--------------------------------------------------------------------------------
      As filed with the Securities and Exchange Commission on March 2, 2007

                                                 Registration No. 333-
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                         MAGELLAN HEALTH SERVICES, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                           58-1076937
(State or other jurisdiction of                           (I.R.S. employer
incorporation or organization)                           identification no.)

                                   55 NOD ROAD
                             AVON, CONNECTICUT 06001
                    (Address of principal executive offices)

             AMENDMENTS, DATED AS OF JANUARY 31, 2006, TO INCENTIVE
             STOCK OPTION AWARD AGREEMENTS BETWEEN NATIONAL IMAGING
           ASSOCIATES, INC. AND, SEPARATELY, JOHN DONAHUE, THOMAS DEHN
                              AND R. ROBERT LAGALIA

           STOCK OPTION AGREEMENTS AND NOTICES OF STOCK OPTION GRANT,
              DATED AS OF JANUARY 31, 2006, BETWEEN MAGELLAN HEALTH
            SERVICES, INC. AND, SEPARATELY, JOHN DONAHUE, THOMAS DEHN
                              AND R. ROBERT LAGALIA

           STOCK OPTION AGREEMENTS AND NOTICES OF STOCK OPTION GRANT,
           DATED JULY 31, 2006, BETWEEN MAGELLAN HEALTH SERVICES, INC.
             AND, SEPARATELY, GEORGE PETROVAS, ANDREW GELLMAN, KERRY
                            BRADLEY AND KJEL JOHNSON

            STOCK OPTION AGREEMENT AND NOTICE OF STOCK OPTION GRANT,
           DATED JULY 17, 2006, BETWEEN MAGELLAN HEALTH SERVICES, INC.
                               AND MICHAEL MAJERIK

            RESTRICTED STOCK UNIT AGREEMENT AND NOTICE OF RESTRICTED
             STOCK UNIT GRANT, DATED JULY 17, 2006, BETWEEN MAGELLAN
                    HEALTH SERVICES, INC. AND MICHAEL MAJERIK
                            (Full title of the plans)

                               DANIEL N. GREGROIRE
              SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
                         MAGELLAN HEALTH SERVICES, INC.
                                   55 NOD ROAD
                             AVON, CONNECTICUT 06001
                     (Name and address of agent for service)

                                 (860) 507-1900
          (Telephone number, including area code, of agent for service)

--------------------------------------------------------------------------------
                         CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
                                                      Proposed
Title of                              Proposed        maximum
securities           Amount to         maximum        aggregate     Amount of
  to be            be registered   offering price  offering price  registration
registered              (1)           per share          (2)           fee
----------              ---           ---------          ---           ---

Ordinary            52,066 (3)         $4.44         $231,174        $7.10
Common Stock,       23,160 (4)          $4.44         $102,831        $3.16
par value            7,834 (5)          $4.44          $34,783        $1.07
$0.01                5,441 (6)          $7.66          $41,679        $1.28
per share            6,746 (7)          $6.20          $41,826        $1.29
                     4,216 (8)          $6.20          $26,140         $.81
                    50,000 (9)         $36.29       $1,814,500       $55.71
                    20,000 (10)        $36.29         $725,800       $22.29
                    30,000 (11)        $36.29       $1,088,700       $33.43
                    30,000 (12)        $46.94       $1,408,200       $43.24
                    30,000 (13)        $46.94       $1,408,200       $43.24
                    20,000 (14)        $46.94         $938,800       $28.83
                    20,000 (15)        $46.94         $938,800       $28.83
                    37,500 (16)        $43.45       $1,629,375       $50.03
                     4,753 (17)        $42.12         $200,196        $6.15

    Total          341,716               N/A       $10,631,005      $326.46

(1)   Plus such indeterminate number of shares of Ordinary Common Stock, par
value $0.01 per share ("Ordinary Common Stock"), of Magellan Health Services,
Inc. ("Magellan") as may be issued to prevent dilution resulting from stock
dividends, stock splits or similar transactions in accordance with Rule 416
under the Securities Act of 1933, as amended (the "Securities Act").

(2)   Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (h) under the Securities Act, in the case of
restricted stock unit awards, based on the average of the high and low sales
prices per share of Ordinary Common Stock of Magellan as reported by the Nasdaq
National Market on February 28, 2007

(3)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to Amendments, dated as of January 31, 2006, to
Incentive Stock Option Award Agreements, dated as of July 1, 2003, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(4)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to Amendments, dated as of January 31, 2006, to
Incentive Stock Option Award Agreements, dated as of July 1, 2003, between
Thomas Dehn and National Imaging Associates, Inc. (as assumed by Magellan).

(5)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to the
Incentive Stock Option Award Agreement, dated as of July 1, 2003, between R.
Robert LaGalia and National Imaging Associates, Inc. (as assumed by Magellan).

(6)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to an
Incentive Stock Option Award Agreement, dated as of May 1, 2005, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(7)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to the
Incentive Stock Option Award Agreement, dated as of August 1, 2004, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(8)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to an
Incentive Stock Option Award Agreement, dated as of August 1, 2004, between
Thomas Dehn and National Imaging Associates, Inc. (as assumed by Magellan).


