member] Foreign Exchange Contract [Member] Level 2 [Member]	Sep. 30, 2014 Recurring [Member] Foreign Exchange Contract [Member] Level 3 [Member]	Dec. 31, 2013 Recurring [Member] Foreign Exchange Contract [Member] Level 3 [Member]	Sep. 30, 2014 Recurring [Member] Interest Rate Swap [Member]	Dec. 31, 2013 Recurring [Member] Interest Rate Swap [Member]	Sep. 30, 2014 Recurring [Member] Interest Rate Swap [Member] Level 2 [Member]	Dec. 31, 2013 Recurring [Member] Interest Rate Swap [Member] Level 2 [Member]	Sep. 30, 2014 Recurring [Member] Interest Rate Swap [Member] Level 3 [Member]	Dec. 31, 2013 Recurring [Member] Interest Rate Swap [Member] Level 3 [Member]	Sep. 30, 2014 Recurring [Member] Cash Convertible Notes Hedge [Member]	Dec. 31, 2013 Recurring [Member] Cash Convertible Notes Hedge [Member]	Sep. 30, 2014 Recurring [Member] Cash Convertible Notes Hedge [Member] Level 2 [Member]	Dec. 31, 2013 Recurring [Member] Cash Convertible Notes Hedge [Member] Level 2 [Member]	Sep. 30, 2014 Recurring [Member] Cash Convertible Notes Hedge [Member] Level 3 [Member]	Dec. 31, 2013 Recurring [Member] Cash Convertible Notes Hedge [Member] Level 3 [Member]	Sep. 30, 2014 Recurring [Member] Cash Conversion Derivative [Member]	Dec. 31, 2013 Recurring [Member] Cash Conversion Derivative [Member]	Sep. 30, 2014 Recurring [Member] Cash Conversion Derivative [Member] Level 2 [Member]	Dec. 31, 2013 Recurring [Member] Cash Conversion Derivative [Member] Level 2 [Member]	Sep. 30, 2014 Recurring [Member] Cash Conversion Derivative [Member] Level 3 [Member]	Dec. 31, 2013 Recurring [Member] Cash Conversion Derivative [Member] Level 3 [Member]
Assets measured at fair value on a recurring basis
Gross Fair Value											$ 341,000	$ 178,000	$ 341,000	$ 178,000	$ 0	$ 0							$ 34,008,000	$ 27,766,000	$ 0	$ 0	$ 34,008,000	$ 27,766,000
Netting											(110,000)	(57,000)											0	0
Net Fair Value											231,000	121,000											34,008,000	27,766,000
Liabilities measured at fair value on a recurring basis
Gross Fair Value											163,000	67,000	163,000	67,000	0	0	361,000	505,000	361,000	505,000	0	0							34,008,000	27,766,000	0	0	34,008,000	27,766,000
Netting											(110,000)	(57,000)					0	0											0	0
Net Fair Value											53,000	10,000					361,000	505,000											34,008,000	27,766,000
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Purchases, (Sales), Issuances, (Settlements) [Abstract]
Balance at beginning of period						27,766,000			(27,766,000)
Purchases into Level 3					0			0
Issuances into Level 3					0			0
Gains/(Losses) included in Earnings						6,242,000			(6,242,000)
Balance at end of period					34,008,000	34,008,000		(34,008,000)	(34,008,000)
Cash and cash equivalents	1,708,000	2,584,000	2,815,000	1,759,000
Carrying Amount of Outstanding borrowings under the Fifth Amended Credit Agreement	108,900,000
Fair Value of Outstanding borrowings under the Fifth Amended Credit Agreement	108,400,000
Aggregate Principal of convertible notes							150,000,000
Debt Instrument, Carrying Amount							121,400,000			20,000,000
Debt Instrument, Fair Value							$ 154,500,000			$ 20,000,000

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013
Numerator [Abstract]
Net loss - numerator for basic loss per share	$ 1,973	$ 1,799	$ (8,139)		$ (3,251)
Denominator [Abstract]
Shares used for basic loss per share (in shares)	35,351	34,682	35,263		34,288
Shares used for diluted loss per share (in shares)	36,477	35,834	35,263	[1]	34,288	[1]
Loss per share [Abstract]
Basic (in dollars per share)	$ 0.06	$ 0.05	$ (0.23)		$ (0.09)
Diluted (in dollars per share)	$ 0.05	$ 0.05	$ (0.23)	[1]	$ (0.09)	[1]
Non-Qualified Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	1,131	1,682	2,153		3,343
Restricted Stock Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	54	0	390		331
Performance Stock Units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	2	0	16		0
Warrants Related to Cash Convertible Notes [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	7,707	0	7,707		0
CareFirst Convertible Note [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	892	0	892		0
CareFirst Warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Dilutive securities outstanding not included in the computation of loss per share because their effect is antidilutive (in shares)	83	0	86		0
Non-Qualified Stock Options [Member]
Denominator [Abstract]
Effect of dilutive stock options and restricted stock units outstanding (in shares)	770	784	0	[1]	0	[1]
Restricted Stock Units [Member]
Denominator [Abstract]
Effect of dilutive stock options and restricted stock units outstanding (in shares)	318	368	0	[1]	0	[1]
Performance Shares [Member]
Denominator [Abstract]
Effect of dilutive stock options and restricted stock units outstanding (in shares)	34	0	0	[1]	0	[1]
CareFirst Warrants
Denominator [Abstract]
Effect of dilutive stock options and restricted stock units outstanding (in shares)	4	0	0	[1]	0	[1]

[1] The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

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Accumulated OCI (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated OCI, net of tax Beginning Balance			$ (407)	$ (929)
Other comprehensive loss before reclassifications, net of tax			(947)	(180)
Amounts reclassified from accumulated OCI, net of tax			233	987
Net increase (decrease) in other comprehensive income (loss), net of tax			(714)	807
Accumulated OCI, net of tax Ending Balance	(1,121)	(122)	(1,121)	(122)
Reclassification adjustments out of AOCI [Abstract]
Reclassification to interest expense	(4,574)	(5,006)	(13,472)	(11,486)
Amounts reclassified from accumulated other comprehensive income to: [Member]
Reclassification adjustments out of AOCI [Abstract]
Reclassification to interest expense			386	1,632
Tax effect of reclassification			(153)	(645)
Reclassification Adjustment on Derivatives Included in Net Income			233	987
Net Change in Fair Value of Interest Rate Swaps [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated OCI, net of tax Beginning Balance			(513)	(1,790)
Other comprehensive loss before reclassifications, net of tax			(68)	377
Amounts reclassified from accumulated OCI, net of tax			233	987
Net increase (decrease) in other comprehensive income (loss), net of tax			165	1,364
Accumulated OCI, net of tax Ending Balance	(348)	(426)	(348)	(426)
Foreign Currency Translation Adjustments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated OCI, net of tax Beginning Balance			106	861
Other comprehensive loss before reclassifications, net of tax			(879)	(557)
Amounts reclassified from accumulated OCI, net of tax			0	0
Net increase (decrease) in other comprehensive income (loss), net of tax			(879)	(557)
Accumulated OCI, net of tax Ending Balance	$ (773)	$ 304	$ (773)	$ 304

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Basis of Presentation

9 Months Ended

Sep. 30, 2014

Basis of Presentation [Abstract]

Basis of Presentation

(1) Basis of Presentation

Our financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP").  In our opinion, the accompanying consolidated financial statements of Healthways, Inc. and its wholly-owned subsidiaries (collectively, "Healthways," the "Company," or such terms as "we," "us," or "our") reflect all adjustments consisting of normal, recurring accruals necessary for a fair statement.

We have omitted certain financial information that is normally included in financial statements prepared in accordance with U.S. GAAP but that is not required for interim reporting purposes. You should read the accompanying consolidated financial statements in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013.

