Fluent Essays

Pick Magellan Health and focus on for this assignment. Based upon the given information you can find on the company and any past issues/breaches the company has gone through, write up an analysis paper on how good Enterprise Risk Management could benefit the company. *** Outline to be followed Narrative on the organization Corporate view of risk management An analysis of the key risks facing by the organization Clinical and Patient Safety Social Technical Benefits and limitations in using ERM And Provide recommendations for the company to improve their ERM: Education & Training, .Response and Mitigation What are the key items the company needs to address and what are the risks associated with it? (Back up with literature review) Strategic risk Human capital risk and Conclude. *** Page Count Range should be 4-5 pages not including: Title page, Table of Contents and References page, All References are to be in APA format with atleast 5. The Complete Picture 2 0 1 4 A N N U A L R E P O R T Mag el l an H ealt h .com To v iew our online A nnual Repor t , v isi t Magell anHealth .com/AR 2014 M a g e lla n H e a lth , In c. 2 0 1 4 A n n u a l R e p o rt With dynamic changes occurring in the healthcare industry, Magellan is on the leading edge of healthcare management for special populations and conditions. By bringing together our complementary businesses, clinical expertise, data analytics and talented employees, we are delivering a complete offering of products and services to best serve our members and customers. When All the Pieces Come Together Shareholder Information D e si g n : N e u e S tu d io s, I n c. N e u e S tu d io s. co m Transfer Agent American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, New York 11219 Toll Free: 800-937-5449 Local/International: 718-921-8124 Website: amstock.com E-mail: [email protected] Our transfer agent can help with a variety of shareholder-related services, including: • Change of address • Lost stock certificates • Transfer of stock to another person • Additional administrative services Investor Relations This annual report, along with an online version and a variety of other financial materials, can be viewed at MagellanHealth.com. Inquiries may be directed to the Magellan Investor Relations Group at 877-645-6464 or [email protected] Annual Meeting Magellan’s annual shareholder meeting will be held on May 20, 2015 at the W Scottsdale Hotel, 7277 East Camelback Road, Scottsdale, Arizona 85251. The meeting will begin at 7:30 a.m., local time. Safe Harbor Statement Certain of the statements made in this report constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995 and are qualified in their entirety by the complete discussion of risks set forth in the section entitled “Risk Factors” in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. Environmental Awareness This annual report is printed on recycled paper: the cover and narrative pages are on 30 percent post-consumer waste and Form 10-K is on 10 percent post-consumer waste. Corporate Headquarters 4800 North Scottsdale Road Suite 4400 Scottsdale, AZ 85251 MagellanHealth.com Auditors Ernst & Young LLP Baltimore, MD Stock Listing Symbol: MGLN NASDAQ Stock Exchange 2 Magellan Health To Our Shareholders: Over the past couple of years, we have made tremendous progress in establishing a solid foundation for future growth. We operate in one of today’s most dynamic industries, and we are taking strategic advantage of opportunities that have emerged from the shifting healthcare environment. From innovating new approaches in our existing businesses to acquiring new capabilities, we have taken the necessary steps to round out our offerings and give customers a more complete picture of what healthcare can be. This was an important year for us. We achieved numerous accomplish- ments that advanced our two key growth initiatives – Magellan Complete Care (MCC) and Magellan Rx Manage- ment. We acquired capabilities that enabled us to expand and deliver innovative products, services and market offerings. And, we continued to produce strong financial results while meeting important operational milestones that will pave the way for sustained growth. The Complete Year in Review The healthcare environment has shift- ed to personalization at the consumer level. The members we serve require customized, highly individualized care and a consultative approach to guide them in making informed healthcare decisions. By leveraging our unique perspective, deep clinical expertise and experience working with special populations, we are designing new models of care and enabling positive behavior change for individuals with complex conditions. 2014 was the first year our MCC business was operational in two states. In Florida, we launched the nation’s first Medicaid specialty plan for indi- viduals who live with serious mental illness. We are extremely proud of this accomplishment and are thrilled to have significantly grown our membership throughout the year. Our experience thus far truly demon- strates the importance of holistic healthcare management for these special populations. We have already seen reductions in inpatient admis- sions and length of stay. We’ve also had a full year of operations in New York through our investment in Alpha- Care. AlphaCare manages Medicaid and Medicare members eligible for long-term care, as well as dual eligi- bles who are taking part in New York’s Fully Integrated Dual Advantage (FIDA) demonstration program. We plan to continue to expand our Magellan Complete Care model to additional geographies so we can help other states address the unmet needs of these special populations. Our Magellan Rx Management business also made great strides this year by expanding our capabilities and growing to more than $1 billion in revenue. We