Business Overview



The Company is engaged in the healthcare management business, and is focused on
meeting needs in areas of healthcare that are fast growing, highly complex and
high cost, with an emphasis on special population management. The Company
provides services to health plans and other MCOs, employers, labor unions,
various military and governmental agencies, TPAs, consultants and brokers. The
Company's business is divided into three segments, based on the services it
provides and/or the customers that it serves. See Item 1-"Business" for more
information on the Company's business segments.

Results of Operations

The following table summarizes, for the periods indicated, operating results from continuing operations (in thousands):




                                        Three Months Ended                        Nine Months Ended
                                          September 30,            Change          September 30,            Change
Continuing Operations                   2020          2021       '20 vs '21      2020          2021       '20 vs '21
Statement of Operations Data:
Net revenue                          $ 1,170,117   $ 1,254,118         7.2%   $ 3,392,571   $ 3,636,535         7.2%
Cost of care                             364,438       437,308        20.0%     1,035,377     1,247,234        20.5%
Cost of goods sold                       560,269       546,337       (2.5)%     1,621,577     1,559,221       (3.8)%
Direct service costs and other
operating expenses (1)                   216,770       238,471        10.0%       620,767       713,065        14.9%
Legal matter settlement                        -             -          N/A             -       (9,000)          N/A
Depreciation and amortization             24,730        23,671       (4.3)%        71,976        67,613       (6.1)%
Interest expense                           7,286         5,969      (18.1)%        24,239        18,629      (23.1)%
Interest and other income                  (349)         (299)      (14.3)%       (2,119)         (848)      (60.0)%
Special charges and other                 16,599         1,914      (88.5)%        24,908         8,119      (67.4)%
(Loss) income before income taxes       (19,626)           747     (103.8)%       (4,154)        32,502     (882.4)%
(Benefit) provision for income taxes     (2,330)           861     (137.0)%      (32,896)        10,570     (132.1)%
Net (loss) income from continuing
operations                           $  (17,296)   $     (114)      (99.3)%

$ 28,742 $ 21,932 (23.7)%

Includes stock compensation expense of $5,442 and $5,974 for the three months (1) ended September 30, 2020 and 2021, respectively and $17,831 and $19,384 for


    the nine months ended September 30, 2020 and 2021, respectively.



Quarter ended September 30, 2021 ("Current Year Quarter") compared to Quarter ended September 30, 2020 ("Prior Year Quarter")

Net revenue, Cost of care, Cost of goods sold and Direct service costs and other operating expenses

Net revenue, cost of care, cost of goods sold and direct service costs and other operating expense variances are addressed within the segment results that follow.

Depreciation and amortization



Depreciation and amortization expense decreased by 4.3 percent or $1.1 million
from the Prior Year Quarter to the Current Year Quarter, primarily due to asset
maturities, partially offset by normal asset additions after the Prior Year
Quarter.

Interest expense



Interest expense decreased by 18.1 percent or $1.3 million from the Prior Year
Quarter to the Current Year Quarter primarily due to lower interest rates and
lower debt balances.

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Interest and other income

Interest income decreased by $0.1 million from the Prior Year Quarter to the Current Year Quarter primarily due to a reduction in rates.

Special charges and other



Special charges and other decreased by $14.7 million from the Prior Year Quarter
to the Current Year Quarter due to a reduction in special charges activity from
the Prior Year Quarter, see Note G-"Special Charges and Other" for further
discussion.

Income taxes



The Company's effective income tax rates from continuing operations were 11.9
percent and 115.3 percent for the Prior Year Quarter and Current Year Quarter,
respectively. The effective income tax rate for the Prior Year Quarter is lower
than the effective income tax rate for the Current Year Quarter primarily due to
the relative increase in non-deductible permanent differences in the Current
Year Quarter relative to pre-tax income. The effective income tax rate for the
Current Year Quarter differs from the federal and state statutory rates
primarily due to unfavorable permanent differences.



Nine months ended September 30, 2021 ("Current Year Period") compared to Nine months ended September 30, 2020 ("Prior Year Period")

Net revenue, Cost of care, Cost of goods sold and Direct service costs and other operating expenses

Net revenue, cost of care, cost of goods sold and direct service costs and other operating expense variances are addressed within the segment results that follow.

Depreciation and amortization



Depreciation and amortization expense decreased by 6.1 percent or $4.4 million
from the Prior Year Period, primarily due to asset maturities, partially offset
by normal asset additions after the Prior Year Period.

Interest expense

Interest expense decreased by 23.1 percent or $5.6 million from the Prior Year Period to the Current Year Period primarily due to lower interest rates and lower debt balances.