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CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 1,708	$ 2,584
Accounts receivable, net	114,223	89,484
Prepaid expenses	10,138	9,228
Other current assets	6,599	6,857
Income taxes receivable	1,704	1,402
Deferred tax asset	7,631	9,667
Total current assets	142,003	119,222
Property and equipment:
Leasehold improvements	38,957	37,463
Computer equipment and related software	311,157	290,392
Furniture and office equipment	23,558	22,881
Capital projects in process	38,914	25,228
Property and equipment, gross	412,586	375,964
Less accumulated depreciation	(248,576)	(217,766)
Property and equipment, net	164,010	158,198
Other assets	61,162	53,629
Intangible assets, net	71,466	79,162
Goodwill, net	338,800	338,800
Total assets	777,441	749,011
Current liabilities:
Accounts payable	36,729	33,125
Accrued salaries and benefits	17,376	20,157
Accrued liabilities	51,701	32,065
Deferred revenue	8,880	4,496
Contract billings in excess of earned revenue	17,463	17,411
Current portion of long-term debt	19,724	14,340
Current portion of long-term liabilities	1,812	2,822
Total current liabilities	153,685	124,416
Long-term debt	237,370	237,582
Long-term deferred tax liability	27,306	33,320
Other long-term liabilities	59,771	51,003
Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized, none outstanding	0	0
Common stock $.001 par value, 120,000,000 shares authorized, 35,360,327 and 35,107,303 shares outstanding, respectively	35	35
Additional paid-in capital	288,716	283,244
Retained earnings	39,861	48,000
Treasury stock, at cost, 2,254,953 shares in treasury	(28,182)	(28,182)
Accumulated other comprehensive loss	(1,121)	(407)
Total stockholders' equity	299,309	302,690
Total liabilities and stockholders' equity	$ 777,441	$ 749,011

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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (USD $) In Thousands, unless otherwise specified	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2013	$ 0	$ 35	$ 283,244	$ 48,000	$ (28,182)	$ (407)	$ 302,690
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Comprehensive loss	0	0	0	(8,139)	0	(714)	(8,853)
Exercise of stock options	0	0	1,498	0	0	0	1,498
Tax effect of stock options and restricted stock units	0	0	(2,915)	0	0	0	(2,915)
Share-based employee compensation expense	0	0	5,867	0	0	0	5,867
Issuance of CareFirst warrants	0	0	1,022	0	0	0	1,022
Balance at Sep. 30, 2014	$ 0	$ 35	$ 288,716	$ 39,861	$ (28,182)	$ (1,121)	$ 299,309

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Accumulated OCI (Tables)

9 Months Ended

Sep. 30, 2014

Accumulated OCI [Abstract]

Schedule of changes in accumulated other comprehensive income (AOCI)

The following tables summarize the changes in accumulated OCI, net of tax, for the nine months ended September 30, 2014 and 2013:

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2014	$	(513	)	$	106		$	(407	)
Other comprehensive loss before reclassifications, net of tax		(68	)		(879	)		(947	)
Amounts reclassified from accumulated OCI, net of tax		233			—			233
Net increase (decrease) in other comprehensive income (loss), net of tax		165			(879	)		(714	)
Accumulated OCI, net of tax, as of September 30, 2014	$	(348	)	$	(773	)	$	(1,121	)

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2013	$	(1,790	)	$	861		$	(929	)
Other comprehensive income (loss) before reclassifications, net of tax		377			(557	)		(180	)
Amounts reclassified from accumulated OCI, net of tax		987			—			987
Net increase (decrease) in other comprehensive income (loss), net of tax		1,364			(557	)		807
Accumulated OCI, net of tax, as of September 30, 2013	$	(426	)	$	304		$	(122	)

Reclassification out of Accumulated Other Comprehensive Income

The following table provides details about reclassifications out of accumulated OCI for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,								Statement of Comprehensive
(In $000s)	2014				2013				Loss Classification
Interest rate swaps		$	386			$	1,632		Interest expense
			(153	)			(645	)	Income tax benefit
		$	233			$	987		Net of tax

See Note 6 for further discussion of our interest rate swaps.

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Income Taxes (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Taxes [Abstract]
Effective tax rate	34.20%		35.90%	50.60%
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued		$ 1,100,000
Income Tax Expense (Benefit)	$ 1,025,000	$ (691,000)	$ (4,559,000)	$ (3,336,000)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (8,139)	$ (3,251)
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities, net of business acquisitions:
Depreciation and amortization	40,250	39,499
Amortization of deferred loan costs	1,390	1,096
Amortization of debt discount	5,018	1,497
Share-based employee compensation expense	5,867	5,207
Deferred income taxes	(6,464)	45
Excess tax benefits from share-based payment arrangements	(340)	(572)
(Increase) decrease in accounts receivable, net	(25,482)	23,185
Decrease in other current assets	1,867	138
Decrease in accounts payable	(7,591)	(4,363)
Decrease in accrued salaries and benefits	(3,404)	(9,777)
Increase (decrease) in other current liabilities	20,561	(398)
Other	8,786	(941)
Net cash flows provided by operating activities	32,319	51,365
Cash flows from investing activities:
Acquisition of property and equipment	(31,927)	(32,833)
Business acquisitions, net of cash acquired	0	(830)
Other	(6,318)	(5,754)
Net cash flows used in investing activities	(38,245)	(39,417)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt	350,750	314,800
Payments of long-term debt	(357,962)	(461,380)
Deferred loan costs	(88)	(5,210)
Excess tax benefits from share-based payment arrangements	340	572
Exercise of stock options	1,498	12,562
Proceeds from cash convertible senior notes	0	150,000
Proceeds from sale of warrants	0	15,150
Payments for convertible note hedge transaction	0	(36,750)
Change in cash overdraft and other	11,221	104
Net cash flows provided by (used in) financing activities	5,759	(10,152)
Effect of exchange rate changes on cash	(709)	(740)
Net (decrease) increase in cash and cash equivalents	(876)	1,056
Cash and cash equivalents, beginning of period	2,584	1,759
Cash and cash equivalents, end of period	1,708	2,815
Noncash Activities:
Assets acquired through capital lease obligation	$ 6,620	$ 0

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Stockholders' equity:
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	120,000,000	120,000,000
Common stock, shares outstanding (in shares)	35,360,327	35,107,303
Treasury stock (in shares)	2,254,953	2,254,953

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Accumulated OCI

9 Months Ended

Sep. 30, 2014

Accumulated OCI [Abstract]

Accumulated OCI

(10) Accumulated OCI

The following tables summarize the changes in accumulated OCI, net of tax, for the nine months ended September 30, 2014 and 2013:

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2014	$	(513	)	$	106		$	(407	)
Other comprehensive loss before reclassifications, net of tax		(68	)		(879	)		(947	)
Amounts reclassified from accumulated OCI, net of tax		233			—			233
Net increase (decrease) in other comprehensive income (loss), net of tax		165			(879	)		(714	)
Accumulated OCI, net of tax, as of September 30, 2014	$	(348	)	$	(773	)	$	(1,121	)

(In $000s)	Net Change in Fair Value of Interest Rate Swaps			Foreign Currency Translation Adjustments			Total
Accumulated OCI, net of tax, as of January 1, 2013	$	(1,790	)	$	861		$	(929	)
Other comprehensive income (loss) before reclassifications, net of tax		377			(557	)		(180	)
Amounts reclassified from accumulated OCI, net of tax		987			—			987
Net increase (decrease) in other comprehensive income (loss), net of tax		1,364			(557	)		807
Accumulated OCI, net of tax, as of September 30, 2013	$	(426	)	$	304		$	(122	)

The following table provides details about reclassifications out of accumulated OCI for the nine months ended September 30, 2014 and 2013:

	Nine Months Ended September 30,								Statement of Comprehensive
(In $000s)	2014				2013				Loss Classification
Interest rate swaps		$	386			$	1,632		Interest expense
			(153	)			(645	)	Income tax benefit
		$	233			$	987		Net of tax

See Note 6 for further discussion of our interest rate swaps.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 03, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Healthways, Inc.
Entity Central Index Key	0000704415
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		35,389,651
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2014

Share-Based Compensation [Abstract]

Summary of stock option activity

A summary of our stock options as of September 30, 2014 and changes during the nine months then ended is presented below:

	Shares (000s)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Value ($000s)
Options
Outstanding at January 1, 2014		4,325		$	15.09
Granted		98			16.60
Exercised		(119	)		12.58
Forfeited		(71	)		12.83
Expired		(494	)		26.80
Outstanding at September 30, 2014		3,739			13.70		6.52		$	14,810
Exercisable at September 30, 2014		1,982		$	15.67		5.43		$	6,672

Summary of restricted stock, restricted stock units , and performance share units ("nonvested shares")

The following table shows a summary of our restricted stock, restricted stock units and performance share units ("nonvested shares") as of September 30, 2014, as well as activity during the nine months then ended:

	Restricted Stock and Restricted Stock Units					Performance Share Units
Nonvested Shares	Shares (000s)			Weighted- Average Grant Date Fair Value		Shares (000s)		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2014		841		$	10.44		—	$	—
Granted		430			16.85		333		14.79
Vested		(173	)		11.01		—		—
Forfeited		(35	)		11.39		—		—
Nonvested at September 30, 2014		1,063		$	12.91		333	$	14.79

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) [Abstract]
Revenues	$ 185,656	$ 166,615	$ 543,047		$ 494,049
Cost of services (exclusive of depreciation and amortization of $9,392, $9,115, $28,368, and $26,826, respectively, included below)	148,950	131,109	443,574		405,835
Selling, general and administrative expenses	15,756	16,440	49,086		43,816
Depreciation and amortization	13,378	12,952	40,250		39,499
Legal settlement charges	0	0	9,363		0
Operating income	7,572	6,114	774		4,899
Interest expense	4,574	5,006	13,472		11,486
Income (loss) before income taxes	2,998	1,108	(12,698)		(6,587)
Income tax expense (benefit)	1,025	(691)	(4,559)		(3,336)
Net income (loss)	1,973	1,799	(8,139)		(3,251)
Earnings (loss) per share:
Basic (in dollars per share)	$ 0.06	$ 0.05	$ (0.23)		$ (0.09)
Diluted (in dollars per share)	$ 0.05	$ 0.05	$ (0.23)	[1]	$ (0.09)	[1]
Comprehensive income (loss)	$ 849	$ 2,444	$ (8,853)		$ (2,444)
Weighted average common shares and equivalents:
Basic (in shares)	35,351	34,682	35,263		34,288
Diluted (in shares)	36,477	35,834	35,263	[1]	34,288	[1]

[1] The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

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Long-Term Debt

9 Months Ended

Sep. 30, 2014

Long-Term Debt [Abstract]

Long-Term Debt

(5)Long-Term Debt

1.50% Cash Convertible Senior Notes Due 2018

On July 16, 2013, we issued $150.0 million aggregate principal amount of cash convertible senior notes due 2018 (the "Cash Convertible Notes"), which bear interest at a rate of 1.50% per year, payable semiannually in arrears on January 1 and July 1 of each year, beginning on January 1, 2014. The Cash Convertible Notes will mature on July 1, 2018, unless earlier repurchased or converted into cash in accordance with their terms prior to such date. The Cash Convertible Notes are convertible into cash based on the conversion rate set forth below and are not convertible into our common stock or any other securities under any circumstances. The initial cash conversion rate is 51.38 shares of our common stock per $1,000 principal amount of Cash Convertible Notes (equivalent to an initial conversion price of approximately $19.46 per share of common stock). The Cash Convertible Notes are our senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the Cash Convertible Notes. As a result of this transaction, we recognized deferred loan costs of approximately $3.9 million, which are being amortized over the term of the Cash Convertible Notes using the effective interest method.

The cash conversion feature of the Cash Convertible Notes (the "Cash Conversion Derivative") requires bifurcation from the Cash Convertible Notes in accordance with FASB Accounting Standards Codification ("ASC") Topic 815, Derivatives and Hedging, and is recorded in other long-term liabilities as a derivative liability and carried at fair value. The fair value of the Cash Conversion Derivative at the time of issuance of the Cash Convertible Notes was $36.8 million, which was recorded as a debt discount for purposes of accounting for the debt component of the Cash Convertible Notes. The debt discount willl be amortized over the term of the Cash Convertible Notes using the effective interest method. For the nine months ended September 30, 2014, we recorded $5.0 million of interest expense related to the amortization of the debt discount based upon an effective interest rate of 5.7%.

In connection with the issuance of the Cash Convertible Notes, we entered into privately negotiated convertible note hedge transactions (the "Cash Convertible Notes Hedges"), which are cash-settled and are intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the Cash Convertible Notes at a time when our stock price exceeds the conversion price. The initial cost of the Cash Convertible Notes Hedges was $36.8 million. The Cash Convertible Notes Hedges are recorded in other assets as a derivative asset under FASB ASC Topic 815 and are carried at fair value.  See Note 6 for additional information regarding the Cash Convertible Notes Hedges and the Cash Conversion Derivative and their fair values as of September 30, 2014.

In July 2013, we also sold separate privately negotiated warrants (the "Warrants") initially relating, in the aggregate, to a notional number of shares of our common stock underlying the Cash Convertible Notes Hedges. The Warrants have an initial strike price of $25.95 per share, which effectively increases the conversion price of the Notes to a 60% premium to our stock price on July 1, 2013. The Warrants will be net share settled by issuing a number of shares of our common stock per Warrant corresponding to the excess of the market price per share of our common stock (as measured on each warrant exercise date under the terms of the Warrants) over the applicable strike price of the Warrants. The Warrants meet the definition of derivatives under the guidance in ASC Topic 815; however, because these instruments have been determined to be indexed to our own stock and meet the criteria for equity classification under ASC Topic 815-40, the Warrants have been accounted for as an adjustment to our additional paid-in-capital.

If the market value per share of our common stock exceeds the strike price of the Warrants, the Warrants will have a dilutive effect on net income per share, and the "treasury stock" method will be used in calculating the dilutive effect on earnings per share.

 CareFirst Convertible Note

On October 1, 2013, we entered into an Investment Agreement (the "Investment Agreement") with CareFirst Holdings, LLC ("CareFirst"), which is in addition to certain existing commercial agreements between us and CareFirst relating to, among other things, disease management and care coordination services (the "Commercial Agreements"). Pursuant to the Investment Agreement, we issued to CareFirst a convertible subordinated promissory note in the aggregate original principal amount of $20 million (the "CareFirst Convertible Note") for a purchase price of $20 million. The CareFirst Convertible Note bears interest at a rate of 4.75% per year, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each calendar year, beginning on December 31, 2013. The CareFirst Convertible Note may be prepaid only under limited circumstances and upon the terms and conditions specified therein. If the CareFirst Convertible Note has not been fully converted or redeemed in accordance with its terms, it will mature on October 1, 2019.  The CareFirst Convertible Note is subordinate in right of payment to the prior payment in full of (a) all of our indebtedness under the Fifth Amended Credit Agreement (as defined below), and (b) any other of our senior debt, which currently includes only the Cash Convertible Notes.

The CareFirst Convertible Note is convertible into shares of our common stock at the conversion rate determined by dividing (a) the sum of the portion of the principal to be converted and accrued and unpaid interest with respect to such principal by (b) the conversion price equal to $22.41 per share of our common stock.  The conversion price is subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications and similar events.

