Columbia-based Magellan Behavioral Health and the state of Montana said yesterday that they had agreed to cancel a pioneering contract in which Magellan was managing mental health care in that state.

Laurie Ekanger, director of the Montana Department of Public Health and Human Services, said the program, started by another company acquired last year by Magellan, suffered from "ill will, bad publicity and frustration" that led to a "concerted effort by a lot of interest groups" to have the contract canceled.

Danna Mauch, chief executive of Magellan Behavioral's public solutions group, said, "The initial implementation effectively wore out the welcome" for the contract. In addition, she said, when Magellan attempted to control costs by cutting provider rates and reviewing the number of therapy sessions patients received, "the providers became extremely agitated."

The contract was ended by mutual agreement, Ekanger said.

While Magellan wanted to get out of the contract, Mauch said, it sees the Montana problems as generated by starting up an innovative program, and remains very interested in public sector contracting. Her group has 14 such contracts, covering mental health care for about 3 million people, and generating nearly half a billion dollars a year in revenue.

Montana sought an operator for mental health services in 1996. It decided to take Medicaid funds, which had gone for mental health care for the poor, and combine them with the rest of the state mental health budget to produce a $74 million-a-year program serving 20,000 people with incomes up to 200 percent of the poverty line.

It was one of the first states to combine its Medicaid services with state hospital and other mental health care.

The initial contract was won by CMG Health Inc. of Owings Mills, working with some Montana partners.

In 1997, CMG was sold to Merit Behavioral Care Corp. of New Jersey. Merit then was acquired by Magellan in a deal that was completed early last year. Ekanger said CMG had problems building a network of mental health providers and in paying claims, leading to complaints from hospitals and therapists. Magellan installed a better claims system, she said.

However, Mauch said, Magellan found that it was losing money at a rate of more than $15 million a year. It tried to reduce the amount it paid to hospitals. She said Magellan had demonstrated that its rates were as good or better than those paid in nearby states and for medical-surgical hospital care in Montana. But the hospitals balked, she said.

Eventually, state officials and Magellan decided to end the contract.

Montana will seek bids from private operators again, but will divide the state into regions instead of awarding a statewide contract, according to Ekanger.

Pub Date: 3/27/99