A large health insurer is parting ways with a company that has managed mental health care for its members for the past 7 years.[@@]

Aetna Inc., Hartford, says it will be buying control of the mental health management operations back from Magellan Health Services Inc., Farmington, Conn., at a total cost of about $50 million.

Magellan will have to pay $49 million to Aetna to satisfy the terms of a note.

Aetna says it hopes to complete the deal by the end of 2005, when its existing agreement with Magellan expires.

Magellan, a company that emerged from Chapter 11 reorganization proceedings about a year ago, manages care for depression, alcoholism, and other “behavioral health” problems for 60 million people, or more than 20% of the U.S. population.

Aetna provides or administers health coverage for 14 million U.S. residents. Magellan operations dedicated to managing Aetna members’ behavioral health needs include service centers in El Segundo, Calif.; King of Prussia, Pa.; and Sandy Hook, Utah. The centers employ 550 people.

Magellan also manages a network of psychologists, psychiatrists, drug abuse treatment clinics and other mental health providers for Aetna.

Aetna received an option to buy Magellan’s Aetna-related operations when it helped Magellan emerge from Chapter 11 proceedings.

Aetna now wants to use the operations to set up an Aetna Behavioral Health unit that will look for ways to use improvements in behavioral health services to improve the quality and efficiency of all health coverage, Aetna says.

“This transaction is about providing our customers with the highest quality services while effectively using our capital in a way that allows us to continue to grow our business profitably,” Aetna Chairman John Rowe says in a statement about the deal.

The Aetna contract accounted for about $170 million of the $458 million in total revenue Magellan reported for the first 3 quarters of 2004, Magellan says.

Magellan Chairman Steven Schulman emphasizes in a statement of his own that his company continues to have strong, long-term partnerships with government agencies, large employers, and Blue Cross and Blue Shield plans.

“While we had hoped to continue our productive association with Aetna, we also have known that Aetna has been faced with its own unique strategic imperatives that could lead to this decision,” Schulman says. “The agreements they obtained in our bankruptcy case reflected that potential and we have considered this in our strategies and planning.”