CareFirst has an opportunity to earn warrants to purchase shares of our common stock ("CareFirst Warrants") based on achievement of certain quarterly thresholds (the "Revenue Thresholds") for revenue derived from both the Commercial Agreements and from new business to us from third parties as a result of an introduction or referral to us by CareFirst (collectively, the "Quarterly Revenue").  If the Quarterly Revenue is greater than or equal to the applicable Revenue Threshold for any quarter ending on or prior to September 30, 2017, then we will issue to CareFirst a certain number of warrants exercisable for the number of shares of our common stock ("CareFirst Warrant Shares") determined in accordance with the terms of the Investment Agreement unless (i) CareFirst elects to receive a cash payment in accordance with the terms of the Investment Agreement or (ii) there is a change of control. The aggregate number of CareFirst Warrant Shares in any single 12-month period beginning on October 1, 2013 cannot exceed 400,000, and the aggregate number of CareFirst Warrant Shares issuable pursuant to the Investment Agreement cannot exceed 1,600,000. The CareFirst Warrants issued prior to September 30, 2014 totaling 125,520 may have a dilutive effect on net income per share, and the "treasury stock" method is used in calculating the dilutive effect on earnings per share. 

Also on October 1, 2013, in connection with the execution of the Investment Agreement, we entered into a Registration Rights Agreement with CareFirst, pursuant to which we agreed to use commercially reasonable efforts to cause any registration statement covering an underwritten offering of our common stock for our own account or for the account of any holder of our common stock (other than a registration statement on Form S-4 or Form S-8 or any successor thereto) to include those registrable common shares that any holder of such registrable common shares has requested to be registered. 

The term of the Investment Agreement expires on the earlier of (a) December 31, 2017 and (b) the first date on which no Commercial Agreement is in effect.

Credit Facility

On June 8, 2012, we entered into the Fifth Amended and Restated Revolving Credit and Term Loan Agreement(as amended, the "Fifth Amended Credit Agreement").  The Fifth Amended Credit Agreement provides us with a $200.0 million revolving credit facility that expires on June 8, 2017 and includes a swingline sub facility of $20.0 million and a $75.0 million sub facility for letters of credit.  The Fifth Amended Credit Agreement also provides a $200.0 million term loan facility that matures on June 8, 2017, $101.3 million of which remained outstanding at September 30, 2014, and an uncommitted incremental accordion facility of $200.0 million.

Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) the one-month, two-month, three-month or six-month rate (or with the approval of affected lenders, nine-month or twelve-month rate) for Eurodollar deposits ("LIBOR") or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50%, and (c) one-month LIBOR plus 1.00% (the "Base Rate"), as selected by the Company.  The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio.  The Fifth Amended Credit Agreement also provides for an annual fee ranging between 0.30% and 0.50% of the unused commitments under the revolving credit facility.  Extensions of credit under the Fifth Amended Credit Agreement are secured by guarantees from all of the Company's active domestic subsidiaries and by security interests in substantially all of the Company's and such subsidiaries' assets.

On July 1, 2013, we entered into an amendment to the Fifth Amended Credit Agreement, which provided for, among other things, the amendment of certain negative covenants to permit the issuance of and payments related to the Cash Convertible Notes, Cash Convertible Notes Hedges and Warrants described above as well as increases in the maximum required levels of total funded debt to EBITDA beginning with the quarter ended June 30, 2013.

On April 15, 2014, in connection with the agreement to resolve the contract dispute with Blue Cross Blue Shield of Minnesota ("BCBSMN") as discussed in Note 8, we entered into an additional amendment to the Fifth Amended Credit Agreement that provided for an add-back to our consolidated EBITDA, which is used for purposes of calculating financial covenants under the Fifth Amended Credit Agreement, for the $9.4 million charge incurred as a result of the settlement of the dispute with BCBSMN. As of September 30, 2014, availability under the revolving credit facility totaled $44.8 million as calculated under the most restrictive covenant.

We are required to repay outstanding revolving loans under the revolving credit facility in full on June 8, 2017. We are required to repay term loans in quarterly principal installments aggregating (1) 1.250% of the original aggregate principal amount of the term loans during each of the eight quarters beginning with the quarter ended September 30, 2012, (2) 1.875% of the original aggregate principal amount of the term loans during each of the next four quarters beginning with the quarter ending September 30, 2014, and (3) 2.500% of the original aggregate principal amount of the term loans during each of the remaining quarters prior to maturity on June 8, 2017, at which time the entire unpaid principal balance of the term loans is due and payable.

The Fifth Amended Credit Agreement contains financial covenants that require us to maintain, as defined, specified ratios or levels of (1) total funded debt to EBITDA and (2) fixed charge coverage.  As of September 30, 2014, we were in compliance with all of the financial covenant requirements of the Fifth Amended Credit Agreement.

The Fifth Amended Credit Agreement contains various other affirmative and negative covenants that are typical for financings of this type.  Among other things, the Fifth Amended Credit Agreement limits repurchases of our common stock and the amount of dividends that we can pay to holders of our common stock.

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Income Taxes

9 Months Ended

Sep. 30, 2014

Income Taxes [Abstract]

Income Taxes

(4) Income Taxes

For the three months ended September 30, 2014, the effective tax rate was 34.2%. For the three months ended September 30, 2013, despite having pre-tax income we recorded an income tax benefit of $0.7 million primarily as a result of a $1.1 million reduction to an unrecognized tax benefit due to the expiration of the applicable statute of limitations period for the 2009 tax year. This $1.1 million benefit more than offset the income tax expense for the quarter calculated using our annualized effective tax rate.

For the nine months ended September 30, 2014, the effective tax rate was 35.9% compared to 50.6% for the nine months ended September 30, 2013, which was favorably impacted by the reduction to an unrecognized tax benefit as discussed above.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions.  Tax years remaining subject to examination in these major jurisdictions include 2011 to present.

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Share-Based Compensation (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-Based Compensation [Abstract]
Share-based compensation costs	$ 2,310	$ 1,749	$ 5,867	$ 5,207
Shares [Roll Forward]
Outstanding, beginning of period (in shares)			4,325
Granted (in shares)			98
Exercised (in shares)			(119)
Forfeited (in shares)			(71)
Expired (in shares)			(494)
Outstanding, end of period (in shares)	3,739		3,739
Exercisable, end of period (in shares)	1,982		1,982
Weighted-Average Exercise Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)			$ 15.09
Granted (in dollars per share)			$ 16.60
Exercised (in dollars per share)			$ 12.58
Forfeited (in dollars per share)			$ 12.83
Expired (in dollars per share)			$ 26.8
Outstanding, end of period (in dollars per share)	$ 13.7		$ 13.7
Exercisable, end of period (in dollars per share)	$ 15.67		$ 15.67
Weighted-Average Remaining Contractual Term (years) [Abstract]
Outstanding at September 30, 2014			6 years 6 months 7 days
Exercisable at September 30, 2014			5 years 5 months 5 days
Aggregate Intrinsic Value [Abstract]
Outstanding at September 30, 2014	14,810		14,810
Exercisable at September 30, 2014	$ 6,672		$ 6,672
Weighted average grant-date fair value of options per share (in dollars per share)			$ 9.05
Restricted Stock and Restricted Stock Units (RSUs) [Member]
Shares [Roll Forward]
Nonvested, beginning of period (in shares)			841
Granted (in shares)			430
Vested (in shares)			(173)
Forfeited (in shares)			(35)
Nonvested, end of period (in shares)	1,063		1,063
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, beginning of period (in dollars per share)			$ 10.44
Granted (in dollars per share)			$ 16.85
Vested (in dollars per share)			$ 11.01
Forfeited (in dollars per share)			$ 11.39
Nonvested, end of period (in dollars per share)	$ 12.91		$ 12.91
Performance Shares [Member]
Shares [Roll Forward]
Nonvested, beginning of period (in shares)			0
Granted (in shares)			333
Vested (in shares)			0
Forfeited (in shares)			0
Nonvested, end of period (in shares)	333		333
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, beginning of period (in dollars per share)			$ 0
Granted (in dollars per share)			$ 14.79
Vested (in dollars per share)			$ 0
Forfeited (in dollars per share)			$ 0
Nonvested, end of period (in dollars per share)	$ 14.79		$ 14.79