grew organically through strong sales, as well as through the acquisition of CDMI, which added further clinical and rebate strengths and augmented our strong leadership team. We integrated all of our phar- macy businesses and now offer a full suite of pharmacy products to all customer markets. Looking toward the future, we are building more robust capabilities to better serve the Medicare population, as well as aug- menting our mail order capabilities. Our core businesses also expanded, with our Specialty Solutions segment adding complementary capabilities to our recently launched musculo- skeletal product, including physical therapy, occupational therapy, speech therapy and chiropractic services. Our Commercial behavioral health business added computerized cognitive behavioral health therapy capabilities to further our reach in virtual care delivery and enhance the value we provide to our customers. Completing the Picture Each of our business segments is an essential piece of our overall value and completes the picture by offering key capabilities and meaningful solutions to members and customers. Combined with agile technology and our talented and dedicated team of approximately 6,600 employees across the country, we are guiding individuals to make better decisions and live healthier, more fulfilling lives. Thank you for your continued confidence in Magellan Health. Barry M. Smith Chairman and CEO Magellan Health “ Magellan is developing solutions to make individuals’ healthcare experiences more personalized, which in turn drives better outcomes. Ultimately, we are doing well by doing good.” 2014 Annual Report 3 UNDERSTANDING INDIVIDUAL NEEDS 4 Magellan Health Next Generation Healthcare As a leader in health management for special populations and conditions, Magellan Healthcare delivers innovative solutions that address anticipated market trends and customer needs. From our years of experience, we have determined that traditional models of care don’t always work well for individu- als with complex healthcare needs. Our extensive expertise in driving behavior change has led to the development of Magellan Complete Care (MCC) of Florida, a truly integrated model of care that ensures members who live with serious mental illness receive complete-person, coordinated treatment designed to meet their unique needs. We extended this model of care into New York, through our investment in AlphaCare, to focus on serving the long-term care and dual eligible populations. In both markets, we positively impact the health of these vulnerable individuals to provide them with access to highly integrated care that best addresses their specific needs. In addition to our health plans that manage special populations, we continue to be the definitive leader in behavioral health management for large health plans, employers, U.S. military, and Federal and state governments. In fact, we help more than one in 10 Americans make the journey to better health. Using data and applying advanced analytics, we are able to create programs that are adaptive and responsive to consumer and customer needs, and we tailor our clinical programs to improve access and outcomes. Our new specialized programs help individuals with autism and support their caregivers, while other programs address prescription drug abuse and suicide prevention. In each instance, our personalized models of care include the right blend of high tech and high touch for increased engagement and care delivery. At the same time, they create a better member experience. We are well positioned to address the trend towards consumerism and more personalized care. Today, we offer a variety of digital health tools and virtual care delivery models – such as texting, chat, social media, peer support, tele- health and online self-help programs. Members can conveniently access care through the method that best suits their personal preferences. Looking toward the future, we are building our digital health platform to apply predictive markers to people’s health conditions and lifestyles to help prevent sickness and promote well-being. This is truly next generation healthcare. M A G E L L A N H E A LT H C A R E Our unique model of care lets us reach our members on a personal level and provide the support they need to take control of their health. The photo on the left depicts one of our health guides in Florida, Kathryn Ellison, who typically meets members in a setting that is most comfortable for them. This high-touch, individualized approach ensures members have access to healthcare, pharma- ceuticals, and other resources to live healthier, more fulfilling lives. Sam K. Srivastava Chief Executive Officer Magellan Healthcare 2014 Annual Report 5 The Full Spectrum N I A M A G E L L A N Over the past few years, NIA Magellan has expanded with innovative products and services that extend beyond tradi- tional radiology benefits management. Today, we are a specialty solutions company that offers a broad suite of management services for complex healthcare conditions, including comprehensive musculoskeletal management, as well as programs that manage diagnostic imaging services, the evaluation and therapy associated with cardiology services, radiation oncology, obstetrical ultrasound, sleep manage- ment and genetic testing. We focus on complex specialty areas that have rapidly changing protocols, new technologies and significant provider practice pattern variations to optimize quality and outcomes. In 2014, we expanded our cardiac solutions to include the management of stents and left-heart catheterizations. Our newly implemented Emergency Department Clinical Decision Support program ensures the appropriate use of advanced Tina M. Blasi Chief Executive Officer NIA Magellan 6 Magellan Health INNOVATIVE SOLUTIONS Each year, more than 50 