Insider says Magellan cut funding, putting community and thousands of patients at risk

Magellan Health Services held the biggest behavioral health contract in the country. It was a multi-billion dollar series of contracts with the State of Arizona that lasted about five years, until April, 2014.


An industry insider who wishes to remain anonymous told ABC15 in an exclusive interview that funding was cut, services were denied and thousands of seriously mentally ill patients were put at risk in Arizona.

“It definitely makes me more worried for the community,” the insider said.

This insider has worked in mental health care in Arizona for several years. She doesn’t want us to show her face or use her name for fear of losing her job.

But, she does want you to know what she said Magellan of Arizona did to mental health care network providers, and what she called “their neglect and greed” did to the patients.

After Magellan of Arizona lost their contract to be the Regional Behavioral Health Authority (RHBA) last year, they began to cut and reduce funding to the network providers who worked under them.

“They stopped approving medications,” said the insider. “There were a lot of layoffs between different providers, and just money not going around like it should be.”

This is taxpayer money that comes directly from the Arizona Department of Health Services. The money flows from the state to Magellan, which serves as the regional provider for the Valley.

Then, Magellan funds the network providers that offer mental health care services to about 13,000 seriously mentally ill people in the Valley.

These services include housing, community and peer programs and medication.

Our insider works for one of them.

“These are the people who have struggled all their life,” said the insider. She said some are suicidal and homicidal.

“Some of them are court ordered to receive services because they are that mentally ill,” the source said.


Last year, Magellan lost their contract in the bidding process. Soon after, they asked the network providers to return some of the money.

The ABC15 Investigators obtained the following letters which show the tug-of-war between Magellan, the network providers and the state.

Some of the network providers banded together in protest and sent a letter to Magellan asking them to reconsider their demands.

“This change…will ultimately harm the entire Maricopa County behavioral health program,” the letter stated.

Magellan responded in another letter, and moved forward with their demands.

That is when the state stepped in and sent a letter to Magellan. The Department of Health Services asked the company to immediately stop and think how these actions would affect seriously mentally ill patients in the Valley.

But, recoupment and reductions in funding happened anyway.

The ABC15 Investigators talked with network provider CEOs, social workers, laid-off employees and industry insiders. All confirmed Magellan significantly cut funding since last summer and asked for money back.


Our insider told us it was very difficult after the reductions in funding.

“There was not enough funding to keep the staff going. It was either the company went belly-up or individual people did,” the source said.

Several network providers confirmed the state went around Magellan and gave them additional funding.

But, even with the assistance, the network providers said they were forced to cut some personnel and services. Some said they were operating in the red.

Our insider says she saw an increase in suicides as services were cut.

She told us some were her own clients.

When we asked her if she attributed the suicides to the cut in funding and she said, “Without a doubt.”

“We would have been able to be there for those people in their time of need,” she said if funds had not been so tight.

She said she thinks our state is failing our seriously mentally ill people – “and has been for quite a few years, yes,” she said.

Mercy Maricopa Integrated Care is the new regional provider for behavioral health services. The new RHBA took over for Magellan April, 2014.

Unlike Magellan, Mercy is a non-profit company.


Magellan’s statement:

“Magellan is extremely proud of the outcomes and expansion of services for members over the last seven years and the assistance from providers in helping to make this happen. All funding decisions are in compliance with contract expectations and requirements and system funding plans are fully vetted with the state for network adequacy and sufficiency.”    -Dr. Richard Clarke, CEO Magellan Health Services of Arizona

The Department of Health refused an interview, but told ABC15 they met with Magellan to “rebalance the fiscal sources available.”

Here is our written Q&A with the department:

AZ Health Department Q&A:

Question: In the attached July 12th letter, ADHS requested a meeting with Magellan representatives. What was discussed at this meeting and what actions and/or decisions were made as a result?

Answer: We met to discuss what factors went into Magellan making the decision to modify funding.  The Department and Magellan agreed to look at rebalancing the fiscal resources available within the system and how that could be made available to providers.

Question: We understand ADHS issued loans and/or emergency relief funding to network providers when Magellan would not stop their recoupment/reduction demands with the network providers. Was it a loan for additional funding? Or both? Why did ADHS take this action? How was the funding used? Are the loans required to be repaid? Will Magellan have any part in re-paying the loans?

Answer: ADHS did not make loans to providers.  We worked with Magellan to rebalance available funding within the system to help sustain the network.

Question: Does ADHS has any power to insist Magellan pay the money owed (for services already provided and required by state statute) to the network providers. If so, will ADHS be taking any steps? If not, is Magellan protected by contract?

Answer: ADHS holds all RBHAs [regional providers] to their contractual requirements and utilizes available contract remedies if there are issues.

Question: It is my understanding that Magellan has been working while on a contract extension. Was the former contract extending in writing?

Answer: Yes, the Magellan contract was extended for the period of 10/1/13 – 3/31/14 during the bid protest period. All contracts, modifications and extensions are in writing through the Procurement Office.

Question: Will Magellan’s recoupment/reduction demands affect any future contract bids with the state?

Answer: No

Question: Overall, families have been denied services, staff has lost their jobs, and network providers are in debt as a result of Magellan’s actions. What would you tell the providers? What do you say to the families and patients affected?

Answer: The Department is not aware of anyone that was denied service as a result of the recoupment process.  Contract language requires a sufficient network to deliver services and that network is maintained throughout the process.  The Department has had many discussions with the provider community throughout this process.

The bottom line for DHS – members are our priority.  We require the RBHAs to ensure an adequate system is in place to meet the members’ needs.

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