Interest and other income

Interest income decreased by $1.3 million from the Prior Year Period to the Current Year Period primarily due to a reduction in rates.

Special charges and other



Special charges and other decreased by $16.8 million from the Prior Year Period
to the Current Year Period due to a reduction in special charges activity from
the Prior Year Period offset by the impairment of an investment in the Current
Year Period, see Note G-"Special Charges and Other" for further discussion.

Income taxes



The Company's effective income tax rates from continuing operations were 791.9
percent and 32.5 percent for the Prior Year Period and Current Year Period,
respectively. The effective income tax rate for the Prior Year Period differs
from the effective income tax rate for the Current Year Period primarily due to
the recognition of the nonrecurring tax benefit related to the divestiture in
the Prior Year Period relative to the pre-tax loss for the Prior Year Period.
The effective income tax rate for the Current Year Period differs from the
federal and state statutory rates primarily due to unfavorable permanent
differences.





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Segment Results

The Company manages and measures operational performance through three segments:
Healthcare, Pharmacy Management and Corporate. The Company evaluates performance
of its segments based on Segment Profit. Management uses Segment Profit
information for internal reporting and control purposes and considers it
important in making decisions regarding the allocation of capital and other
resources, risk assessment and employee compensation, among other matters. Stock
compensation expense and changes in fair value of contingent consideration
recorded in relation to acquisitions are included in direct service costs and
other operating expenses; however, these amounts are excluded from the
computation of Segment Profit.

Healthcare


The Healthcare segment includes the Company's: (i) management of behavioral
healthcare services and EAP services and (ii) management of other specialty
areas including diagnostic imaging and musculoskeletal management. The
Healthcare segment provides management services to health plans, accountable
care organizations, employers, state Medicaid agencies, the United States
military and various federal government agencies for whom Magellan provides
carve-out management services for behavioral health, employee assistance plans,
and other areas of specialty healthcare including diagnostic imaging,
musculoskeletal management, cardiac, and physical medicine.



The following table summarizes, for the periods indicated, operating results for the Healthcare segment (in thousands):




                                             Three Months Ended                      Nine Months Ended
                                               September 30,          Change          September 30,            Change
Healthcare Segment Results                    2020        2021      '20 vs '21      2020          2021       '20 vs '21
Risk-based, non-EAP                        $  352,442   $ 437,809        24.2%   $ 1,046,486   $ 1,240,540        18.5%
EAP risk-based                                 74,703      75,369         0.9%       232,060       245,634         5.8%
ASO                                            62,306      67,100         7.7%       180,832       212,253        17.4%
Managed care and other revenue                489,451     580,278        18.6%     1,459,378     1,698,427        16.4%
Cost of care                                  364,438     437,308        

20.0% 1,035,377 1,247,234 20.5%


                                              125,013     142,970        14.4%       424,001       451,193         6.4%
Direct service costs and other                104,610     123,843        

18.4% 310,996 365,577 17.6%


                                               20,403      19,127       (6.3)%       113,005        85,616      (24.2)%
Stock compensation expense                        833       1,465        75.9%         4,696         5,919        26.0%
Segment Profit                             $   21,236   $  20,592

(3.0)% $ 117,701 $ 91,535 (22.2)%


Direct service cost as % of revenue             21.4%       21.3%                      21.3%         21.5%
MLR Behavioral & Specialty Health risk          89.2%       88.1%                      83.7%         87.0%
MLR Behavioral & Specialty Health EAP risk      66.6%       68.7%          

           68.6%         68.4%

Membership
Risk (1)                                                                              10,327        15,405        49.2%
EAP risk                                                                              13,961        13,136       (5.9)%
ASO                                                                                   25,663        25,032       (2.5)%
                                                                                      49,951        53,573         7.3%

(1) May include some duplicate count of membership for customers that contract

with Magellan for both behavioral and other specialty management services.

Current Year Quarter compared to the Prior Year Quarter

Managed care and other revenue


Net revenue increased by 18.6 percent or $90.8 million from the Prior Year
Quarter to the Current Year Quarter. The increase in revenue is primarily due to
new contracts implemented after (or during) the Prior Year Quarter of $50.4
million, favorable rate and membership changes of $49.3 million and revenue from
acquisitions that occurred after the Prior Year Quarter of $12.7 million. These
increases were partially offset by terminated contracts of $12.8

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million, the revenue impact of favorable prior period medical claims development
recorded in the Prior Year Quarter of $4.6 million, net revenue recorded for HIF
fees in the Prior Year Quarter of $3.9 million and other net unfavorable
variances of $0.3 million.