                                        2
<PAGE>

(9)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and John Donahue.

(10)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and Thomas Dehn.

(11)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and R. Robert LaGalia.

(12)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and George Petrovas.

(13)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and Andrew Gellman.

(14)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and Kerry Bradley.

(15)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued to Kjel Johnson pursuant to the Stock Option Agreement and Notice
of Stock Option Grant, dated as of July 31, 2006, between Magellan and Kjel
Johnson.

(16)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued to Michael Majerik pursuant to the Stock Option Agreement and
Notice of Stock Option Grant, dated as of July 17, 2006, between Magellan and
Michael Majerik.

(17)  Represents shares of Ordinary Common Stock issuable pursuant to restricted
stock unit awards issued pursuant to the Restricted Stock Unit Award Agreement
and Notice of Restricted Stock Unit Grant, dated as of July 17, 2006, between
Magellan and Michael Majerik.






                                       3
<PAGE>



      The Registrant has prepared this Registration Statement in accordance with
the requirements of Form S-8 under the Securities Act to register (i) sales of
up to 340,963 shares of Ordinary Common Stock pursuant to the exercise of
options issued pursuant to the plans referred to above and (ii) the issuance of
up to 4,753 shares of Ordinary Common Stock pursuant to the restricted stock
unit award previously issued to Michael Majerik (the "Selling Stockholder") upon
his employment with Magellan pursuant to the plan referred to above and the
resale of up to 4,753 shares of Ordinary Common Stock that are issuable pursuant
to such restricted stock unit award and (iii) such indeterminate number of other
shares of Ordinary Common Stock as may be issued in relation to such shares in
transactions referred to in Rule 416 under the Securities Act. Accordingly, this
Registration Statement also includes a reoffer prospectus that has been prepared
in accordance with the requirements of Part I of Form S-3 and, pursuant to
General Instruction C of Form S-8, may be used for reofferings and resales on a
continuous or delayed basis of the shares of Ordinary Common Stock that are
issuable pursuant to such restricted stock unit award and that are held by the
Selling Stockholder.

                                     PART I

              INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS

      The documents containing the information required by Part I of Form S-8
will be sent or given to plan participants as specified by Rule 428(b)(1) of the
Securities Act. Such documents are not required to be and are not filed with the
Securities and Exchange Commission (the "SEC") either as part of this
Registration Statement or as prospectuses or prospectus supplements pursuant to
Rule 424. These documents and the documents incorporated by reference in this
Registration Statement pursuant to Item 3 of Part II of this Form S-8, taken
together, constitute a prospectus that meets the requirements of Section 10(a)
of the Securities Act.

      Under the cover of this Form S-8 is a reoffer prospectus prepared in
accordance with the requirements of Part I of Form S-3. The reoffer prospectus
may be used for reofferings and resales on a continuous or delayed basis of
4,753 shares of Ordinary Common Stock that are issuable pursuant to a restricted
stock unit award and that are held by the Selling Stockholder.






                                       4
<PAGE>




                               REOFFER PROSPECTUS
                               ------------------

                         MAGELLAN HEALTH SERVICES, INC.

        4,753 SHARES OF ORDINARY COMMON STOCK, PAR VALUE $0.01 PER SHARE

      This prospectus is being used in connection with the offering from time to
time by the Selling Stockholder, or by his pledgees, donees, transferees or
other successors in interest, of shares of Ordinary Common Stock issuable
pursuant to a restricted stock unit grant to the Selling Stockholder in
connection with his employment by Magellan Health Services, Inc. We will not
receive any of the proceeds from any such offering.

      The prices at which the Selling Stockholder may sell the shares will be
determined by the prevailing market price for the shares at the time of sale or
through negotiated transactions with third parties.

      The registration statement of which this prospectus is a part permits the
Selling Stockholder to sell the shares from time to time in the public market.
The Selling Stockholder may sell Ordinary Common Stock through ordinary broker
transactions, directly to market makers of our shares, directly to third
parties, through underwriters in public offerings, or through other means
described in the section entitled "Plan of Distribution" beginning on page 19.

      Our Ordinary Common Stock became listed on the Nasdaq Stock Market under
the ticker symbol "MGLN" on January 6, 2004. The last reported sale price for
our Ordinary Common Stock on March 1, 2007 was $42.26 per share.

      INVESTING IN OUR ORDINARY COMMON STOCK INVOLVES RISKS. SEE THE SECTION
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 4.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

             The date of this prospectus is March 2, 2007.


                                        i
<PAGE>



                                TABLE OF CONTENTS
                                                                            PAGE

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................1

MAGELLAN HEALTH SERVICES, INC................................................1

RISK FACTORS.................................................................4

WHERE YOU CAN FIND MORE INFORMATION.........................................18

USE OF PROCEEDS.............................................................18

SELLING STOCKHOLDER.........................................................18

PLAN OF DISTRIBUTION........................................................19

LEGAL MATTERS...............................................................22

EXPERTS.....................................................................22

You should only rely on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. The Ordinary Common Stock is not being offered
in any state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of such document.

