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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities [Abstract]

Effect of cash flow hedges on the consolidated balance sheets

The following table shows the effect of our cash flow hedges on the consolidated balance sheets during the three and nine months ended September 30, 2014 and 2013:

(In $000s)	For the Three Months Ended							For the Nine Months Ended
Derivatives in Cash Flow Hedging Relationships	September 30, 2014				September 30, 2013			September 30, 2014		September 30, 2013
(Gain) loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect		$	(118	)		$	72	$	164	$	(624	)
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect		$	130			$	452	$	386	$	1,632

Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location [Table Text Block]

The gains and losses resulting from a change in fair values of the Cash Conversion Derivative and the Cash Convertible Notes Hedges are reported in the consolidated statements of comprehensive income (loss) as follows:

(In $000s)	Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014				Statements of Comprehensive Income (Loss) Classification
Cash Convertible Notes Hedges:
Net unrealized gain (loss)		$	(3,338	)		$	6,242		Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized gain (loss)		$	3,338			$	(6,242	)	Selling, general and administrative expenses

Fair values of derivative instruments

The estimated gross fair values of derivative instruments at September 30, 2014 and December 31, 2013, excluding the impact of netting derivative assets and liabilities when a legally enforceable master netting agreement exists, were as follows:

	September 30, 2014						December 31, 2013
(In $000s)	Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative		Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative
Assets:
Derivatives not designated as hedging instruments:
Other current assets	$	341	$	—	$	—	$	178	$	—	$	—
Other assets		—		—		34,008		—		—		27,766
Total assets	$	341	$	—	$	34,008	$	178	$	—	$	27,766
Liabilities:
Derivatives not designated as hedging instruments:
Accrued liabilities	$	163	$	—	$	—	$	67	$	—	$	—
Other long-term liabilities		—		—		34,008		—		—		27,766
Derivatives designated as hedging instruments:
Accrued liabilities		—		—		—		—		—		—
Other long-term liabilities		—		361		—		—		505		—
Total liabilities	$	163	$	361	$	34,008	$	67	$	505	$	27,766

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(8) Commitments and Contingencies

Contract Disputes

On January 25, 2010, BCBSMN issued notice of arbitration with the American Arbitration Association in Minneapolis in accordance with the terms of the contract alleging violations of certain contract provisions and seeking recoupment of an unspecified amount of payments made to us under the contract. We believe we performed our services in compliance with the terms of our agreement and that the assertions made in the arbitration notice are without merit.  On August 3, 2011, we asserted numerous counterclaims against BCBSMN. On April 15, 2014, we entered into an agreement with BCBSMN to resolve this dispute.  Under the terms of the agreement, we agreed to pay BCBSMN in two separate installments: $4 million which was paid in April 2014 and $5.5 million to be paid in January 2015. BCBSMN has an option to receive discounts on our well-being improvement services in lieu of the January 2015 payment. 

We are involved in a contractual dispute with Plastipak Packaging, Inc. ("Plastipak"). On September 10, 2012, Plastipak filed suit in the Circuit Court for Wayne County, Michigan seeking damages relating to an alleged breach of a services agreement with us.  The discovery phase has concluded, and the parties anticipate a trial to be scheduled in January 2015. We deny Plastipak's claims and intend to vigorously defend the action.

Junk Fax Prevention Act Lawsuit

On September 16, 2014, Healthways and its wholly owned subsidiary, Healthways WholeHealth Networks, Inc. ("HWHN"), were named in a putative class action law suit filed in the Superior Court for Los Angeles County, California, seeking damages relating to alleged violations of the Junk Fax Prevention Act 2005 in connection with fax communications between HWHN and the members of its network of complementary and alternative care practitioners.  The complaint seeks damages in excess of $5,000,000.  The case was removed to the United States District Court of California, Western Division on October 16, 2014.  We deny the claims and intend to vigorously defend the action.

Performance Award Lawsuit

On September 4, 2012, Milton Pfeiffer ("Plaintiff"), claiming to be a stockholder of the Company, filed a putative derivative action against the Company and the Board of Directors (the "Board") in Delaware Chancery Court (the "Court") alleging that the Compensation Committee of the Board and the Board breached their fiduciary duties and violated the Company's 2007 Stock Incentive Plan (the "Plan") by granting Ben R. Leedle, Jr., Chief Executive Officer and President of the Company, discretionary performance awards under the Plan in the form of options to purchase an aggregate of 500,000 shares of the Company's common stock, which consisted of a performance award in November 2011 granting Mr. Leedle the right to purchase 365,000 shares and a performance award in February 2012 granting Mr. Leedle the right to purchase 135,000 shares (the "Performance Awards").  Plaintiff alleges that the Performance Awards exceeded what is authorized by the Plan and that the Company's 2012 proxy statement, in which the Performance Awards are disclosed, is false and misleading.  Plaintiff also alleges that Mr. Leedle breached his fiduciary duties and was unjustly enriched by receiving the Performance Awards.  Plaintiff is seeking, among other things, the rescission or disgorgement of all alleged "excess" awards granted to Mr. Leedle under the Performance Awards, to recover any incidental damages to the Company, and an award of attorneys' fees and expenses.  On November 2, 2012, the Company and the Board filed a Motion to Dismiss because Plaintiff failed to make a demand upon the Board as required by Delaware law.  On November 8, 2013, the Court denied the Company's Motion to Dismiss. On February 21, 2014, the Company filed its answer and intends to vigorously defend the allegations.

Outlook

We are also subject to other contractual disputes, claims and legal proceedings that arise from time to time in the ordinary course of our business.  While we are unable to estimate a range of potential losses, we do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition.  As these matters are subject to inherent uncertainties, our view of these matters may change in the future.

Contractual Commitments

In January 2008, we entered into a 25-year strategic relationship agreement with Gallup and a global joint venture agreement with Gallup in October 2012 that requires us to make payments over a 5-year period beginning January 2013.  We have minimum remaining contractual cash obligations of $36.4 million related to these agreements.

In May 2011, we entered into a ten-year applications and technology services outsourcing agreement with HP Enterprise Services, LLC that contains minimum fee requirements.  Total payments over the remaining term, including an estimate for future contractual cost of living adjustments, must equal or exceed a minimum level of approximately $129.6 million; however, based on initial required service and equipment level assumptions, we estimate that the remaining payments will be approximately $267.7 million.  The agreement allows us to terminate all or a portion of the services after the first two years provided we pay certain termination fees, which could be material to the Company.

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Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

(6) Derivative Investments and Hedging Activities

We use derivative instruments to manage risks related to variable rate debt, foreign currencies, and the Cash Convertible Notes. We account for derivatives in accordance with FASB ASC Topic 815, which establishes accounting and reporting standards requiring that certain derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative's fair value will be recognized currently in earnings unless specific hedge accounting criteria are met. As permitted under our master netting arrangements, the fair value amounts of our interest rate swaps and foreign currency options and/or forward contracts are presented on a net basis by counterparty in the consolidated balance sheets.