Cost of care


Cost of care increased by 20.0 percent or $72.9 million from the Prior Year
Quarter to the Current Year Quarter. The increase is primarily due to care cost
of new contracts implemented after (or during) the Prior Year Quarter of $35.5
million, rate and membership changes of $24.6 million, cost of care for
acquisitions that occurred after the Prior Year Quarter of $6.7 million and care
trends and other unfavorable variances of $18.2 million. These increases were
partially offset by terminated contracts of $7.8 million and net unfavorable
prior period medical claims development recorded in the Prior Year Quarter of
$4.3 million. Cost of care as a percentage of risk revenue (excluding EAP
business) decreased from 89.2 percent in the prior year quarter to 88.1 percent
in the Current Year Quarter, mainly due to business mix.

Direct service costs and other


Direct service costs increased 18.4 percent or $19.2 million from the Prior Year
Quarter to the Current Year Quarter primarily due to an increase in corporate
investments. Direct services costs decreased slightly as a percentage of revenue
from 21.4 percent in the Prior Year Quarter to 21.3 percent in the Current Year
Quarter.

Current Year Period compared to the Prior Year Period

Managed care and other revenue


Net revenue increased by 16.4 percent or $239.0 million from the Prior Year
Period to the Current Year Period. The increase in revenue is primarily due to
favorable rate and membership changes of $140.5 million, new contracts
implemented after (or during) the Prior Year Period of $115.7 million, revenue
from acquisitions that occurred after the Prior Year Period of $35.9 million,
the revenue impact of favorable prior period care development recorded in the
Prior Year Period of $5.6 million and other net favorable variances of $3.6
million. These increases are partially offset by terminated contracts of $37.5
million, the revenue impact of program changes of $13.0 million and net revenue
recorded for HIF fees in the Prior Year Period of $11.8 million.

Cost of care



Cost of care increased by 20.5 percent or $211.9 million from the Prior Year
Period to the Current Year Period. The increase is primarily due to rate and
membership changes of $90.8 million, care cost of new contracts implemented
after (or during) the Prior Year Period of $75.7 million, cost of care for
acquisitions that occurred after the Prior Year Period of $18.7 million,
favorable prior period care development recorded in the Prior Year Period of
$6.5 million and care trends and other unfavorable variances of $55.6 million.
These increases were partially offset by terminated contracts of $24.3 million
and program changes of $11.1 million. Cost of care as a percentage of risk
revenue (excluding EAP business) increased from 83.7 percent in the Prior Year
Period to 87.0 percent in the Current Year Period, mainly due to higher
utilization and business mix.

Direct service costs and other



Direct service costs increased by 17.6 percent or $54.6 million from the Prior
Year Period to the Current Year Period primarily due to an increase in corporate
investments. Direct service costs increased as a percentage of revenue from
21.3 percent in the Prior Year Period to 21.5 percent in the Current Year
Period, primarily due to the increase in corporate investments.

Pharmacy Management





The Pharmacy Management segment comprises products and solutions that provide
clinical and financial management of pharmaceuticals paid under medical and
pharmacy benefit programs. Pharmacy Management's services include: (i) PBM
services; (ii) PBA for state Medicaid and other government sponsored programs;
(iii) pharmaceutical dispensing operations; (iv) clinical and formulary
management programs; (v) medical pharmacy management programs; and (vi) programs
for the integrated management of specialty drugs. Pharmacy Management's services
are provided

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under contracts with health plans, employers, state Medicaid programs, and other government agencies.

The following table summarizes, for the periods indicated, operating results for the Pharmacy Management segment (in thousands, except state count):




                                              Three Months Ended                      Nine Months Ended
                                                September 30,          Change          September 30,            Change
Pharmacy Segment Results                       2020        2021      '20 vs '21      2020          2021       '20 vs '21
Formulary management                        $   31,327   $  34,734        10.9%   $    78,550   $    96,979        23.5%
PBA and other                                   48,055      53,754        11.9%       133,134       175,782        32.0%
Managed care and other revenue                  79,382      88,488        11.5%       211,684       272,761        28.9%
PBM, including dispensing                      540,615     587,622        

8.7%     1,558,211     1,673,245         7.4%
Medicare Part D                                 65,931       1,229      (98.1)%       178,308         2,913      (98.4)%
PBM revenue                                    606,546     588,851       (2.9)%     1,736,519     1,676,158       (3.5)%
Total net revenue                              685,928     677,339       (1.3)%     1,948,203     1,948,919         0.0%
Cost of goods sold                             565,121     549,472       (2.8)%     1,635,380     1,568,998       (4.1)%
                                               120,807     127,867         5.8%       312,823       379,921        21.4%
Direct service costs and other                  91,012     101,037        