                                       ii
<PAGE>



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This prospectus and the registration statement of which it forms a part
and the documents incorporated by reference into these documents contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. We use
words such as "anticipates," "believes," "plans," "expects," "future,"
"intends," "will," "foresee" and similar expressions to identify these
forward-looking statements. In addition, from time to time we or our
representatives have made or may make forward-looking statements orally or in
writing. Furthermore, such forward-looking statements may be included in various
submission or filings that we make with the SEC, or press releases or oral
statements made by or with the approval of one of our authorized officers. These
forward-looking statements are subject to certain known and unknown risks and
uncertainties, as well as assumptions, that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause actual results to differ include, but are not limited to, those
discussed in the section entitled "Risk Factors" beginning on page 4 of this
prospectus. Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which reflect management's opinions
only as of the date hereof. Except as required by law, Magellan Health Services,
Inc. ("Magellan") undertakes no obligation to revise or publicly release the
results of any revision to any forward-looking statements. You are advised,
however, to consult any additional disclosures we make in our reports to the SEC
on Forms 10-K, 10-Q and 8-K. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained in this
prospectus.

                         MAGELLAN HEALTH SERVICES, INC.

OUR BUSINESS

      The Company is engaged in the specialty managed healthcare business.
Through fiscal 2005, the Company predominantly operated in the managed
behavioral healthcare business. During fiscal 2006, the Company expanded into
radiology benefits management and specialty pharmaceutical management as a
result of its acquisitions of National Imaging Associates, Inc. ("NIA") and
ICORE Healthcare LLC ("ICORE"), respectively, as discussed further below. The
Company's business is divided into the following six segments, based on the
services it provides and/or the customers that it serves, as described below.

      Managed Behavioral Healthcare. The Company's managed behavioral healthcare
business is composed of three of the Company's segments, each as described
further below. This line of business generally reflects the Company's
coordination and management of the delivery of behavioral healthcare treatment
services that are provided through its contracted network of third-party
treatment providers, which includes psychiatrists, psychologists, other
behavioral health professionals, psychiatric hospitals, general medical
facilities with psychiatric beds, residential treatment centers and other
treatment facilities. The treatment services provided through the Company's
provider network include outpatient programs (such as counseling or therapy),
intermediate care programs (such as intensive outpatient programs and partial
hospitalization services), inpatient treatment and crisis intervention services.
The Company, however, generally does not directly provide, or own any provider
of, treatment services. The Company provides its management services primarily
through: (i) risk-based products, where the Company assumes all or a portion of
the responsibility for the cost of providing treatment services in exchange for
a fixed per member per month fee, (ii) administrative services only ("ASO")
products, where the Company provides services such as utilization review, claims




                                       1
<PAGE>



administration and/or provider network management, but does not assume
responsibility for the cost of the treatment services, and (iii) employee
assistance programs ("EAPs") where the Company provides short-term outpatient
counseling.

      The managed behavioral healthcare business is managed based on the
services provided and/or the customers served, through the following three
segments:

      HealthPlan. The Managed Behavioral Healthcare Health Plan segment ("Health
Plan") generally reflects managed behavioral healthcare services provided under
contracts with managed care companies, health insurers and other health plans.
Health Plan's contracts encompass either risk-based or ASO arrangements or both
and provide for service to the commercial, Medicaid and Medicare members of the
health plan. As of December 31, 2006, Health Plan's covered lives were 7.7
million, 0.2 million and 19.7 million for risk-based, EAP and ASO products,
respectively. For the year ended December 31, 2006, Health Plan's revenue was
$524.9 million, $0.9 million and $130.2 million for risk-based, EAP and ASO
products, respectively.

      Employer. The Managed Behavioral Healthcare Employer segment ("Employer")
generally reflects the provision of EAP services and managed behavioral
healthcare services under contracts with employers, including corporations and
governmental agencies, and labor unions. Employer contracts can be for either
EAP or managed behavioral health services or both. Employer contracts containing
provision of managed behavioral healthcare services can be risk-based or ASO but
currently are primarily ASO. As of December 31, 2006, Employer's covered lives
were 0.1 million, 13.6 million and 0.2 million for risk-based, EAP and ASO
products, respectively. For the year ended December 31, 2006, Employer's revenue
was $5.4 million, $106.9 million and $16.4 million for risk-based, EAP and ASO
products, respectively.

      Public Sector. The Managed Behavioral Healthcare Public Sector segment
("Public Sector") generally reflects managed behavioral healthcare services
provided to Medicaid recipients under contracts with state and local
governmental agencies. Public Sector contracts encompass either risk-based or
ASO arrangements. As of December 31, 2006, Public Sector's covered lives were
1.8 million and 0.2 million for risk-based and ASO products, respectively. For
the year ended December 31, 2006, Public Sector's revenue was $803.4 million and
$5.3 million for risk-based and ASO products, respectively.