percent of adults in the U.S. develop a musculoskeletal injury that lasts longer than three months. Our latest musculoskeletal manage- ment product focuses on surgical and interventional pain management, and includes chiropractic and physical, occupational and speech therapies, to address musculoskeletal treatment holistically. In bringing these services together, we are delivering a comprehensive, integrated musculoskeletal solution to customers. imaging in emergency rooms. And, we launched a new genetic testing program to address the growth expected in this area over the next decade. Key to our growth is our musculoskel- etal management product, which is delivering value to customers by addressing the increasing incidence of spine surgeries. We recently expanded this product to integrate physical medicine capabilities, including chiro- practic care and physical, occupational and speech therapies so we can offer customers a fully integrated, compre- hensive musculoskeletal solution. By evaluating high-trending medical procedures and leveraging data, we are providing solutions that offer significant value to customers. In addition to our broad product suite, we take pride in our collaborative relationships, clinical excellence and best-in-class data analytics, which enable us to drive meaningful results for clients. More than half of our customers utilize multiple NIA Magellan product offerings, resulting in industry-leading customer retention and satisfaction rates. By continuing to develop innovative products, services and clinical management programs that serve the needs of our customers and their members, we truly are offering the full spectrum of solutions. 2014 Annual Report 7 Building on our leadership role in medical pharmacy and Medicaid pharmacy management, we further expanded our pharmacy benefit management (PBM) capabilities in 2014. We augmented our drug rebate solutions with expanded traditional rebate and clinical capabilities, and enhanced our strong leadership team. This was an important year for us, as we grew both organically and inorganically. Today, we offer a full-service PBM product that enables us to manage all drug costs for any customer or population, regardless of the site of service, method of delivery, or benefit coverage. Having laid this groundwork, we are building a better PBM. One of our key differentiators is our ability to manage the rising costs of specialty pharmaceu- ticals, and we are leveraging our best-in-class clinical capabilities, along with our formulary management and dispensing operations, to impact this trend for our customers. By integrating our PBM, specialty and medical pharmacy Building a Better PBM M A G E L L A N R x M A N A G E M E N T Using cutting-edge technology for patient engagement, we place quick reference (QR) codes on prescription labels for our top-prescribed specialty medications. This enables patients to view a video on important clinical infor- mation about the prescription using a mobile device. Through the interface, patients also have one-click access to contact our clinicians, schedule a refill, visit our secure member portal, or access additional prescription information and health and wellness resources. capabilities, we can provide customers a complete picture of their pharmacy spend. Additionally, through the application of leading-edge technology, we are empowering customers to make more informed decisions. Our suite of easy-to- use tools, including plan design, auditing and reporting tools, gives customers keen insights into their pharmacy spend and helps improve the overall effective- ness of their pharmacy benefit programs. Most importantly, our focus on the client experience sets us apart. Our entire infrastructure is built to enable flexible solutions for customers – everything from our internal processes to our systems and reporting. We are able to act as a true consultative partner to customers, and our ability to customize the experi- ence for each customer is differentiating Magellan Rx in the marketplace. Bringing together our broad suite of products, innovative capabilities and strong customer focus has positioned us to change the paradigm of drug management in the years to come. Robert W. Field Chief Executive Officer Magellan Rx Management 8 Magellan Health PATIENT ENGAGEMENT 2014 Annual Report 9 2014 Financial Highlights1 O P E R AT I O N S Net revenue $ 3,760,118 $ 3,546,317 Net income $ 79,404 $ 125,261 Adjusted net income2 $ 110,555 $ 126,683 Diluted earnings per common share (EPS) $ 2.90 $ 4.53 Adjusted EPS2 $ 4.04 $ 4.58 Segment profit2 $ 266,919 $ 259,446 Operating cash flow $ 211,044 $ 183,161 Capital expenditures $ 62,337 $ 64,542 Number of employees 6,600 5,900 F I N A N C I A L P O S I T I O N AT Y E A R E N D Unrestricted cash and investments $ 346,856 $ 261,396 Total assets $ 2,094,157 $ 1,759,218 Total debt $ 271,521 $ 26,725 Total stockholders’ equity $ 1,133,558 $ 1,156,485 1 The foregoing financial information should be read in conjunction with the financial statements and related notes as presented in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. 2 In the above financial table and elsewhere in the Annual Report, we refer to Adjusted Net Income, Adjusted Earnings per Share, and Segment Profit, which are non-GAAP measures. Adjusted Net Income and Adjusted Earnings per Share reflect certain adjustments made for acquisitions completed after January 1, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, amortization of identified acquisition intangibles, and changes in the fair value of contingent consideration recorded in relation to acquisitions. Segment Profit equals net revenues less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses, and includes income from unconsolidated subsidiaries, but excludes Segment Profit or loss from non-controlling interests held by other parties, as well as stock compensation expense and changes in the fair value of contingent consideration recorded in relation to acquisitions. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. Dollars in thousands, except per share data and number of employees 2014 2013 10 Magellan Health Long-term CAGR of >20\% Projected Revenue Growth (Dollars in millions) 2014 Annual Report 11 Projected Segment Profit2 Growth (Dollars in millions) 2010 2011 2012 2013 2017E 2018E2014 2015E 2016E $2,969 $2,799 $3,207 $3,546 $3,760 $8,000 Long-term CAGR of >15\% 2010 2011 2012 2013 2017E 2018E2014 2015E 2016E $291.1 $270.4 $267.4 $259.4 $266.9 Pictured above from left to right: Karen S. Amstutz, M.D., Chief Medical Officer; Robert W. Field, CEO Magellan Rx Management; Sam K. Srivastava, CEO Magellan Healthcare; Daniel N. Gregoire, General Counsel and Secretary; Caskie Lewis-Clapper, Chief Human Resources Officer; Jonathan N. Rubin, CFO; Barry M. Smith, Chairman and CEO; Stewart Lavelle, Chief Sales and Marketing Officer; Gary D. Anderson, Chief Information Officer; and Tina M. Blasi, CEO NIA Magellan. Board of Directors Barry M. Smith Chairman and Chief Executive Officer Magellan Health, Inc. John O. Agwunobi, M.D. Former Senior Vice President and President of Health and Wellness Wal-Mart Stores, Inc. Eran Broshy Operating Partner Linden Capital Partners Michael S. Diament Retired Portfolio Manager Q Investments Perry Fine, M.D. Professor of Anesthesiology University of Utah Kay Coles James President Gloucester Institute Robert M. Le Blanc Managing Director Onex Corporation William J. McBride Retired President and Chief Operating Officer Value Health, Inc. Michael P. Ressner Retired Vice President of Finance Nortel Networks Corporation Mary F. Sammons Retired Chairman and Chief Executive Officer Rite Aid Corporation Officers Barry M. Smith Chairman and Chief Executive Officer Jonathan N. Rubin Chief Financial Officer Daniel N. Gregoire General Counsel and Secretary Caskie Lewis-Clapper Chief Human Resources Officer Tina M. Blasi Chief Executive Officer NIA Magellan Robert W. Field Chief Executive Officer Magellan Rx Management Sam K. Srivastava Chief Executive Officer Magellan Healthcare Our Leadership 12 Magellan Health UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K � ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 � TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-6639 MAGELLAN HEALTH, INC. (Exact name of registrant as specified in its charter) Delaware 58-1076937 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4800 Scottsdale Rd, Suite 4400 Scottsdale, Arizona 85251 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (602) 572-6050 Securities registered pursuant to Section 12(b) of the Act: None. Title of Each Class Name of Each Exchange on which Registered Ordinary Common Stock, par value $0.01 per share The NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes � No � Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes � No � Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes � No � Indicate by check mark whether the registrant has submitted electronically 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 � No � Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. � Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer � Accelerated filer � Non-accelerated filer � Smaller reporting company � (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes � No � The aggregate market value of the Ordinary Common Stock (‘‘common stock’’) held by non-affiliates of the registrant based on the closing price on June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1.8 billion. The number of shares of Magellan Health, Inc.’s common stock outstanding as of February 23, 2015 was 26,665,409. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. MAGELLAN HEALTH, INC. REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2014 Table of Contents Page PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . 71 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . 74 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 PART IV Item 15. Exhibits, Financial Statement Schedule and Additional Information . . . . . . . . . . . . . . 74 PART I Cautionary Statement Concerning Forward-Looking Statements This Form 10-K includes ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Examples of forward-looking statements include, but are not limited to, statements the Company (as defined below) makes regarding our future operating results and liquidity needs. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Prospective investors are cautioned that any such forward- looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements are set forth under the heading ‘‘Risk Factors’’ in Item 1A and elsewhere in this Form 10-K. When used in this Form 10-K, the words ‘‘estimate,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘believe,’’ ‘‘should’’ and similar expressions are intended to be forward-looking statements. Any forward-looking statement made by the Company in this Form 10-K speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. You should also be aware that while the Company from time to time communicates with securities analysts, the Company does not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, to the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not the Company’s responsibility and are not endorsed by the Company. You should not assume that the Company agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report. Item 1. Business Magellan Health, Inc. (‘‘Magellan’’) was incorporated in 1969 under the laws of the State of Delaware. Magellan’s executive offices are located at 4800 Scottsdale Road, Suite 4400, Scottsdale, Arizona 85251, and its telephone number at that location