11.0% 252,960 310,189 22.6%


                                                29,795      26,830      (10.0)%        59,863        69,732        16.5%
Stock compensation expense                       1,615       2,125        31.6%         5,661         7,167        26.6%
Legal matter settlement                              -           -                          -         9,000       100.0%
Segment Profit                              $   31,410   $  28,955

(7.8)% $ 65,524 $ 85,899 31.1%


Direct service cost as % of revenue              13.3%       14.9%                      13.0%         15.9%
COGS as % of PBM revenue                         93.2%       93.3%                      94.2%         93.6%

Pharmacy Operational Statistics
Adjusted commercial network claims                                         

           20,770        19,550
Adjusted PBA claims                                                                    39,602        40,515
Total adjusted claims                                                                  60,372        60,065

Generic dispensing rate                                                                 88.5%         89.0%

Commercial PBM covered lives                                                            1,870         2,034
Medical pharmacy covered lives                                                         15,903        16,197
Total states and DC that participate in PBA                                

               26            26



Current Year Quarter compared to the Prior Year Quarter

Managed care and other revenue



Managed care and other revenue increased by 11.5 percent or $9.1 million from
the Prior Year Quarter to the Current Year Quarter primarily due to increased
government pharmacy revenue of $4.2 million mainly due to increased membership,
formulary management revenue of $3.4 million mainly due to utilization and other
favorable variances of $1.5 million.

PBM revenue



PBM revenue decreased by 2.9 percent or $17.7 million from the Prior Year
Quarter to the Current Year Quarter. The decrease is primarily due to terminated
contracts of $64.2 million and other net unfavorable variances of $0.1 million.
The decrease is partially offset by new business of $32.3 million and increased
membership and utilization of $14.3 million.



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Cost of goods sold

Cost of goods sold decreased by 2.8 percent or $15.6 million from the Prior Year
Quarter to the Current Year Quarter. This decrease is primarily due to
terminated contracts of $61.1 million and other net favorable variances of $1.1
million. These decreases were partially offset by new business of $31.6 million
and an increase in membership and utilization of $15.0 million. As a percentage
of the portion of net revenue that relates to PBM, cost of goods sold increased
from 93.2 percent in the Prior Year Quarter to 93.3 percent in the Current Year
Quarter, mainly due to business mix.

Direct service costs and other



Direct service costs increased by 11.0 percent or $10.0 million from the Prior
Year Quarter to the Current Year Quarter primarily due to an increase in
corporate investments and new contract implementation costs. Direct service
costs increased as a percentage of revenue from 13.3 percent in the Prior Year
Quarter to 14.9 percent in the Current Year Quarter primarily due to an increase
in corporate investments and new contract implementation costs.

Current Year Period compared to Prior Year Period

Managed care and other revenue



Managed care and other revenue increased by 28.9 percent or $61.1 million from
the Prior Year Period to the Current Year Period primarily due to increased
government pharmacy revenue of $36.8 million mainly due to increased membership,
formulary management revenue of $18.4 million and other net favorable variances
of $5.9 million.

PBM revenue

PBM revenue decreased by 3.5 percent or $60.4 million from the Prior Year Period
to the Current Year Period. The decrease is primarily due to terminated
contracts of $178.1 million, which decrease is partially offset by an increase
in membership and utilization of $80.3 million, new business of $34.0 million
and other net favorable variances of $3.4 million.

Cost of goods sold


Cost of goods sold decreased by 4.1 percent or $66.4 million from the Prior Year
Period to the Current Year Period. This decrease is primarily due to terminated
contracts of $173.8 million and other net favorable variances of $0.3 million.
These decreases were partially offset by an increase in membership and
utilization of $74.3 million and new business of $33.4 million. As a percentage
of the portion of net revenue that relates to PBM, cost of goods sold decreased
from 94.2 percent in the Prior Year Period to 93.6 percent in the Current Year
Period, mainly due to business mix.

Direct service costs and other



Direct service costs increased by 22.6 percent or $57.2 million from the Prior
Year Period to the Current Year Period primarily due to an increase in corporate
investments and new contract implementation costs. Direct service costs
increased as a percentage of revenue from 13.0 percent in the Prior Year Period
to 15.9 percent in the Current Year Period primarily due to an increase in
corporate investments and new contract implementation costs.