      Risk contracts in the Public Sector segment generally have higher per
member premiums, cost and (to some degree) more volatility than risk contracts
in either the Health Plan or Employer segments due to the nature of populations,
benefits provided and other matters. See "Risk Factors--Dependence on Government
Spending for Managed Healthcare," "--Possible Impact of Healthcare Reform" and
"--Government Regulation."

      Radiology Benefits Management. The Company's Radiology Benefits Management
segment generally reflects the management of the delivery of diagnostic imaging
services to ensure that such services are clinically appropriate and cost
effective. The Company's radiology benefits management services are provided
through contracts with managed care companies, health insurers and other health
plans for commercial, Medicaid and Medicare members of the health plan as well
as to Medicaid recipients through a contract with a local governmental agency.
All of the Company's radiology benefit management contracts in 2006 were ASO
contracts, where the Company provides services such as utilization review and
claims administration, but does not assume responsibility for the cost of the
imaging services. The Company also offers its radiology benefits management
services through risk-based contracts, where the Company will assume all or a
portion of the responsibility for the cost of providing diagnostic imaging
services. The Company's Radiology Benefits Management segment managed the
benefits of approximately 17.3 million covered lives as of December 31, 2006.




                                       2
<PAGE>



      Specialty Pharmaceutical Management. The Company's Specialty
Pharmaceutical Management segment generally reflects the management of specialty
drugs used in the treatment of cancer, multiple sclerosis, hemophilia,
infertility, rheumatoid arthritis, chronic forms of hepatitis and other
diseases, under contracts in commercial, Medicare and Medicaid programs.
Specialty pharmaceutical drugs represent high-cost injectible, infused, oral, or
inhaled drugs which traditional retail pharmacies typically do not supply due to
their high cost, sensitive handling, and storage needs. The Company's specialty
pharmaceutical services include (i) the distribution of specialty pharmaceutical
drugs on behalf of health plans, (ii) administering on behalf of health plans
rebate agreements between health plans and pharmaceutical manufacturers, and
(iii) providing consulting services to health plans and pharmaceutical
manufacturers. The Company's Specialty Pharmaceutical Management segment had
contracts with 29 health plans, and 10 pharmaceutical manufacturers as of
December 31, 2006.

      Corporate and Other. This segment of the Company is comprised primarily of
operational support functions such as sales and marketing and information
technology, as well as corporate support functions such as executive, finance,
human resources and legal.


THIS OFFERING

      This reoffer prospectus relates to the possible sale of the shares
issuable pursuant to a Restricted Stock Unit Award that was granted to the
Selling Stockholder in connection with his employment with the Company.

OUR CORPORATE INFORMATION

      Magellan is a Delaware corporation. Our executive offices are located at
55 Nod Road, Avon, Connecticut 06001, our telephone number at that location is
(860) 507-1900, and our website can be accessed at www.magellanhealth.com.
Information contained in our website does not constitute part of this
prospectus.

     REFERENCES TO "COMPANY", "WE", "US" AND "OUR" IN THIS PROSPECTUS REFER
       TO MAGELLAN HEALTH SERVICES, INC., TOGETHER WITH ITS SUBSIDIARIES,
                     UNLESS THE CONTEXT REQUIRES OTHERWISE.




                                       3
<PAGE>




                                  RISK FACTORS

An investment in Ordinary Common Stock involves a high degree of risk. You
should carefully consider the following risk factors, together with all of the
other information included or incorporated by reference in this prospectus,
before you decide whether to purchase Magellan's Ordinary Common Stock. The
risks set out below are not the only risks we face. If any of the following
risks occur, our business, financial condition and results of operations could
be materially adversely affected. In such case, the trading price of Ordinary
Common Stock could decline, and you may lose all or part of your investment.

There are various factors that could adversely affect our business, financial
condition, prospects and results of operations.

RELIANCE ON CUSTOMER CONTRACTS--OUR INABILITY TO RENEW, EXTEND OR REPLACE
EXPIRING OR TERMINATED CONTRACTS COULD ADVERSELY AFFECT OUR LIQUIDITY,
PROFITABILITY AND FINANCIAL CONDITION.

      Substantially all of our net revenue is derived from contracts that may be
terminated immediately with cause and many, including some of our most
significant contracts, are terminable without cause by the customer upon notice
and the passage of a specified period of time (typically between 60 and 180
days), or upon the occurrence of certain other specified events. Our ten largest
customers accounted for 74.0 percent and 74.9 percent of our net revenue in the
fiscal years ended December 31, 2005 and 2006, respectively. Loss of all of
these contracts or customers would, and loss of any one of these contracts or
customers could, materially reduce our net revenue and have a material adverse
effect on our liquidity, profitability and financial condition.

      Managed Behavioral Healthcare

      Our contracts with TennCare and with subsidiaries of WellPoint each
generated revenues that exceeded, in the aggregate, ten percent of managed
behavioral healthcare net revenues, as well as our consolidated revenues, for
the years ended December 31, 2005 and 2006.

