Ladies and Gentlemen, thank you for standing by. At thistime all participants are in a listen only mode (Operator Instructions).Today's conference is being recorded. If anyone has any objections they maydisconnect at this time. I would like to introduce Miss Melissa Rose, Senior VicePresident of Financial Planning and Investor Relations. You may begin.

Thank you. Good morning and welcome to Magellan's ThirdQuarter 2007 Earnings Conference Call. This is Melissa Rose, Senior VicePresident Investor Relations for Magellan Health Services. And here with metoday are Magellan's Chairman and CEO, Steve Shulman, our President and ChiefOperating Officer, Rene Lerer, and our Chief Financial Officer, Mark Demilio.They will discuss the financial and operational results of our third quarterending September 30, 2007 Certain of the statements made during this conference callare forward-looking statements contemplated under the Private SecuritiesLitigation Reform Act of 1995. These forward-looking statements are subject toknown and unknown uncertainties and risks, which could cause actual results todiffer materially from those discussed. These forward-looking statements are qualified in theirentirety by the complete discussion of the risks set forth in the caption riskfactors in Magellan's annual report on Form 10-K for the year ended December31, 2006, which was filed with the Securities Exchange Commission on February28, 2007 and also discussed in the 10-Q that we filed with the SEC later today. Also please note that in this call we refer to segmentprofit. A reconciliation of the segment profit is the most directly comparableGAAP financial measure. Please see our form 10-Q for the quarter endedSeptember 30, 2007, which you will be able to fine on our website undermagellanhealth.com investor info. I will turn the call over now to our Chairman and CEO SteveShulman. Thank you.

Good morning everyone and thank you for joining us today. Asyou saw the press release issued this morning, we produced $57.4 million insegment profit in the third quarter ending September 30, 2007. Based on thestrong quarter, we are raising our guidance to $215 million to $225 million ofsegment profit, for 2007 from $180 million to $200 million. The two primary items driving the stronger than projectedthird quarter results include $6 million of favorable pride period caredevelopment primarily in our health plan segment, of the of which $4.9 millionrelated to 2007 and $1.1 million related to the prior year. In addition, the quarter's financial results were morefavorable than we had originally estimated due to higher than projectedmembership and lower than projected start up costs related to our new MaricopaCounty Medicaid contract. However, we are focused on ICOR, given its continued lagversus expectations and I will discuss this more in a moment. First let mespend a few minutes updating you on the successful implementation of theMaricopa contract, which went live on September 1st. With analyzed revenue ofapproximately $580 million, this contract is larger than we had originallyprojected and it is the largest behavioral care contract carve-out in theUnited States for Medicaid. The size and complexity provided a significant operationalchallenge for our team, given a very short implementation time line. In only 59business days our team was challenged with building out a service center,preparing to take on 23 clinics and an urgent care center, and working withcommunity and the new governance board to ensure a smooth transition. I am very pleased to report that the implementation has gonequite well. Thanks to the diligent work of hundreds of Magellan employees. Weimplemented this contract quickly and efficiently, while at the same timekeeping up our service metrics for the rest of our Magellan customers aroundthe country.…

Thank you, Steve. Good morning, everyone. As indicated in the press releaseissued this morning our segment profit for the third quarter of 2007 was $57.4million. As Melissa stated earlier, segment profit is disclosed and defined inour quarterly reports on Form 10-Q and our annual report on Form 10-K and isequal to net revenues, less costs of care and cost of goods sold, directservice costs and other operating expenses, excluding stock compensationexpense, plus equity and earnings of unconsolidated subsidiaries. Included in the tables for our press release issued thismorning and to be included in our form 10-Q to be filed later today, is thereconciliation from segment profits of a line item income from continuingoperations before income impacted and minority interest. We encourage you toreview such reconciliation for an understanding of how segment profit comparesto that GAAP measure. Revenues in the third quarter 2007 were $558.1million versus$429.5 million for the quarter ended September 30, 2006. The revenue increaseresulted primarily from new business added the since the prior year quarter of$144.2 million, including the conversion of radiology benefits management ASOcontract to a risk basis effective July 1, 2007. Favorable specialty pharmaceutical management revenue of$24.4 million due primarily to only two months of operating results incurred inthe prior year quarter. Favorable rate changes of $9.4 million, same-storemembership increases of $5.2 million and other net increases of $3.4 million.These increases were partially offset by the loss of membership due to contractterminations of $58.0 million. Net income for the third quarter of 2007 was $25.1million or$0.63 per share on a diluted basis. For the third quarter of 2006, thecompany's net income was $21.2 million or $0.54 cents per share on a dilutedbasis. As stated, segment profit was $57.4 million for the third quarter of2007, compared to $54.6 million for the third quarter of 2006. Segment profitfor…