Legal matter settlement

In the Current Year Period, the Company recognized a $9.0 million recovery in connection with the resolution of a legal matter.

Corporate Segment

The Corporate segment of the Company is comprised primarily of amounts not allocated to the Healthcare and Pharmacy Management segments, and that are largely associated with costs related to being a publicly traded company.





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The following table summarizes, for the periods indicated, operating results for the Corporate segment (in thousands):




                                   Three Months Ended                      Nine Months Ended
                                     September 30,           Change         September 30,           Change

Corporate Segment & Eliminations 2020 2021 '20 vs '21 2020 2021 '20 vs '21 Managed care and other revenue $ (145) $ (175) 20.7% $

    (495)   $    (480)       (3.0)%
PBM revenue                         (5,117)      (3,324)      (35.0)%     (14,515)     (10,331)      (28.8)%
Cost of goods sold                    4,852        3,135      (35.4)%      

13,803 9,777 (29.2)%


                                      (410)        (364)      (11.2)%      

(1,207) (1,034) (14.3)% Direct service costs and other 21,148 13,591 (35.7)% 56,811 37,299 (34.3)%


                                   (21,558)     (13,955)      (35.3)%     (58,018)     (38,333)      (33.9)%
Stock compensation expense            2,994        2,384      (20.4)%      

 7,474        6,298      (15.7)%
Segment Loss                     $ (18,564)   $ (11,571)      (37.7)%   $ (50,544)   $ (32,035)      (36.6)%






Current Year Quarter compared to the Prior Year Quarter



The Corporate segment loss decreased by 37.7 percent or $7.0 million from the
Prior Year Quarter to the Current Year Quarter, mainly due to stranded corporate
overhead expenses in the Prior Year Quarter related to the sale of the MCC
Business. As a percentage of revenue, the Corporate segment loss decreased from
1.6 percent in the Prior Year Quarter to 0.9 percent in the Current Year
Quarter, mainly due to increased revenue and stranded overhead expense in the
Prior Year Quarter.

Current Year Period compared to the Prior Year Period


The Corporate segment loss decreased by 36.6 percent or $18.5 million from the
Prior Year Period to the Current Year Period, mainly due to stranded corporate
overhead expenses in the Prior Year Period related to the sale of the MCC
Business. As a percentage of revenue, the Corporate segment loss decreased from
1.5 percent for the Prior Year Period to 0.9 the Current Year Period, mainly due
to increased revenue and stranded overhead expense in the Prior Year Period.

Inter segment revenues and expenses



Healthcare subcontracts with Pharmacy Management to provide pharmacy benefits
management services for certain Healthcare customers. In addition, Pharmacy
Management provides pharmacy benefits management for the Company's employees
covered under its medical plan. As such, revenue, cost of goods sold and direct
service costs and other related to these arrangements are eliminated within

the
Corporate segment.

Non-GAAP Measures

The Company reports its financial results in accordance with GAAP; however, the Company's management also assesses business performance and makes business decisions regarding the Company's operations using certain non-GAAP measures.



In addition to Segment Profit, as defined above, the Company also uses adjusted
net income attributable to Magellan ("Adjusted Net Income") and adjusted net
income per common share attributable to Magellan on a diluted basis ("Adjusted
EPS"). Adjusted Net Income and Adjusted EPS 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,
changes in the fair value of contingent consideration, amortization of
identified acquisition intangibles, as well as impairment of identified
acquisition intangibles, special charges and any impact related to the sale of
MCC. The Company believes these non-GAAP measures provide a more useful
comparison of the Company's underlying business performance from period to
period and are more representative of the earnings capacity of the Company.
Non-GAAP financial measures disclosed, such as Segment Profit, Adjusted Net
Income and Adjusted EPS, should not be considered a substitute for, or superior
to, financial measures determined or calculated in accordance with GAAP.

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The following table reconciles (loss) income from continuing operations before income taxes to Segment Profit from continuing operations (in thousands):






                                           Three Months Ended        Nine Months Ended
                                             September 30,             September 30,
                                            2020         2021        2020         2021
(Loss) income from continuing
operations before income taxes           $ (19,626)    $    747    $ (4,154)    $  32,502
Stock compensation expense                    5,442       5,974       17,831       19,384
Depreciation and amortization                24,730      23,671       71,976       67,613
Interest expense                              7,286       5,969       24,239       18,629
Interest and other income                     (349)       (299)      (2,119)        (848)
Special charges and other                    16,599       1,914       24,908        8,119
Segment Profit from continuing
operations                               $   34,082    $ 37,976    $ 132,681    $ 145,399