      Total revenue from our contracts with WellPoint was $202.2 million and
$200.2 million during the years ended December 31, 2005 and 2006, respectively.
Included in the revenue amount for the year ended December 31, 2006 is revenue
of $12.6 million from contracts NIA has with WellPoint.

      On September 6, 2006, we announced that we were notified by WellPoint of
its intent to terminate its contract with us for the management of behavioral
healthcare services for its commercial members in Indiana, Kentucky and Ohio
(the "Midwest contract"), effective March 31, 2007. The Midwest contract had
been set to expire on December 31, 2007; however, WellPoint notified us of its
intent to exercise its right under the Midwest contract to terminate without
cause with six months' notice. For the year ended December 31, 2006, the Midwest
contract generated revenue of $100.4 million. We have two other managed
behavioral healthcare contracts with WellPoint that generated revenue of $87.2
million for the year ended December 31, 2006. Each of these contracts has a term
expiring on December 31, 2007, neither contract has an early termination
provision similar to that contained in the Midwest contract and we have not
received notice of a change in the status of these contracts. The contracts with
respect to the management of radiology benefits through our NIA subsidiary are
unrelated to and unaffected by WellPoint's decision regarding behavioral
healthcare management for the Midwest contract.



                                       4
<PAGE>



      We provide managed behavioral healthcare services for TennCare, through
contracts held by two of our wholly-owned subsidiaries. TennCare has divided its
program into three regions, and our TennCare contracts, which extend through
September 30, 2007, currently encompass all of the TennCare membership for all
three regions. We recorded revenue of $432.7 million and $416.4 million during
the years ended December 31, 2005 and 2006, respectively, from our TennCare
contracts.

      On April 7, 2006, TennCare issued a Request for Proposals ("RFP") for the
management of the integrated delivery of behavioral and physical medical care to
TennCare enrollees in the Middle region by managed care organizations. On July
26, 2006, TennCare announced the two winning bidders to the RFP process, neither
of which had partnered with us, and a start date of April 1, 2007 at which time
our contracts with TennCare will be amended to remove the Middle region
enrollees. For the year ended December 31, 2006, revenue derived from TennCare
enrollees residing in the Middle region amounted to $152.0 million.

      We recorded net revenue from Aetna, Inc. ("Aetna") of $245.0 million for
the year ended December 31, 2005, which represented in excess of ten percent of
our managed behavioral healthcare net revenues for that period. Our contract
with Aetna terminated on December 31, 2005. During the year ended December 31,
2006, we recognized $6.2 million of revenue related to the performance of
one-time, transitional activities associated with the contract termination.

      Radiology Benefits Management and Specialty Pharmaceutical Management

      Included in our Radiology Benefits Management line of business are three
customers that each exceeded 10 percent of the net revenues for this line of
business for the year ended December 31, 2006. The three customers generated
$12.6 million, $5.2 million and $4.8 million, respectively, of the net revenues
for Radiology Benefits Management for the year ended December 31, 2006. The
second customer discussed above has contracts with us for three geographical
markets, and such customer has informed us that the contracts for two of these
markets, which generated revenue of $3.7 million for the year ended December 31,
2006, will terminate effective December 31, 2006.

      Included in our Specialty Pharmaceutical Management line of business are
three customers that each exceeded 10 percent of the net revenues for this line
of business for the year ended December 31, 2006. The three customers generated
$24.8 million, $11.7 million and $9.6 million, respectively, of the net revenues
for Specialty Pharmaceutical Management for the year ended December 31, 2006.

INTEGRATION OF COMPANIES ACQUIRED BY MAGELLAN--OUR PROFITABILITY COULD BE
ADVERSELY AFFECTED IF THE INTEGRATION OF COMPANIES ACQUIRED BY US, INCLUDING NIA
AND ICORE, IS NOT COMPLETED IN A TIMELY AND EFFECTIVE MANNER.

      One of our growth strategies is to make strategic acquisitions which are
complementary to our existing operations. NIA and ICORE are the first such
acquisitions completed by us. After we close on an acquisition, we must
integrate the acquired company into our polices, procedures and systems. Failure
to effectively integrate an acquired business could result in excessive costs
being incurred (i.e. a delay in obtaining targeted synergies), decreased
customer performance (which could result in contract penalties and/or
terminations), increased employee turnover, and lost sales opportunities.



                                       5
<PAGE>



CHANGES IN THE MEDICAL MANAGED CARE INDUSTRY--CERTAIN CHANGES IN THE BUSINESS
PRACTICES OF THIS INDUSTRY COULD NEGATIVELY IMPACT OUR RESOURCES, PROFITABILITY
AND RESULTS OF OPERATIONS.