is (602) 572-6050. References in this report to the ‘‘Company’’ include Magellan and its subsidiaries. Business Overview The Company is engaged in the healthcare management business, and is … The Complete Picture 2 0 1 4 A N N U A L R E P O R T Mag el l an H ealt h .com To v iew our online A nnual Repor t , v isi t Magell anHealth .com/AR 2014 M a g e lla n H e a lth , In c. 2 0 1 4 A n n u a l R e p o rt With dynamic changes occurring in the healthcare industry, Magellan is on the leading edge of healthcare management for special populations and conditions. By bringing together our complementary businesses, clinical expertise, data analytics and talented employees, we are delivering a complete offering of products and services to best serve our members and customers. When All the Pieces Come Together Shareholder Information D e si g n : N e u e S tu d io s, I n c. N e u e S tu d io s. co m Transfer Agent American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, New York 11219 Toll Free: 800-937-5449 Local/International: 718-921-8124 Website: amstock.com E-mail: [email protected] Our transfer agent can help with a variety of shareholder-related services, including: • Change of address • Lost stock certificates • Transfer of stock to another person • Additional administrative services Investor Relations This annual report, along with an online version and a variety of other financial materials, can be viewed at MagellanHealth.com. Inquiries may be directed to the Magellan Investor Relations Group at 877-645-6464 or [email protected] Annual Meeting Magellan’s annual shareholder meeting will be held on May 20, 2015 at the W Scottsdale Hotel, 7277 East Camelback Road, Scottsdale, Arizona 85251. The meeting will begin at 7:30 a.m., local time. Safe Harbor Statement Certain of the statements made in this report constitute forward-looking statements contemplated under the Private Securities Litigation Reform Act of 1995 and are qualified in their entirety by the complete discussion of risks set forth in the section entitled “Risk Factors” in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. Environmental Awareness This annual report is printed on recycled paper: the cover and narrative pages are on 30 percent post-consumer waste and Form 10-K is on 10 percent post-consumer waste. Corporate Headquarters 4800 North Scottsdale Road Suite 4400 Scottsdale, AZ 85251 MagellanHealth.com Auditors Ernst & Young LLP Baltimore, MD Stock Listing Symbol: MGLN NASDAQ Stock Exchange 2 Magellan Health To Our Shareholders: Over the past couple of years, we have made tremendous progress in establishing a solid foundation for future growth. We operate in one of today’s most dynamic industries, and we are taking strategic advantage of opportunities that have emerged from the shifting healthcare environment. From innovating new approaches in our existing businesses to acquiring new capabilities, we have taken the necessary steps to round out our offerings and give customers a more complete picture of what healthcare can be. This was an important year for us. We achieved numerous accomplish- ments that advanced our two key growth initiatives – Magellan Complete Care (MCC) and Magellan Rx Manage- ment. We acquired capabilities that enabled us to expand and deliver innovative products, services and market offerings. And, we continued to produce strong financial results while meeting important operational milestones that will pave the way for sustained growth. The Complete Year in Review The healthcare environment has shift- ed to personalization at the consumer level. The members we serve require customized, highly individualized care and a consultative approach to guide them in making informed healthcare decisions. By leveraging our unique perspective, deep clinical expertise and experience working with special populations, we are designing new models of care and enabling positive behavior change for individuals with complex conditions. 2014 was the first year our MCC business was operational in two states. In Florida, we launched the nation’s first Medicaid specialty plan for indi- viduals who live with serious mental illness. We are extremely proud of this accomplishment and are thrilled to have significantly grown our membership throughout the year. Our experience thus far truly demon- strates the importance of holistic healthcare management for these special populations. We have already seen reductions in inpatient admis- sions and length of stay. We’ve also had a full year of operations in New York through our investment in Alpha- Care. AlphaCare manages Medicaid and Medicare members eligible for long-term care, as well as dual eligi- bles who are taking part in New York’s Fully Integrated Dual Advantage (FIDA) demonstration program. We plan to continue to expand our Magellan Complete Care model to additional geographies so we can help other states address the unmet needs of these special populations. Our Magellan Rx Management business also made great strides this year by expanding our capabilities and growing to more than $1 billion in revenue. We grew organically through strong sales, as well as through the acquisition of CDMI, which added further clinical and rebate strengths and augmented our strong leadership team. We integrated all of our phar- macy businesses and now offer a full suite of pharmacy products to all customer markets. Looking toward the future, we are building more robust capabilities to better serve the Medicare population, as well as aug- menting our mail order capabilities. Our core businesses also expanded, with our Specialty Solutions segment adding complementary capabilities to our recently launched musculo- skeletal product, including physical therapy, occupational therapy, speech therapy and chiropractic services. Our Commercial