The following table reconciles net (loss) income from continuing operations to Adjusted Net Income from continuing operations (in thousands):




                                              Three Months Ended          Nine Months Ended
                                                September 30,              September 30,
                                               2020         2021          2020         2021
Net (loss) income from continuing
operations                                  $ (17,296)    $   (114)    $   28,742    $  21,932
Adjustments
Stock compensation expense                           -          252             -          747

Amortization of acquired intangibles             9,924        6,090       

29,183       21,736
Special charges and other                       16,599        1,914        24,908        8,119
Tax impact                                     (6,975)      (2,176)      (14,388)      (8,064)
Nonrecurring tax benefit - divestiture           (105)            -      (39,012)            -
Adjusted Net Income from continuing
operations                                  $    2,147    $   5,966    $   29,433    $  44,470

The following table reconciles net (loss) income from continuing operations per common share-diluted to Adjusted EPS from continuing operations:




                                            Three Months Ended         Nine Months Ended
                                              September 30,             September 30,
                                             2020         2021         2020         2021
Net (loss) income from continuing
operations per common share-diluted
(1)                                       $   (0.68)    $  (0.20)    $    1.14    $   0.63
Adjustments
Stock compensation expense                         -         0.01            -        0.03
Amortization of acquired intangibles            0.39         0.23         1.15        0.82
Special charges and other                       0.65         0.07         0.98        0.30
Tax impact                                    (0.27)       (0.08)       (0.57)      (0.30)
Nonrecurring tax benefit - divestiture        (0.01)            -       (1.54)           -
Adjusted EPS from continuing
operations (1)                            $     0.08    $    0.03    $    1.16    $   1.48

During the three months ended September 30, 2021, the Company recorded a $5.0

million adjustment to increase the carrying value of redeemable

(1) non-controlling interest with an off-setting entry to retained earnings which

is reflected in the earnings per share calculation, but is not recorded as a


     charge to net income from continuing operations.


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Outlook-Results of Operations



The Company's Segment Profit and net income are subject to significant
fluctuations from period to period. These fluctuations may result from a variety
of factors such as those set forth under Item 1A-"Risk Factors" as well as a
variety of other factors including: (i) changes in utilization levels by
enrolled members of the Company's risk-based contracts, including seasonal
utilization patterns; (ii) contractual adjustments and settlements;
(iii) retrospective membership adjustments; (iv) timing of implementation of new
contracts, enrollment changes and contract terminations; (v) pricing adjustments
upon contract renewals (and price competition in general); (vi) the timing of
acquisitions; (vii) changes in estimates regarding medical costs and IBNR;
(viii) the timing of recognition of pharmacy revenues, including rebates; and
(ix) changes in the estimates of contingent consideration.

A portion of the Company's business is subject to rising care costs due to an
increase in the number and frequency of covered members seeking healthcare
services and higher costs of such services. Many of these factors are beyond the
Company's control. Future results of operations will be heavily dependent on
management's ability to obtain customer rate increases that are consistent with
care cost increases and/or to reduce operating expenses.

Interest Rate Risk. Changes in interest rates affect interest income earned on
the Company's cash equivalents and investments, as well as interest expense on
the variable interest rate borrowings under the 2017 Credit Agreement. In
addition, interest rates on the Notes are subject to adjustment upon the
occurrence of certain credit rating events. Based on the amount of cash
equivalents and investments, the borrowing levels under the 2017 Credit
Agreement and the principal amount of the Notes as of September 30, 2021, a
hypothetical 10 percent increase or decrease in the interest rate associated
with these instruments, with all other variables held constant, would not
materially affect the Company's future earnings and cash outflows.

Historical-Liquidity and Capital Resources



Operating Activities. The Company reported net cash provided by operating
activities of $232.0 million and net cash used in operating activities of $60.1
million for the Prior Year Period and the Current Year Period, respectively. The
$171.9 million decrease in operating cash flows from the Prior Year Period is
mainly attributable to segment profit of $144.0 million from discontinued
operations in the Prior Year Period, increased tax payments and unfavorable
working capital changes between periods.

The net unfavorable impact of working capital changes between periods totaled
$22.7 million. For the Prior Year Period, operating cash flows were impacted by
net favorable working capital changes of $17.0 million, mainly attributable to
the timing of receivable and payables. For the Current Year Period, operating
cash flows were impacted by net unfavorable working capital changes of $5.7
million, mainly attributable to the timing of receivables and payables.

In relation to continuing operations, the Company reported net cash provided by
operating activities of $54.2 million and $60.1 million for the Prior Year
Period and Current Year Period, respectively. The change is mainly due to timing
of accounts receivable and other working capital changes, partially offset by
higher tax payments.