      Substantially all of our Health Plan, Radiology Benefits Management and
Specialty Pharmaceutical Management segment net revenue is derived from
customers in the medical managed care industry, including managed care
companies, health insurers and other health plans. Some types of changes in this
industry's business practices could negatively impact us. For example, if our
managed care customers seek to provide services directly to their subscribers,
instead of contracting with us for such services, we could be adversely
affected. In this regard and as previously noted, Aetna and WellPoint had
decided to provide managed behavioral services directly to some or all of their
subscribers, which resulted in the December 31, 2005 termination of the Aetna
contract, and the proposed March 31, 2007 termination of the WellPoint Midwest
contract. In addition to Aetna and WellPoint, other managed care customers of
the Company did not renew all or part of their contracts with us during 2006,
and will instead provide managed behavioral healthcare services directly to
their subscribers. Other of our customers that are managed care companies could
also seek to provide services directly to their subscribers, rather than by
contracting with us for such services. In addition, we have a significant number
of contracts with Blue Cross Blue Shield plans and other regional health plans.
Consolidation of the healthcare industry through acquisitions and mergers could
potentially result in the loss of contracts for us. Any of these changes could
reduce our net revenue, and adversely affect our profitability and financial
condition.

CHANGES IN THE CONTRACTING MODEL FOR MEDICAID CONTRACTS--CERTAIN CHANGES IN THE
CONTRACTING MODEL USED BY STATES FOR MANAGED HEALTHCARE SERVICES CONTRACTS
RELATING TO MEDICAID LIVES COULD NEGATIVELY IMPACT OUR RESOURCES, PROFITABILITY
AND RESULTS OF OPERATIONS.

      Substantially all of our Public Sector segment net revenue is derived from
direct contracts that we have with state or county governments for the provision
of services to Medicaid enrollees. In addition to TennCare discussed above,
certain other states have recently contracted with managed care companies to
manage both the behavioral and physical medical care of its Medicaid enrollees.
If other governmental entities change the method for contracting for Medicaid
business to a fully integrated model, we will attempt to subcontract with the
managed care organizations to provide behavioral healthcare management for such
Medicaid business; however, there is no assurance that we would be able to
secure such arrangements. Accordingly, if such a change in the contracting model
were to occur, it is possible that we could lose current contracted revenues, as
well as be unable to bid on potential new business opportunities, thus
negatively impacting our profitability and financial condition.

RISK-BASED PRODUCTS--BECAUSE WE PROVIDE SERVICES AT A FIXED FEE, IF WE ARE
UNABLE TO ACCURATELY PREDICT AND CONTROL HEALTHCARE COSTS, OUR PROFITABILITY
COULD DECLINE.

      We derive our net revenue primarily from arrangements under which we
assume responsibility for costs of treatment services (excluding at present the
cost of pharmaceuticals or other medication) in exchange for a fixed fee. We
refer to such arrangements as "risk-based contracts" or "risk-based products,"
which includes EAP services. These arrangements provided 82.8 percent and 85.3
percent of our net revenue in the fiscal years ended December 31, 2005 and 2006,
respectively.

      Furthermore, with respect to radiology benefits management, we believe
that we are positioned to accelerate the growth of NIA by expanding NIA's
current product offering into risk-based products. We believe that we can


                                       6
<PAGE>



leverage our information systems, call center, claims and network infrastructure
as well as its financial strength and underwriting expertise to facilitate the
development of a risk-based RBM product offering. In December 2006, we announced
that we had entered into our first risk based contract, which will begin in
2007.

      Profitability of our risk contracts could be reduced if we are unable to
accurately estimate the rate of service utilization by members or the cost of
such services when we price our services. Our assumptions of these costs when we
price our services may not ultimately reflect actual utilization rates and
costs, many aspects of which are beyond our control. If the cost of services
provided to members under a contract together with the administrative costs
exceeds the aggregate fees received by us under such contract, we incur a loss
on the contract.

      Our profitability could also be reduced if we are required to make
adjustments to estimates made in reporting historical financial results,
particularly those regarding cost of care, reflected in our financial statements
as medical claims payable. Medical claims payable includes reserves for incurred
but not reported ("IBNR") claims, which are claims for covered services rendered
by our providers which have not yet been submitted to us for payment. We
estimate and reserve for IBNR claims based on past claims payment experience,
including the average interval between the date services are rendered and the
date the claims are received and between the date services are rendered and the
date claims are paid, enrollment data, utilization statistics, adjudication
decisions, authorized healthcare services and other factors. This data is
incorporated into contract-specific reserve models. The estimates for submitted
claims and IBNR claims are made on an accrual basis and adjusted in future
periods as required. Neither we nor NIA currently possess any experience related
to underwriting risk-based RBM products. If such risk-based RBM products are not
correctly underwritten, our profitability and financial condition could be
adversely affected.

      Factors that affect our ability to price our services, control our costs
or accurately make estimates of IBNR claims and other expenses for which we
create reserves may include changes in our assumptions for medical costs caused
by changes in actual experience including:

o   changes in the delivery system;

o   changes in utilization patterns;

o   changes in the number of members seeking treatment;

o   unforeseen fluctuations in claims backlogs;

o   increases in the costs of the services;

o   the occurrence of catastrophes;

o   regulatory changes;

o   changes in benefit plan design; and

o   implementation of new products by us

      If our membership in risk-based business continues to grow (which is a
major focus of our strategy), our exposure to potential losses from risk-based
products will also increase.