Derivative Instruments Designated as Hedging Instruments

Cash Flow Hedges

Derivative instruments that are designated and qualify as cash flow hedges are recorded at estimated fair value in the consolidated balance sheets, with the effective portion of the gains and losses being reported in accumulated other comprehensive income or loss ("accumulated OCI").  Cash flow hedges for all periods presented consist solely of interest rate swap agreements, which effectively modify our exposure to interest rate risk by converting a portion of our floating rate debt to fixed rate obligations, thus reducing the impact of interest rate changes on future interest expense. Under these agreements, we receive a variable rate of interest based on LIBOR (as defined in Note 5), and we pay a fixed rate of interest with interest rates ranging from 0.690% to 1.480% plus a spread (see Note 5).  We maintain interest rate swap agreements with current notional amounts of $145.0 million and termination dates ranging from November 2015 to December 2016.  Of this amount, $95.0 million was effective at September 30, 2014, and $50.0 million will become effective in December 2015, as older interest rate swap agreements expire. Gains and losses on these interest rate swap agreements are reclassified to interest expense in the same period during which the hedged transaction affects earnings or the period in which all or a portion of the hedge becomes ineffective.  As of September 30, 2014, we expect to reclassify $0.3 million of net losses on interest rate swap agreements from accumulated OCI to interest expense within the next 12 months due to the scheduled payment of interest associated with our debt.

The following table shows the effect of our cash flow hedges on the consolidated balance sheets during the three and nine months ended September 30, 2014 and 2013:

(In $000s)	For the Three Months Ended							For the Nine Months Ended
Derivatives in Cash Flow Hedging Relationships	September 30, 2014				September 30, 2013			September 30, 2014		September 30, 2013
(Gain) loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect		$	(118	)		$	72	$	164	$	(624	)
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect		$	130			$	452	$	386	$	1,632

Gains and losses representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.  During the three and nine months ended September 30, 2014 and 2013, there were no gains or losses on cash flow hedges recognized in our consolidated statements of comprehensive income (loss) resulting from hedge ineffectiveness.

Derivative Instruments Not Designated as Hedging Instruments

Our Cash Conversion Derivative, Cash Convertible Notes Hedges, and foreign currency options and/ or forward contracts do not qualify for hedge accounting treatment under U.S. GAAP and are measured at fair value with gains and losses recognized immediately in the consolidated statements of comprehensive income (loss). These derivative instruments not designated as hedging instruments did not have a material impact on our consolidated statements of comprehensive income (loss) during the three and nine months ended September 30, 2014 and 2013.

Cash Conversion Derivative and Cash Convertible Notes Hedges

The Cash Conversion Derivative is accounted for as a derivative liability and carried at fair value. In order to offset the risk associated with the Cash Conversion Derivative, we entered into Cash Convertible Notes Hedges which are cash-settled and are intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the Cash Convertible Notes at a time when our stock price exceeds the conversion price. The Cash Convertible Notes Hedges are accounted for as a derivative assetand carried at fair value.

The gains and losses resulting from a change in fair values of the Cash Conversion Derivative and the Cash Convertible Notes Hedges are reported in the consolidated statements of comprehensive income (loss) as follows:

(In $000s)	Three Months Ended September 30, 2014				Nine Months Ended September 30, 2014				Statements of Comprehensive Income (Loss) Classification
Cash Convertible Notes Hedges:
Net unrealized gain (loss)		$	(3,338	)		$	6,242		Selling, general and administrative expenses
Cash Conversion Derivative:
Net unrealized gain (loss)		$	3,338			$	(6,242	)	Selling, general and administrative expenses

Foreign Currency Exchange Contracts

We also enter into foreign currency options and/or forward contracts in order to minimize our earnings exposure to fluctuations in foreign currency exchange rates.  Our foreign currency exchange contracts require current period mark-to-market accounting, with any change in fair value being recorded each period in the consolidated statements of comprehensive income (loss) in selling, general and administrative expenses. At September 30, 2014, we had forward contracts with notional amounts of $29.6 million to exchange foreign currencies, primarily the Australian dollar and Euro, that were entered into to hedge forecasted foreign net income (loss) and intercompany debt. We routinely monitor our foreign currency exposures to maximize the overall effectiveness of our foreign currency hedge positions.  We do not execute transactions or hold derivative financial instruments for trading or other purposes.

The estimated gross fair values of derivative instruments at September 30, 2014 and December 31, 2013, excluding the impact of netting derivative assets and liabilities when a legally enforceable master netting agreement exists, were as follows:

	September 30, 2014						December 31, 2013
(In $000s)	Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative		Foreign currency exchange contracts		Interest rate swap agreements		Cash Convertible Notes Hedges and Cash Conversion Derivative
Assets:
Derivatives not designated as hedging instruments:
Other current assets	$	341	$	—	$	—	$	178	$	—	$	—
Other assets		—		—		34,008		—		—		27,766
Total assets	$	341	$	—	$	34,008	$	178	$	—	$	27,766
Liabilities:
Derivatives not designated as hedging instruments:
Accrued liabilities	$	163	$	—	$	—	$	67	$	—	$	—
Other long-term liabilities		—		—		34,008		—		—		27,766
Derivatives designated as hedging instruments:
Accrued liabilities		—		—		—		—		—		—
Other long-term liabilities		—		361		—		—		505		—
Total liabilities	$	163	$	361	$	34,008	$	67	$	505	$	27,766

See also Note 7.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

Fair Value Measurements

(7) Fair Value Measurements

We account for certain assets and liabilities at fair value.  Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability.

Fair Value Hierarchy

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1:  Quoted prices in active markets for identical assets or liabilities;

Level 2:  Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-based valuation techniques in which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3:  Unobservable inputs that are supported by little or no market activity and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013:

(In $000s) September 30, 2014	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	341	$	—	$	341	$	(110	)	$	231
Cash Convertible Notes Hedges		—		34,008		34,008		—			34,008
Liabilities:
Foreign currency exchange contracts	$	163	$	—	$	163	$	(110	)	$	53
Interest rate swap agreements		361		—		361		—			361
Cash Conversion Derivative		—		34,008		34,008		—			34,008

(In $000s) December 31, 2013	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	178	$	—	$	178	$	(57	)	$	121
Cash Convertible Notes Hedges		—		27,766		27,766		—			27,766
Liabilities:
Foreign currency exchange contracts	$	67	$	—	$	67	$	(57	)	$	10
Interest rate swap agreements		505		—		505		—			505
Cash Conversion Derivative		—		27,766		27,766		—			27,766

⁽¹⁾ This column reflects the impact of netting derivative assets and liabilities by counterparty when a legally enforceable master netting agreement exists.

The fair values of forward foreign currency exchange contracts are valued using broker quotations of similar assets or liabilities in active markets.  The fair values of interest rate swap agreements are primarily determined based on the present value of future cash flows using internal models and third-party pricing services with observable inputs, including interest rates, yield curves and applicable credit spreads. The fair values of the Cash Convertible Notes Hedges and the Cash Conversion Derivative are measured using Level 3 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data for inputs, such as expected time to maturity of the derivative instruments, the risk-free interest rate, the expected volatility of our common stock and other factors. The Cash Convertible Notes Hedges and the Cash Conversion Derivative were designed such that changes in their fair values would offset one another, with minimal impact to the consolidated statements of comprehensive income (loss). Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is mitigated.

The following table presents our financial instruments measured at fair value on a recurring basis using unobservable inputs (Level 3):

(In $000s)	Balance at December 31, 2013			Purchases of Level 3 Instruments		Issuances of Level 3 Instruments		Gains/(Losses) Included in Earnings			Balance at September 30, 2014
Cash Convertible Notes Hedges	$	27,766		$	—	$	—	$	6,242		$	34,008
Cash Conversion Derivative		(27,766	)		—		—		(6,242	)		(34,008	)

The gains and losses included in earnings noted above represent the change in the fair value of these financial instruments and are recorded each period in the consolidated statements of comprehensive income (loss) as selling, general and administrative expenses.