Thanks, Mark. Before we close today, I want to spend a fewminutes discussing our strategy and updating you on our current position on ourcapital deployment initiatives. Our strategy for the past several years, aswell as today, is to leverage Magellan's strong and efficient platform byaccelerating growth organically and through acquisitions to supplement our moremature business lines. Our flat platform is comprised of our operationalinfrastructure, customer base, management team and balance sheet. Our focus ison growth by expanding our existing markets as well as entering into new, highgrowth areas of healthcare with the goal of accelerating our overall growthrate. When possible, as in NIA's case, we have successfullyintegrated their total infrastructure. That is, their IT, customer service,claims, financial, HR, legal etcetera, on to our existing platform. Thereforethe integration work is complete and on the Magellan existing infrastructure. In ICOR's case, we have integrated their IT, finance, HR,legal, but not their operational functions, due to the difference in theirbusiness. Therefore, these integrations are by and large complete, and there isplatform capacity to add additional lines of business without straining theexisting platform and the management team or distracting other lines ofbusiness. Sound acquisitions are a fundamental component to our growthstrategy. As, we look at future acquisition opportunities; we will look atacquisitions that would add to our competitive strengths in areas of healthcarewhere we currently operate. And in addition we will continue to look for newareas of healthcare that would add new products to our current offerings. When identifying new markets in healthcare, we continue tolook for areas that meet the following investment criteria that we have statedover the last three or four years, markets that represent a meaningful portionof the healthcare dollar, markets where costs are growing at a faster rate thanother healthcare expenses, areas where costs are separable from other medicalcosts and…

(Operator Instructions) Josh Raskin of Lehman Brothers, youmay ask your question.

Hi. Thanks. Good morning. Two quick questions. One, couldyou give an update, I apologize if I missed it early on, I jumped on when youwere talking about Maricopa. Sounds like higher membership. Could you give anupdate on the expected revenue run rate on an annual basis there?

Yes, we shared it. Josh said earlier $580 million. Higherthan we originally expected, but the membership is up.

Okay. And on the margin side, I know you guys are capped at4% to 5%. That's post, that's after taxes. Would you expect to be sort of thisthat run rate for the full fiscal year of '08 at this point? It sounds like youknow you feel like you are getting better margins at this point already.

Let me not comment on that. We have said there is a range.We knew what the cap was. We expected the consider to mature over time and weare doing better than we expected early on in terms of our managed care impactversus the previous incumbent. But it is too early for us to definitively say where we aregoing to be we have had a month into the contract.

Yes, that's fair. And then let me play I guess, devil'sadvocate. You spoke of the impact of the credit crunch on your throughoutprocesses around the repurchase and certainly understand the ability of othersin terms of raising debt et cetera two acquisitions will help you competitivelyin the M&A front. But if you look back and you have done two significant dealsone of them has been very, very successful, the radiology side, but ICOREcertainly lacking the previous expectations. I'm curious; do you take intoeffect, the inherent risk in acquisitions? Has the ICORE business sort changed your mind frame in termsof the relative attractiveness of other capital deployment areas?

