Aetna buys back its mental health division

Hartford, Conn.-based Aetna says it will spend what it expects to be more than $50 million to buy back certain assets of Magellan Health Services, including three dedicated behavioral health service centers that now serve only Aetna patients.

Magellan, which emerged from Chapter 11 bankruptcy early this year, will lose its biggest client as a result, because Aetna will be ending a contract with Magellan under which the mental health carve-out company has provided services to most Aetna members. Aetna has been responsible for about 37% of Magellan's revenue in 2004.

About 80% of Aetna's 13.6 million members get behavioral health benefits through Farmington, Conn.-based Magellan. Aetna in March 2003 announced it had extended its contract with Magellan through December 2005.

Aetna sold the assets of its mental health division to Magellan for more than $400 million in 1997 as part of a rapid expansion by Magellan in the consolidating mental-health managed care industry. The transfer back to Aetna is scheduled to occur Dec. 31, 2005. The new division will be named Aetna Behavioral Health.

Patients will continue to be managed by service centers, located in Utah, California and Pennsylvania, but Aetna will own and administer the centers and oversee the physician networks, which are expected to remain essentially the same.

Aetna said that taking back its behavioral health business would improve service, enable it to trim costs, contribute to Aetna's growth and allow the company to provide psychiatric care more effectively. That would happen, Aetna said, by integrating it with disease management programs that reach out not only to psychiatric patients but also to patients being treated for medical illnesses and long-term disabilities who also have emotional problems.

"When you bring it back in-house and you're integrated, our whole management [of mental health will be] in lockstep here," said William Popik, MD, Aetna's chief medical officer.

Key to the new approach will be opportunities for primary care doctors to have a greater role in diagnosing and treating patients with psychiatric problems, Dr. Popik said. Although Aetna now reimburses primary care physicians for services related to mental disorders, including psychotherapy and prescription of medication, Aetna will make greater efforts next year to inform physicians they may be suited to treat many behavioral health problems, such as depression or drug addiction, without a referral to a psychiatrist, he said.

The decision by Aetna not to continue its Magellan contract is a continuation of a long-term trend that's seen the nation's largest managed care companies regain ownership of their behavioral health operations and move away from relationships with specialized mental health contractors, said Joan Pearson, PhD, a Seattle-based principal with the health and welfare practice of consultant Towers Perrin.

Magellan until now has retained a large portion of its business, despite its bankruptcy filing in February 2003, with some 67 million people presently enrolled in its managed health care and employee assistance programs.

Aetna's decision to part ways with Magellan was unrelated to the latter company's reorganization, Dr. Popik said. Magellan, which was saddled with $1.5 billion debt two years ago after making several corporate acquisitions to absorb its competitors, in October 2003 received approval in bankruptcy court for the reorganization, which involved the elimination of $600 million in debt and transfer of control to a group of creditors and the Onex Corp., a Toronto-based holding company. Onex, a diversified holding company agreed to pay as much as $200 million in stock and cash to win a controlling interest in Magellan.

Aetna said the deal with Magellan will be a near-even swap, financially, because although it will pay Magellan between $50 million and $55 million, Magellan at the same time will repay $49 million it owes Aetna as a vestige of the 1997 deal.