Fair Value of Other Financial Instruments

In addition to foreign currency exchange contracts, interest rate swap agreements, the Cash Convertible Notes Hedges, and the Cash Conversion Derivative, the estimated fair values of which are disclosed above, the estimated fair value of each class of financial instruments at September 30, 2014 was as follows:

• Cash and cash equivalents – The carrying amount of $1.7 million approximates fair value because of the short maturity of those instruments (less than three months).

• Long-term debt – The estimated fair value of outstanding borrowings under the Fifth Amended Credit Agreement, which includes a revolving credit facility and a term loan facility (see Note 5), and the Cash Convertible Notes are determined based on the fair value hierarchy as discussed above.  The revolving credit facility and the term loan facility are not actively traded and therefore are classified as Level 2 valuations based on the market for similar instruments.  The estimated fair value is based on the average of the prices set by the issuing bank given current market conditions and is not necessarily indicative of the amount we could realize in a current market exchange. The estimated fair value and carrying amount of outstanding borrowings under the Fifth Amended Credit Agreement at September 30, 2014 are $108.4 million and $108.9 million, respectively.

The Cash Convertible Notes are actively traded and therefore are classified as Level 1 valuations. The estimated fair value at September 30, 2014 was $154.5 million, which is based on the last traded price of the Cash Convertible Notes on September 30, 2014, and the par value was $150.0 million. The carrying amount of the Cash Convertible Notes at September 30, 2014 was $121.4 million, which is net of the debt discount discussed in Note 5.

The CareFirst Convertible Note was issued at its fair value of $20.0 million on October 1, 2013. It is not actively traded and is not based upon either an observable market, other than the market for our common stock, or on an observable index and is therefore classified as a Level 3 valuation. At September 30, 2014, the carrying amount of the CareFirst Convertible Note of $20.0 million approximates fair value.

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Earnings Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

(9) Earnings Per Share

The following is a reconciliation of the numerator and denominator of basic and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013:

(In 000s, except per share data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,			September 30,
	2014		2013		2014			2013
Numerator:
Net income (loss) - numerator for basic earnings (loss) per share	$	1,973	$	1,799	$	(8,139	)	$	(3,251	)
Denominator:
Shares used for basic earnings (loss) per share		35,351		34,682		35,263			34,288
Effect of dilutive securities outstanding:
Non-qualified stock options (1)		770		784		—			—
Restricted stock units (1)		318		368		—			—
Performance stock units (1)		34		—		—			—
CareFirst Warrants (1)		4		—		—			—
Shares used for diluted earnings (loss) per share (1)		36,477		35,834		35,263			34,288
Earnings (loss) per share:
Basic	$	0.06	$	0.05	$	(0.23	)	$	(0.09	)
Diluted (1)	$	0.05	$	0.05	$	(0.23	)	$	(0.09	)
Dilutive securities outstanding not included in the computation of earnings (loss) per share because their effect is antidilutive:
Non-qualified stock options		1,131		1,682		2,153			3,343
Restricted stock units		54		—		390			331
Performance stock units		2		—		16			—
Warrants related to Cash Convertible Notes		7,707		—		7,707			—
CareFirst Convertible Note		892		—		892			—
CareFirst Warrants		83		—		86			—

⁽¹⁾ The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following is a reconciliation of the numerator and denominator of basic and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013:

(In 000s, except per share data)	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,			September 30,
	2014		2013		2014			2013
Numerator:
Net income (loss) - numerator for basic earnings (loss) per share	$	1,973	$	1,799	$	(8,139	)	$	(3,251	)
Denominator:
Shares used for basic earnings (loss) per share		35,351		34,682		35,263			34,288
Effect of dilutive securities outstanding:
Non-qualified stock options (1)		770		784		—			—
Restricted stock units (1)		318		368		—			—
Performance stock units (1)		34		—		—			—
CareFirst Warrants (1)		4		—		—			—
Shares used for diluted earnings (loss) per share (1)		36,477		35,834		35,263			34,288
Earnings (loss) per share:
Basic	$	0.06	$	0.05	$	(0.23	)	$	(0.09	)
Diluted (1)	$	0.05	$	0.05	$	(0.23	)	$	(0.09	)
Dilutive securities outstanding not included in the computation of earnings (loss) per share because their effect is antidilutive:
Non-qualified stock options		1,131		1,682		2,153			3,343
Restricted stock units		54		—		390			331
Performance stock units		2		—		16			—
Warrants related to Cash Convertible Notes		7,707		—		7,707			—
CareFirst Convertible Note		892		—		892			—
CareFirst Warrants		83		—		86			—

⁽¹⁾ The assumed exercise of stock-based awards for the nine months ended September 30, 2014 and 2013 was not considered because the impact would be anti-dilutive.

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Long-Term Debt, Line of Credit and Term Loan (Details) (USD $)	0 Months Ended	3 Months Ended		9 Months Ended
	Jun. 08, 2017	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Line of Credit Facility [Line Items]
Initiation date		Jun. 08, 2012
Maximum borrowing capacity		$ 200,000,000		$ 200,000,000
Credit Facility Expiration date	Jun. 08, 2017
Amount outstanding		101,250,000		101,250,000
Availability under the Revolving Credit Facility under most restrictive covenant		44,800,000		44,800,000
Basis spread on variable rate increased (in hundredths)		0.25%		0.25%
Terms of periodic payments				We are required to repay outstanding revolving loans under the revolving credit facility on June 8, 2017. We are required to repay term loans in quarterly principal installments aggregating (1) 1.250% of the original aggregate principal amount of the term loans during each of the eight quarters beginning with the quarter ended September 30, 2012, (2) 1.875% of the original aggregate principal amount of the term loans during each of the next four quarters beginning with the quarter ending September 30, 2014, and (3) 2.500% of the original aggregate principal amount of the term loans during each of the remaining quarters prior to maturity on June 8, 2017, at which time the entire unpaid principal balance of the term loans is due and payable.
Legal settlement charges		0	0	9,363,000	0
Fifth Amended Credit Agreement [Member]
Line of Credit Facility [Line Items]
Interest rate description		Borrowings under the Fifth Amended Credit Agreement generally bear interest at variable rates based on a margin or spread in excess of either (1) the one-month, two-month, three-month or six-month rate (or with the approval of affected lenders, nine-month or twelve-month rate) for Eurodollar deposits ("LIBOR") or (2) the greatest of (a) the SunTrust Bank prime lending rate, (b) the federal funds rate plus 0.50%, and (c) one-month LIBOR plus 1.00% (the "Base Rate"), as selected by the Company. The LIBOR margin varies between 1.75% and 3.00%, and the Base Rate margin varies between 0.75% and 2.00%, depending on our leverage ratio. On February 5, 2013, we entered into a First Amendment to the Fifth Amended Credit Agreement, which included, among other things, a temporary increase in the LIBOR and Base Rate margins of 0.25%. The increased margins are effective through December 31, 2013 and apply only in the event that our total funded debt to EBITDA ratio is greater than or equal to 3.50 to 1.00.
Line of Credit Facility, Commitment Fee Description		The Fifth Amended Credit Agreement also provides for an annual fee ranging between 0.30% and 0.50% of the unused commitments under the revolving credit facility.
Letters of Credit Sub Facility[Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity		75,000,000		75,000,000
Swingline Sub Facility [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity		20,000,000		20,000,000
Term Loan Facility [Member]
Line of Credit Facility [Line Items]
Maturity date	Jun. 08, 2017
Uncommitted Incremental Accordion Facility [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity		$ 200,000,000		$ 200,000,000

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) [Abstract]
Cost of services, depreciation and amortization	$ 9,392	$ 9,115	$ 28,368	$ 26,826

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Share-Based Compensation

9 Months Ended

Sep. 30, 2014

Share-Based Compensation [Abstract]

Share-Based Compensation

(3) Share-Based Compensation

We have several stockholder-approved stock incentive plans for our employees and directors.  We currently have four types of share-based awards outstanding under these plans: stock options, restricted stock units, restricted stock, and performance share units (beginning in June 2014). Performance share units have a multi-year performance period and vest four years from the grant date. We believe that our share-based awards align the interests of our employees and directors with those of our stockholders.