Investing Activities. The Company utilized $56.0 million and $48.0 million
during the Prior Year Period and the Current Year Period, respectively, for
capital expenditures. The additions related to hard assets (equipment,
furniture, and leaseholds) and capitalized software for the Prior Year Period
were $15.4 million and $40.6 million, respectively, as compared to additions for
the Current Year Period related to hard assets and capitalized software of $12.4
million and $35.6 million, respectively.

During the Prior Year Period and the Current Year Period, the Company used
$160.3 million and $14.3 million for the net purchase of "available-for-sale"
securities. During the Prior Year Period and the Current Year Period, the
Company used net cash of $2.1 million and $2.4 million for investments in other
non-consolidated subsidiaries.

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Financing Activities. During the Prior Year Period, the Company received $80.0
million from borrowings under our revolving line of credit, $48.3 million from
the exercise of stock options and other net favorable items of $0.9 million. In
addition, the Company paid $122.0 million under debt obligations and $4.1
million for payments on finance lease obligations.

During the Current Year Period, the Company paid $113.1 million on debt obligations and $4.6 million on finance lease obligations and had other net unfavorable items of $1.4 million. In addition the Company received $17.7 million from the exercise of stock options.

Outlook-Liquidity and Capital Resources



Liquidity. The Company may draw on the 2017 Credit Agreement (discussed further
below) as required to meet working capital needs associated with the timing of
receivables and payables, fund share repurchases or support acquisition
activities. The Company currently expects to have adequate liquidity to satisfy
its existing financial commitments over the periods in which they will become
due. At September 30, 2021, the Company had no revolving loans with a borrowing
capacity of $400.0 million of the revolving credit facility still available to
the Company for additional drawdown. The Company plans to maintain its current
investment strategy of investing in a diversified, high quality, liquid
portfolio of investments and continues to closely monitor the financial markets.
The Company estimates that it has no risk of any material permanent loss on its
investment portfolio; however, there can be no assurance the Company will not
experience any such losses in the future.

Stock Repurchases. The Company's board of directors approved, and subsequently
amended, a stock repurchase plan which authorizes the Company to purchase up to
$400 million of its outstanding common stock through November 15, 2021. As of
September 30, 2021, the remaining capacity under the Repurchase Program was
$186.3 million. See Part II, Item 2-"Unregistered Sales of Equity Securities and
Use of Proceeds" for more information on the Company's share repurchase program.

Off-Balance Sheet Arrangements. As of September 30, 2021, the Company had no material off-balance sheet arrangements.


Credit Agreement. On September 22, 2017, the Company entered into the 2017
Credit Agreement with various lenders that provides for a $400.0 million senior
unsecured revolving credit facility and a $350.0 million senior unsecured term
loan facility to the Company, as the borrower. On August 13, 2018, the Company
entered into an amendment to the 2017 Credit Agreement, which extended the
maturity date by one year. On February 27, 2019, the Company entered into a
second amendment to the 2017 Credit Agreement, which amended the total leverage
ratio covenant, and which was necessary in order for the Company to remain in
compliance with the terms of the 2017 Credit Agreement. The 2017 Credit
Agreement is scheduled to mature on September 22, 2023. See Note A-"General" for
more information on the 2017 Credit Agreement.

Restrictive Covenants in Debt Agreements. The 2017 Credit Agreement contains
covenants that potentially limit management's discretion in operating the
Company's business by, in certain circumstances, restricting or limiting the
Company's ability, among other things, to:

? incur or guarantee additional indebtedness or issue preferred or redeemable

stock;

? pay dividends and make other distributions;

? repurchase equity interests;

? make certain advances, investments and loans;

? enter into sale and leaseback transactions;

? create liens;

? sell and otherwise dispose of assets;




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? acquire or merge or consolidate with another company; and

? enter into some types of transactions with affiliates.

These restrictions could adversely affect the Company's ability to finance future operations or capital needs or engage in other business activities that may be in the Company's interest.



The 2017 Credit Agreement also requires the Company to comply with specified
financial ratios and tests. Failure to do so, unless waived by the lenders under
the 2017 Credit Agreement pursuant to its terms, or amended, would result in an
event of default under the 2017 Credit Agreement. As of September 30, 2021, the
Company was in compliance with all covenants, including financial covenants,
under the 2017 Credit Agreement.