                                       7
<PAGE>



FLUCTUATION IN OPERATING RESULTS--WE EXPERIENCE FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS AND, AS A CONSEQUENCE, WE MAY FAIL TO MEET OR EXCEED MARKET
EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

      Our quarterly operating results have varied in the past and may fluctuate
significantly in the future due to seasonal and other factors, including:

o   changes in utilization levels by enrolled members of our risk-based
    contracts, including seasonal utilization patterns (for example, members
    generally tend to seek services less during the third and fourth quarters of
    the year than in the first and second quarters of the year);

o   performance-based contractual adjustments to net revenue, reflecting
    utilization results or other performance measures;

o   changes in estimates for contractual adjustments under commercial contracts;

o   retrospective membership adjustments;

o   the timing of implementation of new contracts and enrollment changes; and

o   changes in estimates regarding medical costs and IBNR claims.

      These factors may affect our quarterly and annual net revenue, expenses
and profitability in the future and, accordingly, we may fail to meet market
expectations, which could cause our stock price to decline.

DEPENDENCE ON GOVERNMENT SPENDING--WE CAN BE ADVERSELY AFFECTED BY CHANGES IN
FEDERAL, STATE AND LOCAL HEALTHCARE POLICIES.

      All of our Public Sector segment net revenue and a portion of our net
revenue in our other two managed behavioral healthcare segments, and the
Radiology Benefits Management segment and the Specialty Pharmaceutical
Management segment are derived, directly or indirectly, from governmental
agencies, including state Medicaid programs. Contract rates vary from state to
state, are subject to periodic negotiation and may limit our ability to maintain
or, increase rates. We are unable to predict the impact on our operations of
future regulations or legislation affecting Medicaid programs, or the healthcare
industry in general, and future regulations or legislation may have a material
adverse effect on us. Moreover, any reduction in government spending for such
programs could also have a material adverse effect on us (See "Reliance on
Customer Contracts"). In addition, our contracts with federal, state and local
governmental agencies, under both direct contract and subcontract arrangements,
generally are conditioned upon financial appropriations by one or more
governmental agencies, especially in the case of state Medicaid programs. These
contracts generally can be terminated or modified by the customer if such
appropriations are not made. Finally, some of our contracts with federal, state
and local governmental agencies, under both direct contract and subcontract
arrangements, require us to perform additional services if federal, state or
local laws or regulations imposed after the contract is signed so require, in
exchange for additional compensation to be negotiated by the parties in good
faith. Government and other third-party payors generally seek to impose lower
contract rates and to renegotiate reduced contract rates with service providers
in a trend toward cost control.



                                       8
<PAGE>



RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR DEBT
AGREEMENTS LIMIT OUR OPERATING AND FINANCIAL FLEXIBILITY. THESE RESTRICTIONS MAY
ADVERSELY AFFECT OUR ABILITY TO FINANCE OUR FUTURE OPERATIONS OR CAPITAL NEEDS
OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE IN OUR INTEREST.

      Our credit agreement with Deutsche Bank dated January 5, 2004, as amended
(the "Credit Agreement"), contains a number of covenants. These covenants limit
our management's discretion in operating our business by restricting or limiting
our ability, among other things, to:

o   incur or guarantee additional indebtedness or issue preferred or redeemable
    stock;

o   pay dividends and make other distributions;

o   repurchase equity interests;

o   make certain advances, investments and loans;

o   enter into sale and leaseback transactions;

o   create liens;

o   sell and otherwise dispose of assets;

o   acquire or merge or consolidate with another company; and

o   enter into some types of transactions with affiliates.

      These restrictions could adversely affect our ability to finance future
operations or capital needs or engage in other business activities that may be
in our interest. The Credit Agreement also requires us to comply with specified
financial ratios and tests. Failure to do so, unless waived by the lenders under
the Credit Agreement, pursuant to its terms, would result in an event of default
under the Credit Agreement. The Credit Agreement is guaranteed by most of our
subsidiaries and is secured by most of our assets and our subsidiaries' assets.

REQUIRED ASSURANCES OF FINANCIAL RESOURCES--OUR LIQUIDITY, FINANCIAL CONDITION,
PROSPECTS AND PROFITABILITY CAN BE ADVERSELY AFFECTED BY PRESENT OR FUTURE STATE
REGULATIONS AND CONTRACTUAL REQUIREMENTS THAT WE PROVIDE FINANCIAL ASSURANCE OF
OUR ABILITY TO MEET OUR OBLIGATIONS.