For the three and nine months ended September 30, 2014, we recognized share-based compensation costs of $2.3 million and $5.9 million, respectively.  For the three and nine months ended September 30, 2013, we recognized share-based compensation costs of $1.7 million and $5.2 million, respectively.

A summary of our stock options as of September 30, 2014 and changes during the nine months then ended is presented below:

	Shares (000s)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Value ($000s)
Options
Outstanding at January 1, 2014		4,325		$	15.09
Granted		98			16.60
Exercised		(119	)		12.58
Forfeited		(71	)		12.83
Expired		(494	)		26.80
Outstanding at September 30, 2014		3,739			13.70		6.52		$	14,810
Exercisable at September 30, 2014		1,982		$	15.67		5.43		$	6,672

The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2014 was $9.05. There were no stock options granted during the three months ended September 30, 2014.

The following table shows a summary of our restricted stock, restricted stock units and performance share units ("nonvested shares") as of September 30, 2014, as well as activity during the nine months then ended:

	Restricted Stock and Restricted Stock Units					Performance Share Units
Nonvested Shares	Shares (000s)			Weighted- Average Grant Date Fair Value		Shares (000s)		Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2014		841		$	10.44		—	$	—
Granted		430			16.85		333		14.79
Vested		(173	)		11.01		—		—
Forfeited		(35	)		11.39		—		—
Nonvested at September 30, 2014		1,063		$	12.91		333	$	14.79

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Derivative Instruments and Hedging Activities (Details) (USD $)	3 Months Ended		9 Months Ended																																												3 Months Ended	9 Months Ended							3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Effective in 2015 [Member]	Sep. 30, 2014 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member]	Dec. 31, 2013 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member]	Sep. 30, 2014 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Dec. 31, 2013 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Sep. 30, 2014 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Dec. 31, 2013 Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Sep. 30, 2014 Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member]	Sep. 30, 2014 Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member]	Dec. 31, 2013 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member]	Sep. 30, 2014 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Dec. 31, 2013 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Dec. 31, 2013 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Dec. 31, 2013 Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Sep. 30, 2014 Swap [Member] Derivatives Designated as Hedging Instruments [Member]	Dec. 31, 2013 Swap [Member] Derivatives Designated as Hedging Instruments [Member]	Sep. 30, 2014 Swap [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Swap [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Swap [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Sep. 30, 2014 Interest Rate Swap Agreements [Member]	Sep. 30, 2014 Interest Rate Swap Agreements [Member] Effective in 2014 [Member]	Sep. 30, 2014 Interest Rate Swap Agreements [Member] Swap [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Interest Rate Swap Agreements [Member] Swap [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Dec. 31, 2013 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member]	Sep. 30, 2014 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member]	Dec. 31, 2013 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Dec. 31, 2013 Foreign Currency Exchange Contracts [Member] Forward Contracts [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Sep. 30, 2014 Embedded Derivative Financial Instruments [Member] Derivatives Not Designated as Hedging Instruments [Member]	Dec. 31, 2013 Embedded Derivative Financial Instruments [Member] Derivatives Not Designated as Hedging Instruments [Member]	Sep. 30, 2014 Embedded Derivative Financial Instruments [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Embedded Derivative Financial Instruments [Member] Derivatives Not Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member]	Dec. 31, 2013 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member]	Sep. 30, 2014 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Dec. 31, 2013 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member] Accrued Liabilities [Member]	Sep. 30, 2014 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Dec. 31, 2013 Embedded Derivative Financial Instruments [Member] Derivatives Designated as Hedging Instruments [Member] Other Long-Term Liabilities [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member]	Dec. 31, 2013 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Dec. 31, 2013 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Current Assets [Member]	Sep. 30, 2014 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Dec. 31, 2013 Cash Convertible Notes Hedge [Member] Derivatives Not Designated as Hedging Instruments [Member] Other Noncurrent Assets [Member]	Sep. 30, 2014 Cash Conversion Derivative [Member] Selling, General and Administrative Expenses [Member]	Sep. 30, 2014 Cash Conversion Derivative [Member] Selling, General and Administrative Expenses [Member]
Derivatives, Fair Value [Line Items]
Current notional amount at 09/30/14																										$ 145,000,000
Notional amount effective in future					50,000,000																						95,000,000
Lower variable interest rate range (in hundredths)	0.69%		0.69%
Higher variable interest rate range (in hundredths)	1.48%		1.48%
Fair Values of Derivative Instruments [Abstract]
Assets						341,000	178,000	341,000	178,000	0	0			0	0	0	0		0	0																													34,008,000	27,766,000	0	0	34,008,000	27,766,000
Liabilities						0						163,000	0	0	0			0			361,000	505,000	0	0	505,000			0	361,000	0	163,000	67,000	67,000	0	0	0	34,008,000	27,766,000	0	0	34,008,000	27,766,000	0	0	0	0
Reclassification of net losses on interest rate swap agreements from accumulated OCI to interest expense within the next 12 months	300,000		300,000
Derivatives in Cash Flow Hedging Relationships [Abstract]
Loss related to effective portion of derivatives recognized in accumulated OCI, gross of tax effect	(118,000)	72,000	164,000	(624,000)
Loss related to effective portion of derivatives reclassified from accumulated OCI to interest expense, gross of tax effect	130,000	452,000	386,000	1,632,000
Gains or losses on cash flow hedges recognized in our consolidated statements of comprehensive income (loss) resulting from hedge ineffectiveness			0	0																																											(3,338,000)	6,242,000							3,338,000	(6,242,000)
Notional amount of foreign currency exchange contracts	$ 29,600,000		$ 29,600,000

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

Assets and liabilities measured at fair value on a recurring basis

The following tables present our assets and liabilities measured at fair value on a recurring basis at September 30, 2014 and December 31, 2013:

(In $000s) September 30, 2014	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	341	$	—	$	341	$	(110	)	$	231
Cash Convertible Notes Hedges		—		34,008		34,008		—			34,008
Liabilities:
Foreign currency exchange contracts	$	163	$	—	$	163	$	(110	)	$	53
Interest rate swap agreements		361		—		361		—			361
Cash Conversion Derivative		—		34,008		34,008		—			34,008

(In $000s) December 31, 2013	Level 2		Level 3		Gross Fair Value		Netting(1)			Net Fair Value
Assets:
Foreign currency exchange contracts	$	178	$	—	$	178	$	(57	)	$	121
Cash Convertible Notes Hedges		—		27,766		27,766		—			27,766
Liabilities:
Foreign currency exchange contracts	$	67	$	—	$	67	$	(57	)	$	10
Interest rate swap agreements		505		—		505		—			505
Cash Conversion Derivative		—		27,766		27,766		—			27,766

⁽¹⁾ This column reflects the impact of netting derivative assets and liabilities by counterparty when a legally enforceable master netting agreement exists.

Level 3 Financial Instruments

The following table presents our financial instruments measured at fair value on a recurring basis using unobservable inputs (Level 3):

(In $000s)	Balance at December 31, 2013			Purchases of Level 3 Instruments		Issuances of Level 3 Instruments		Gains/(Losses) Included in Earnings			Balance at September 30, 2014
Cash Convertible Notes Hedges	$	27,766		$	—	$	—	$	6,242		$	34,008
Cash Conversion Derivative		(27,766	)		—		—		(6,242	)		(34,008	)