Critical Accounting Policies and Estimates



The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Significant estimates of the Company can include, among other things,
valuation of goodwill and intangible assets, medical claims payable, other
medical liabilities, stock compensation assumptions, tax contingencies and legal
liabilities. In addition, the Company also makes estimates in relation to
revenue recognition under ASC 606 which are explained in more detail in Note
A-"General - Revenue Recognition." Actual results could differ from those
estimates. Except as noted above, the Company's critical accounting policies are
summarized in the Company's Annual Report on Form 10-K, filed with the SEC

on
February 26, 2021.

Forward-Looking Statements

This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Although
the Company believes that its plans, intentions and expectations as reflected in
such forward-looking statements are reasonable, it can give no assurance that
such plans, intentions or expectations will be achieved. Existing and
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 include:

? the Company's inability to renegotiate or extend expiring customer contracts,

or the termination of customer contracts;

changes in business practices of the industry, including the possibility that

certain of the Company's managed care customers could seek to provide managed

healthcare services directly to their subscribers, instead of contracting with

? the Company for such services, particularly as a result of further

consolidation in the managed care industry and especially regarding managed

healthcare customers that have already done so with a portion of their

membership;

the impact of changes in the contracting model for Medicaid contracts,

? including certain changes in the contracting model used by states for managed

healthcare services contracts relating to Medicaid lives;

? the Company's ability to accurately predict and control healthcare costs, and

to properly price the Company's services;

the Company's ability to accurately underwrite and control healthcare costs

? associated with its expansion into clinically integrated management of special

populations eligible for Medicaid and Medicare, including individuals with

serious mental illness and other unique high-cost populations;




 ? the Company's ability to maintain or secure cost-effective healthcare provider
   contracts;


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? the Company's ability to maintain relationships with key pharmacy providers,

vendors and manufacturers;

? the Company's dependence on government spending for managed healthcare,

including changes in federal, state and local healthcare policies;

? restrictive covenants in the Company's debt instruments;

? present or future state regulations and contractual requirements that the

Company provide financial assurance of its ability to meet its obligations;

the impact of the competitive environment in the managed healthcare services

? industry which may limit the Company's ability to maintain or obtain contracts,

as well as its ability to maintain or increase its rates;

? the Mental Health and Substance Abuse Benefit Parity Law and Regulations;




 ? government regulation;


? proposed changes to current Federal law and regulations;

? noncompliance with regulations;

? the Company's participation in Medicare Part D is subject to government

regulation;

? the unauthorized disclosure of sensitive or confidential member or other

information;

? a breach or failure in the Company's operational security systems or

infrastructure, or those of third parties with which it does business;

? risk associated with outsourcing services and functions to third parties;

? the possible impact of additional regulatory scrutiny and liability associated

with the Company's Pharmacy Management segment;

? the inability to realize the value of goodwill and intangible assets;

? pending or future actions or claims for professional liability;

? claims brought against the Company that either exceed the scope of the

Company's liability coverage or result in denial of coverage;

? class action suits and other legal proceedings;

? negative publicity;

? the impact of governmental investigations;

? the impact of varying economic and market conditions on the Company's

investment portfolio;

? the state of the national economy and adverse changes in economic conditions;

? tax matters, including changes in corporate tax rates, disagreements with


   taxing authorities and imposition of new taxes;


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the impact of an epidemic or health crisis such as the COVID-19 pandemic,

? natural disasters, political disruptions, acts of war or terrorism,

cybersecurity attacks or other data breaches or intrusions and other

extraordinary events;

the Company's amended bylaws provide that the Court of Chancery of the State of

Delaware and the federal district courts of the United States of America will

? be the exclusive forums for substantially all disputes between us and our

stockholders, which could limit our stockholders' ability to obtain a favorable

judicial forum for disputes with us or our directors, officers, or employees;

? the Company's ability to attract and retain employees and manage the succession

and retention of key executives; and

risks relating to the Company's proposed Merger with Centene, including the

ability to obtain regulatory approvals for the transaction and to satisfy other

closing conditions, business uncertainties and contractual restrictions while

? the Merger is pending, provisions of the Merger Agreement may limit the

Company's ability to pursue alternatives to the Merger, litigation against the

Company or Centene could prevent or delay the completion of the Merger, and the

ability of the parties to close the transaction in the anticipated timeframe.




Further discussion of factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements is
set forth under the heading "Risk Factors" in Item 1A of Magellan's Annual
Report on Form 10-K for the year ended December 31, 2020 and in Item 1A of this
Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form 10-Q,
the words "estimate," "anticipate," "expect," "believe," "should," and similar
expressions are intended to be forward-looking statements. Magellan undertakes
no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results over time, except as required by law.

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