behavioral health business added computerized cognitive behavioral health therapy capabilities to further our reach in virtual care delivery and enhance the value we provide to our customers. Completing the Picture Each of our business segments is an essential piece of our overall value and completes the picture by offering key capabilities and meaningful solutions to members and customers. Combined with agile technology and our talented and dedicated team of approximately 6,600 employees across the country, we are guiding individuals to make better decisions and live healthier, more fulfilling lives. Thank you for your continued confidence in Magellan Health. Barry M. Smith Chairman and CEO Magellan Health “ Magellan is developing solutions to make individuals’ healthcare experiences more personalized, which in turn drives better outcomes. Ultimately, we are doing well by doing good.” 2014 Annual Report 3 UNDERSTANDING INDIVIDUAL NEEDS 4 Magellan Health Next Generation Healthcare As a leader in health management for special populations and conditions, Magellan Healthcare delivers innovative solutions that address anticipated market trends and customer needs. From our years of experience, we have determined that traditional models of care don’t always work well for individu- als with complex healthcare needs. Our extensive expertise in driving behavior change has led to the development of Magellan Complete Care (MCC) of Florida, a truly integrated model of care that ensures members who live with serious mental illness receive complete-person, coordinated treatment designed to meet their unique needs. We extended this model of care into New York, through our investment in AlphaCare, to focus on serving the long-term care and dual eligible populations. In both markets, we positively impact the health of these vulnerable individuals to provide them with access to highly integrated care that best addresses their specific needs. In addition to our health plans that manage special populations, we continue to be the definitive leader in behavioral health management for large health plans, employers, U.S. military, and Federal and state governments. In fact, we help more than one in 10 Americans make the journey to better health. Using data and applying advanced analytics, we are able to create programs that are adaptive and responsive to consumer and customer needs, and we tailor our clinical programs to improve access and outcomes. Our new specialized programs help individuals with autism and support their caregivers, while other programs address prescription drug abuse and suicide prevention. In each instance, our personalized models of care include the right blend of high tech and high touch for increased engagement and care delivery. At the same time, they create a better member experience. We are well positioned to address the trend towards consumerism and more personalized care. Today, we offer a variety of digital health tools and virtual care delivery models – such as texting, chat, social media, peer support, tele- health and online self-help programs. Members can conveniently access care through the method that best suits their personal preferences. Looking toward the future, we are building our digital health platform to apply predictive markers to people’s health conditions and lifestyles to help prevent sickness and promote well-being. This is truly next generation healthcare. M A G E L L A N H E A LT H C A R E Our unique model of care lets us reach our members on a personal level and provide the support they need to take control of their health. The photo on the left depicts one of our health guides in Florida, Kathryn Ellison, who typically meets members in a setting that is most comfortable for them. This high-touch, individualized approach ensures members have access to healthcare, pharma- ceuticals, and other resources to live healthier, more fulfilling lives. Sam K. Srivastava Chief Executive Officer Magellan Healthcare 2014 Annual Report 5 The Full Spectrum N I A M A G E L L A N Over the past few years, NIA Magellan has expanded with innovative products and services that extend beyond tradi- tional radiology benefits management. Today, we are a specialty solutions company that offers a broad suite of management services for complex healthcare conditions, including comprehensive musculoskeletal management, as well as programs that manage diagnostic imaging services, the evaluation and therapy associated with cardiology services, radiation oncology, obstetrical ultrasound, sleep manage- ment and genetic testing. We focus on complex specialty areas that have rapidly changing protocols, new technologies and significant provider practice pattern variations to optimize quality and outcomes. In 2014, we expanded our cardiac solutions to include the management of stents and left-heart catheterizations. Our newly implemented Emergency Department Clinical Decision Support program ensures the appropriate use of advanced Tina M. Blasi Chief Executive Officer NIA Magellan 6 Magellan Health INNOVATIVE SOLUTIONS Each year, more than 50 percent of adults in the U.S. develop a musculoskeletal injury that lasts longer than three months. Our latest musculoskeletal manage- ment product focuses on surgical and interventional pain management, and includes chiropractic and physical, occupational and speech therapies, to address musculoskeletal treatment holistically. In bringing these services together, we are delivering a comprehensive, integrated musculoskeletal solution to customers. imaging in emergency rooms. And, we launched a new genetic testing program to address the growth expected in this area over the next decade. Key to our growth is our musculoskel- etal management product, which is delivering value to customers by addressing the increasing