Well, it's a fair question. Certainly let me just back upand say what we are seeing in the marketplace, not only the value of our cashis higher, the costs of the debt is higher. But we are seeing a return tonormal patterns, because the cost of capital to financial buyers has increasein their ability to leverage the company as much as they could with nocovenants has decreased. And therefore, we are returning to kind of a status quoanti, where strategic buyers have historically had a competitive advantage overfinancial buyers due to synergies and leverage, which was not the case over thelast two or three frothy years. And so, we see our opportunities in the competitive biddingand the pricing being better. We certainly do an evaluation every quarter onthe returns and investment what are our assumptions et cetera. From anoperational basis as I mentioned, we have integrated those companies. Our ability to do that and our operation efficiency has beenall demonstrated. And I want to make sure it is not a distraction because ofthe way we have organized our lines of business, everybody leverages thatcommon platform as much as we can. Then mostly what the SBU heads are doing isproduct development, initiative, sales initiatives, account managementinitiatives, et cetera, et cetera. We certainly take into account ICORE's performance to date.But I must tell you, we were challenged early on in NIA's performance and thatthing has rocketed beyond our expectations, we have increased the company fivefold. So, we acknowledge their issues at ICORE maybe re-evaluatingour tactics to the market we package from the historical strength, which arerebates only to move into distribution to get a bigger piece of the market. Maybe that thinking was premature. We are not certain yet.But we are re-evaluating our tactics in the market. But we are confident we arein the right place at the right time with the right management team. But trustme, we are working it very hard. We do put always the inherent risks anddiscounts on acquisitions when we take that into account. But net-net without the benefit of 20-20 hindsight, we thinkthe cash is so valuable right now and the opportunities are reasonable that weare holding where we are right now. And as I said every quarter reevaluated andthese are not mutually exclusive options, but that is where we are today.

That's fair, and the last quick question is for Mark. Couldyou review the balance of favorable development that were booked in the currentquarter? I heard a number for the health plan. I think it was $5.4 million. Iwant to see what the other areas were up in behavioral.

Sure, Josh. The favorable in the health plan was the $5.4million of which 4.5 related to current year prior quarters. The employersegment had a positive of $600,000. And then the public sector segment had aslightly negative $1.2 million negative or unfavorable development. A lot of the public sector development was on contracts for,which there is minimum care requirements. There is revenue attached to that ofabout $1 million.

Got you.

It pretty much netted out.

It looked like there was really only $1 million that was outof period, i.e. relate to 2006 or before?

Yes, that's right.

Okay. Perfect. Thanks.

Michael Glynn from Credit Suisse, you may ask your question.

Thank you. Nice quarter, guys. A question following up onJosh's question there with the cost of care ratios. Looking at the adjustedratios, with the favorable development, over the last few quarters, looks likeit's gone from, in the health plan segment, 60% level and now adjusted all theway down to 57%, which maybe looks more like historical levels. So, have we kind of hit a new run rate level, where it iswell below 60%, say around 57% now? And then I guess looking out to 2008; Iassume you are already contracted with the health plans. And now the trends arecoming in a little better than expected. We should be able to see this flowthrough to 2008.

As to your first question, Michael. I think the actualpercentage is higher than what you are saying. I think without adjusting we areat 66%. You have to add back care for the favorable development. It should behigher than 66% when you do that adjustment.

Okay.

First of all the calculations, but secondly as to whetherthat's the run rate or not. As I said as we look preliminarily add 2008 andreview the rate adjustments that have been going on in health plan, we alsoexpect that to be higher in 2008. We had rates in '07 that were based on anexpected trend of 6% to 8%. And the trend is actually coming in lower than that. So, weare seeing better margins this year than we would have expected from that ratesetting. As we set rates for 2008, we are now setting it on that lower trend.So the margin should be more of what we expect it to be this year. And so, thatwould be lower than what it is this year.

Okay, so the contracting already went on the assumption ofthe lower trends? That is what I was getting at.

Yes. Some of the ones that have occurred and then theexpectation of the ones that have not yet completed is based on the assumptionof the lower trend.

Okay. Then over to capital deployment. Given the creditmarket, it seems like the strategy to hold off on the share repurchase anddividend is really playing out nicely. Given that, and given that you continueto hold on to a large cash balance. Should, we assume that you guys are faralong with potential acquisition?

No. We are in various stages with a number of opportunitiesbut even if you assume we are far along, it doesn't mean we are going to get itdone. So I wouldn't assume anything imminent it's a lumpy issue. We had said,before we did the last two for about $330 million, we had looked at $2 billionof deals we were far along in. So, I wouldn't read into that and clearly as we continue tobuild up cash, what happens to the credit markets, we are going to constantlyre-evaluate the balance. But I appreciate your statement, because I think wewere strong in July, after what happened in August, we are in a better positionto be quite opportunistic and aggressive.

