Mental health giant moving to Columbia

Magellan promises 600 new jobs as state kicks in $2.8 million

Headquarters leaves Atlanta

May 21, 1999|By Kristine Henry | Kristine Henry,SUN STAFF

The country's largest manager of mental health care plans will announce today it is moving its headquarters from Atlanta to Columbia and is creating 600 jobs in the state over the next 2 1/2 years.

Magellan Health Services Inc., a $1.5 billion company with more than 11,000 employees nationwide, will rank as one of the Baltimore area's top 10 public companies.

The new jobs were promised in exchange for $2.8 million from the state Department of Economic Development's Sunny Day fund. About 60 percent of the new positions will pay between $20,000 and $40,000, with the remainder paying from $40,000 to more than $100,000.

Magellan already has a strong presence in the area, with about 600 employees in Columbia and another 300 throughout the state. The corporate relocation, which is expected to be completed this fall, will bring Maryland fewer than 50 new positions, with the balance of the new jobs to come from the firm's natural growth.

"We were having discussions with several states about what they could do for us," chief executive Henry T. Harbin said yesterday. "But we did not get into a formal bidding war. We said to Maryland it was our preference and asked what incentives it could give us to keep moving people here."

Howard County also has kicked in $400,000 in property tax credits over five years.

"We are delighted, because when a company is headquartered in a place like Atlanta it's very difficult to overcome inertia to move out of a fast-growing, dynamic city," said Howard County Economic Development Authority chief executive Richard W. Story.

The relocation gives state officials bragging rights as they try to attract and retain other businesses, said Anirban Basu, senior economist with the regional Economic Studies Institute, a research institute at Towson University.

"Most of the economic impact is probably indirect. This is another company locating to Maryland and bringing attention to this state's improving business climate," Basu said. "That's important. Through the decade, Maryland lost thousands of these types of jobs. Now we are beginning to see this type of job grow again in Maryland and it bodes very well for our future."

In January, W. R. Grace & Co., one of the world's best-known chemical companies, said it was moving its corporate headquarters from Florida to Columbia.

The main unit of Magellan -- Behavioral Health -- acts as a middleman between its customers, usually health maintenance organizations or large self-insured companies, and mental health care providers. Magellan clinicians discuss cases with patients and providers to determine how much care will be allowed under various health care plans. Behavioral Health covers more than 64 million people.

The company was formed in 1995 when Atlanta-based Charter Medical Corp., one of the nation's largest operators of psychiatric hospitals, purchased a majority interest in Green Spring Health Services, a mental health program manager based in Columbia. The umbrella company was named Magellan Health Services.

Magellan decided to focus on managed care, making several large acquisitions in 1997 and 1998, and sold half of its interest in Charter two years ago. A deal last year to sell the remaining portion fell through, and the company is still searching for a buyer.

"The trend was in integrated delivery systems, with managed care companies buying hospitals," said Harbin, who has been based in Columbia since his days as head of Green Spring. "It didn't work very well, and a lot of alliances fell apart."

Problems with Charter have been a drag on the company; Magellan loses about $1.5 million each quarter on the hospital operator. Additionally, Magellan spent $922 million on acquisitions last year. One of the Behavioral Health acquisitions -- Human Affairs International -- also will cost the company up to $60 million a year for five years, depending on how many "covered lives" come to Magellan through the plan.

Concerns about the sale of Charter and the company's debt load have caused Magellan's stock to drop considerably. Shares were trading as high as $33.75 in August 1997 but dipped to as low as $3.625 last month. Shares closed yesterday up 43.75 cents at $7.5625.

"The company has stabilized. It made some huge acquisitions and it spent a lot on those acquisitions," said Premila Peters, an analyst at KDP Investment Advisors in Vermont. "But it looks like they're on track to get whatever synergies they had planned."

Harbin said he sees particular growth potential through last year's acquisition of Allied Health Group, which was folded into Magellan's Specialty Health unit, which handles areas outside the mental health arena such as cardiology and oncology.

Out of the more than $1 trillion spent on health care nationally every year, Harbin said, only 7 percent goes toward mental health. But 30 percent goes toward paying specialty care practitioners. So even though the unit is only expected to have $200 million in revenue this fiscal year -- compared with a projected $1.6 billion from Behavioral Health -- Harbin said Specialty Health could catch up.

"We're making a bet that this area will grow," Harbin said.

Pub Date: 5/21/99

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