incidence of spine surgeries. We recently expanded this product to integrate physical medicine capabilities, including chiro- practic care and physical, occupational and speech therapies so we can offer customers a fully integrated, compre- hensive musculoskeletal solution. By evaluating high-trending medical procedures and leveraging data, we are providing solutions that offer significant value to customers. In addition to our broad product suite, we take pride in our collaborative relationships, clinical excellence and best-in-class data analytics, which enable us to drive meaningful results for clients. More than half of our customers utilize multiple NIA Magellan product offerings, resulting in industry-leading customer retention and satisfaction rates. By continuing to develop innovative products, services and clinical management programs that serve the needs of our customers and their members, we truly are offering the full spectrum of solutions. 2014 Annual Report 7 Building on our leadership role in medical pharmacy and Medicaid pharmacy management, we further expanded our pharmacy benefit management (PBM) capabilities in 2014. We augmented our drug rebate solutions with expanded traditional rebate and clinical capabilities, and enhanced our strong leadership team. This was an important year for us, as we grew both organically and inorganically. Today, we offer a full-service PBM product that enables us to manage all drug costs for any customer or population, regardless of the site of service, method of delivery, or benefit coverage. Having laid this groundwork, we are building a better PBM. One of our key differentiators is our ability to manage the rising costs of specialty pharmaceu- ticals, and we are leveraging our best-in-class clinical capabilities, along with our formulary management and dispensing operations, to impact this trend for our customers. By integrating our PBM, specialty and medical pharmacy Building a Better PBM M A G E L L A N R x M A N A G E M E N T Using cutting-edge technology for patient engagement, we place quick reference (QR) codes on prescription labels for our top-prescribed specialty medications. This enables patients to view a video on important clinical infor- mation about the prescription using a mobile device. Through the interface, patients also have one-click access to contact our clinicians, schedule a refill, visit our secure member portal, or access additional prescription information and health and wellness resources. capabilities, we can provide customers a complete picture of their pharmacy spend. Additionally, through the application of leading-edge technology, we are empowering customers to make more informed decisions. Our suite of easy-to- use tools, including plan design, auditing and reporting tools, gives customers keen insights into their pharmacy spend and helps improve the overall effective- ness of their pharmacy benefit programs. Most importantly, our focus on the client experience sets us apart. Our entire infrastructure is built to enable flexible solutions for customers – everything from our internal processes to our systems and reporting. We are able to act as a true consultative partner to customers, and our ability to customize the experi- ence for each customer is differentiating Magellan Rx in the marketplace. Bringing together our broad suite of products, innovative capabilities and strong customer focus has positioned us to change the paradigm of drug management in the years to come. Robert W. Field Chief Executive Officer Magellan Rx Management 8 Magellan Health PATIENT ENGAGEMENT 2014 Annual Report 9 2014 Financial Highlights1 O P E R AT I O N S Net revenue $ 3,760,118 $ 3,546,317 Net income $ 79,404 $ 125,261 Adjusted net income2 $ 110,555 $ 126,683 Diluted earnings per common share (EPS) $ 2.90 $ 4.53 Adjusted EPS2 $ 4.04 $ 4.58 Segment profit2 $ 266,919 $ 259,446 Operating cash flow $ 211,044 $ 183,161 Capital expenditures $ 62,337 $ 64,542 Number of employees 6,600 5,900 F I N A N C I A L P O S I T I O N AT Y E A R E N D Unrestricted cash and investments $ 346,856 $ 261,396 Total assets $ 2,094,157 $ 1,759,218 Total debt $ 271,521 $ 26,725 Total stockholders’ equity $ 1,133,558 $ 1,156,485 1 The foregoing financial information should be read in conjunction with the financial statements and related notes as presented in Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. 2 In the above financial table and elsewhere in the Annual Report, we refer to Adjusted Net Income, Adjusted Earnings per Share, and Segment Profit, which are non-GAAP measures. Adjusted Net Income and Adjusted Earnings per Share reflect certain adjustments made for acquisitions completed after January 1, 2013 to exclude non-cash stock compensation expense resulting from restricted stock purchases by sellers, amortization of identified acquisition intangibles, and changes in the fair value of contingent consideration recorded in relation to acquisitions. Segment Profit equals net revenues less the sum of cost of care, cost of goods sold, direct service costs and other operating expenses, and includes income from unconsolidated subsidiaries, but excludes Segment Profit or loss from non-controlling interests held by other parties, as well as stock compensation expense and changes in the fair value of contingent consideration recorded in relation to acquisitions. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please refer to Magellan’s Annual Report on Form 10-K for the year ended December 31, 2014, attached herein. Dollars in thousands, except per share data and number of employees 2014 2013 10 Magellan Health Long-term CAGR of >20\% Projected Revenue Growth (Dollars in millions) 2014 Annual Report 11 Projected Segment Profit2 Growth (Dollars in millions) 2010 2011 2012 2013 2017E 2018E2014 2015E 2016E $2,969 $2,799 $3,207 $3,546 $3,760 $8,000 Long-term CAGR of >15\% 2010 2011 2012 2013 2017E 2018E2014 2015E 2016E $291.1 $270.4 $267.4 $259.4 $266.9 Pictured above from left to right: Karen S. Amstutz, M.D., Chief Medical Officer; Robert W. Field, CEO Magellan Rx Management; Sam K. Srivastava, CEO Magellan Healthcare; Daniel N. Gregoire, General Counsel and Secretary; Caskie Lewis-Clapper, Chief Human Resources Officer; Jonathan N. Rubin, CFO; Barry M. Smith, Chairman and CEO; Stewart Lavelle, Chief Sales and Marketing Officer; Gary D. Anderson, Chief Information Officer; and Tina M. Blasi, CEO NIA Magellan. Board of Directors Barry M. Smith Chairman and Chief Executive Officer Magellan Health, Inc. John O. Agwunobi, M.D. Former Senior Vice President and President of Health and Wellness Wal-Mart Stores, Inc. Eran Broshy Operating Partner Linden Capital Partners Michael S. Diament Retired Portfolio Manager Q Investments Perry Fine, M.D. Professor of Anesthesiology University of Utah Kay Coles James President Gloucester Institute Robert M. Le Blanc Managing Director Onex Corporation William J. McBride Retired President and Chief Operating Officer Value Health, Inc. Michael P. Ressner Retired Vice President of Finance Nortel Networks Corporation Mary F. Sammons Retired Chairman and Chief Executive Officer Rite Aid Corporation Officers Barry M. Smith Chairman and Chief Executive Officer Jonathan N. Rubin Chief Financial Officer Daniel N. Gregoire General Counsel and Secretary Caskie Lewis-Clapper Chief Human Resources Officer Tina M. Blasi Chief Executive Officer NIA Magellan Robert W. Field Chief Executive Officer Magellan Rx Management Sam K. Srivastava Chief Executive Officer Magellan Healthcare Our Leadership 12 Magellan Health UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K � ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 � TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-6639 MAGELLAN HEALTH, INC. (Exact name of registrant as specified in its charter) Delaware 58-1076937 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4800 Scottsdale Rd, Suite 4400 Scottsdale, Arizona 85251 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (602) 572-6050 Securities registered pursuant to Section 12(b) of the Act: None. Title of Each Class Name of Each Exchange on which Registered Ordinary Common Stock, par value $0.01 per share The NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes � No � Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes � No � Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes � No � Indicate by check mark whether the registrant has submitted electronically 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 � No � Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. � Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer � Accelerated filer � Non-accelerated filer � Smaller reporting company � (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes � No � The aggregate market value of the Ordinary Common Stock (‘‘common stock’’) held by non-affiliates of the registrant based on the closing price on June 30, 2014 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1.8 billion. The number of shares of Magellan Health, Inc.’s common stock outstanding as of February 23, 2015 was 26,665,409. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement for the 2015 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. MAGELLAN HEALTH, INC. REPORT ON FORM 10-K For the Fiscal Year Ended December 31, 2014 Table of Contents Page PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . 71 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 PART III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . 74 Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 PART IV Item 15. Exhibits, Financial Statement Schedule and Additional Information . . . . . . . . . . . . . . 74 PART I Cautionary Statement Concerning Forward-Looking Statements This Form 10-K includes ‘‘forward-looking statements’’ within the meaning of Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Examples of forward-looking statements include, but are not limited to, statements the Company (as defined below) makes regarding our future operating results and liquidity needs. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Prospective investors are cautioned that any such forward- looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements are set forth under the heading ‘‘Risk Factors’’ in Item 1A and elsewhere in this Form 10-K. When used in this Form 10-K, the words ‘‘estimate,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘believe,’’ ‘‘should’’ and similar expressions are intended to be forward-looking statements. Any forward-looking statement made by the Company in this Form 10-K speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. You should also be aware that while the Company from time to time communicates with securities analysts, the Company does not disclose to them any material non-public information, internal forecasts or other confidential business information. Therefore, to the extent that reports issued by securities analysts contain projections, forecasts or opinions, those reports are not the Company’s responsibility and are not endorsed by the Company. You should not assume that the Company agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report. Item 1. Business Magellan Health, Inc. (‘‘Magellan’’) was incorporated in 1969 under the laws of the State of Delaware. Magellan’s executive offices are located at 4800 Scottsdale Road, Suite 4400, Scottsdale, Arizona 85251, and its telephone number at that location is (602) 572-6050. References in this report to the ‘‘Company’’ include Magellan and its subsidiaries. Business Overview The Company is engaged in the healthcare management business, and is …