Agreed. Agreed. And then last quickly I was intrigued byyour comments on the ICORE segment hitting the '08 sales cycle with some of there-restructuring for lack of a better term that you talked about that suggestsyour strategy will be able to hit '08 sales cycle? We are not already throughthat?

Hi this is Rene. The sales cycle for specialty dealsprimarily with health plan, so it is not a January date implementation timesfor ICORE, particularly on the rebate side is reasonably short. So we believethere is still significant opportunity for us to hit the sales prospects for a2008 implementation. Obviously January is a bit early, but we think throughoutthe course of 2008 we have opportunities for increased sales with all the lineswithin ICORE.

Great. Thank you.

Melissa Jaffe, of Merrill Lynch, you may ask your question.

Hi, guys.

Good morning.

Medicaid behavioral, recognizing you are busy ramping upMaricopa and you want to get that right, do you still see Medicaid behavioralas a meaningful growth driver longer term? And then also, can you give us a wayto sort of size that potential market? And you know, just given all thedifferent arrangements that the states have?

Yes, let me start off. But, in terms of long-term to answeryour question. Absolutely, that market still is immature, evasive, behavioralmanaged care. We look at we changed about a year and a half ago, two years agowe put a tremendous amount of resources in there, because we had lost 12opportunities in a row. We had the wrong team and the wrong set of resources, as youknow. We have really been hitting the ball out of the park in terms of we wonfour or five regions in Florida, we won a number of regions in the Midwest. Wealso changed our tactics on distribution channels. We went after not only carve-outs directly with states buthave won a number of opportunities as the subcontractor for health plans whodon't have a strong behavioral Medicaid area of expertise and that's opened upopportunities over the short-term Maricopa was the big event. We have to digestthat. Over the long-term the market will be quite strong The point we look at, I'll give you specific numbers offline but in the commercial world behavioral world behavioral health is 2% to3%, in Medicaid it is closer to 10%, given the nature of the people, a lot ofit is, people with behavioral illness cannot work and therefore it is causesthem to enter into Medicaid with a much bigger percentage. And you guys know the total dollars in Medicaid, I would say10% of that is our market and discount it for penetration assumptions.

Okay. Thanks.

Michael Yuan, of Banc of America you may ask your question.

Hi good morning guys I just had a question on TennCare. Iknow the Middle Region where you partnered with Blue Cross, Blue Shield, youbasically won on every metric except costs and that is because they weren'twilling to bid on a risk basis. With your new partner I know you are not discussing ordisclosing the name. Would you tell us whether they are willing to bid on fullrisk or not?

We’ve obviously as Steve talked about during his remarks, wehave talked to lots of different partners and obviously, we are intimatelyknowledgeable and familiar with what happened in the Middle. So honestly, it isnot fair for us to except comment on how a partner would bid or would thoughtbid. But it was clear to us what happened the first time aroundand what it takes to win and what we need to do. But let's leave it at that. Ithink we are all very aware of what happened and why, and we took that intoaccount as we chose a partner.

Great. Thank you.

Michael Baker of Raymond James you may ask your question.

This is Brian, in for Mike. I appreciate the detail on '08,guys. I just had a clarification question. You mentioned the segment profit for'08 should be a little softer versus '07. I was wondering to what extend youhave included the TennCare, are the east and west regions in on that?

Yes, we have assumed we will retain both of those for thefull year in that general guidance outlook that we gave.

In the form that we have today.

In the form that we have today, so we have assumed no changein '08.

Okay thank you.

At this time there are no further questions.

Great. I want to we are pretty proud we had a great quarter.Implementations are going well. We understand where there are operating deficienciesand we are quite focused on those and I appreciate everyone's interest on ourbalance sheet optimization. I know there are lots different points of view andwe are aggressively evaluate it go constantly. Thank you for that. Thank you for your continued interest inMagellan and we look forward in chatting with you in December when we talkabout 2008 guidance. Have a nice weekend.

Thank you for your participation. Your call has concluded.You may disconnect at this time.