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By Elinor Nelson
Magellan's March 2003 Chapter 11 filing has successfully reduced
its $1 billion debt and will officially emerge from bankruptcy by
year's end. Spokesperson for Magellan Health Services Kristin Brunnworth
says, "Our debt has been cut in half and we're in a better position
than we ever were."
"We've gotten confirmation from the court," says Erin Somers, Magellan's
vice president of public relations and communications, "which just
leaves some administrative work" including issuing new stock and
obtaining regulatory approval required by some states before the
end of bankruptcy is official.
Certain aspects of Magellan's business practices never changed,
according to Somers. "On the first day [of bankruptcy] we asked
the court for permission to continue to pay our providers. We have
continued to serve our members, customers, and providers, as we
always have. The creditors wanted us to do so as well," Somers adds,
"because they get more from [Magellan being] a going business."
The current claims payment staff is "really excellent," states Somers,
"with 99.3% of clean claims paid in 30 days or less."
Magellan's contract with Aetna through 2005 is part of the plan
of reorganization, and Magellan has agreed to establish three new
sites solely devoted to processing Aetna's claims. Aetna is a creditor
of Magellan's as well as a customer, Somers explains. Magellan still
owes Aetna $60 million, and as part of the reorganization, will
pay Aetna $15 million now and the balance in December 2005.
The main goal of Chapter 11 was to reduce their debt load, which
was "too big for the company to support," says Somers. "We negotiated
with our creditors for an arrangement by which they would receive
equity in the company in exchange for debt owed. They got substantially
all the equity - it's a debt for equity swap." The current shareholders
now own less than 2% of Magellan and the creditors own the rest.
"At the same time we took a look at our operations, how we're structured,
and will we thrive in the future," Somers explains. "We made a difficult
decision that in order to be more effective in how we serve our
customers, we need an operational structure that relies on fewer
and larger, care management centers."
Magellan now has 30 "call centers," and plans to close some. They
don't expect to reduce personnel, but will cut back their overhead,
and will be positioned to provide "a more efficient, more consistent
product," according to Somers. Fewer call centers will also be helpful
when the need arises to shift business among centers in the event
of a snowstorm or safety emergency.
"And it will be less complicated for providers to do business with
us," says Somers. "We'll have fewer phone numbers and fewer ways
to submit claims." Magellan, she says, also plans to use its Web
site to offer more self-service to providers. The goal, states Somers,
is "to make it simpler and more efficient and to pay everybody's
claims on time."
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