      Some of our contracts and certain state regulations require us or certain
of our subsidiaries to maintain specified cash reserves or letters of credit
and/or to maintain certain minimum tangible net equity in certain of our
subsidiaries as assurance that we have financial resources to meet our
contractual obligations. Many of these state regulations also restrict the
investment activity of certain of our subsidiaries. Some state regulations also
restrict the ability of certain of our subsidiaries to pay dividends to us.
Additional state regulations could be promulgated that would increase the cash
or other security we would be required to maintain. In addition, our customers
may require additional restricted cash or other security with respect to our
obligations under our contracts, including our obligation to pay IBNR claims and
other medical claims not yet processed and paid. In addition, certain of our
contracts and state regulations limit the profits that we may earn on risk-based
business. Our liquidity, financial condition, prospects and profitability could



                                       9
<PAGE>



be adversely affected by the effects of such regulations and contractual
provisions.

COMPETITION--THE COMPETITIVE ENVIRONMENT IN THE SPECIALTY MANAGED HEALTHCARE
INDUSTRY MAY LIMIT OUR ABILITY TO MAINTAIN OR INCREASE OUR RATES, WHICH WOULD
LIMIT OR ADVERSELY AFFECT OUR PROFITABILITY, AND ANY FAILURE IN OUR ABILITY TO
RESPOND ADEQUATELY MAY ADVERSELY AFFECT OUR ABILITY TO MAINTAIN CONTRACTS OR
OBTAIN NEW CONTRACTS.

      Our business is highly competitive. We compete with other healthcare
organizations as well as with insurance companies, including HMOs, PPOs, TPAs,
IPAs, multi-disciplinary medical groups, PBMs and other specialty healthcare and
managed care companies. Many of our competitors, particularly certain insurance
companies, HMOs and PBMs are significantly larger and have greater financial,
marketing and other resources than us, which can create downward pressure on
prices through economies of scale. The entrance or expansion of these larger
companies in the specialty managed healthcare industry (including our customers
who have insourced or who may choose to insource healthcare services) could
increase the competitive pressures we face and could limit our ability to
maintain or increase our rates. If this happens, our profitability could be
adversely affected. In addition, if we do not adequately respond to these
competitive pressures, it could cause us to not be able to maintain its current
contracts or to not be able to obtain new contracts.

POSSIBLE IMPACT OF HEALTHCARE REFORM--HEALTHCARE REFORM CAN SIGNIFICANTLY REDUCE
OUR REVENUES OR PROFITABILITY.

      The U.S. Congress and certain state legislatures are considering
legislation that, among other things, would limit healthcare plans and methods
of operations, limit employers' and healthcare plans' ability to define medical
necessity, permit employers and healthcare plans to be sued in state courts for
coverage determinations, provide universal health insurance at the state level,
provide for minimum medical loss ratios, and otherwise affect health care
insurance and managed care. It is uncertain whether we could recoup, through
higher revenues or other measures, the increased costs of federal or state
mandated benefits or other increased costs caused by such legislation or similar
legislation. Other federal or state changes in law regarding managed care or
universal health insurance coverage could also have adverse consequences for our
business. In addition, if any federal parity legislation is adopted and the
difference in coverage limits for mental health coverage and medical health
coverage is reduced or eliminated, any increase in net revenue we derive
following such legislation may not be sufficient to cover the increase in costs
that would result from a greater utilization of mental healthcare services. We
cannot predict the effect of this legislation or other legislation that may be
adopted by Congress or by the states, and such legislation, if implemented,
could have an adverse effect on us.

GOVERNMENT REGULATION--WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION AND
SCRUTINY, WHICH INCREASES OUR COSTS OF DOING BUSINESS AND COULD ADVERSELY AFFECT
OUR PROFITABILITY.

      The specialty managed healthcare industry and the provision of specialty
managed healthcare are subject to extensive and evolving federal and state
regulation. Such laws and regulations cover, but are not limited to, matters
such as licensure, accreditation, government healthcare program participation
requirements, information privacy and security, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Our specialty
pharmaceutical management business is also the subject of substantial federal
and state governmental regulation and scrutiny. Government investigations and
allegations have become more frequent concerning possible violations of fraud


                                       10
<PAGE>



and abuse and false claims statutes and regulations by healthcare organizations.
Violators may be excluded from participating in government healthcare programs,
subject to fines or penalties or required to repay amounts received from the
government for previously billed services. A violation of such laws and
regulations may have a material adverse effect on us.

      We are subject to certain state laws and regulations and federal laws as a
result of our role in management of customers' employee benefit plans.

      Regulatory issues may also affect our operations including, but not
limited to:

o   additional state licenses that may be required to conduct our businesses,
    including utilization review and TPA activities;

o   limits imposed by state authorities upon corporations' control or excessive
    influence over managed healthcare services through the direct employment of
    physicians, psychiatrists, psychologists or other professionals, and
    prohibiting fee splitting;

o   laws that impose financial terms and requirements on us due to our
    assumption of risk under contracts with licensed insurance companies or
    HMOs;

o   laws in certain states that impose an obligation to contract with any
    healthcare provider willing to meet the terms of our contracts with similar
    providers;

o   maintaining confidentiality of patient information; and

o   complying with HIPAA within the imposed deadlines.

      The imposition of additional licensing and other regulatory requirements
may, among other things, increase our equity requirements, increase the cost of
doing business or force significant changes in our operations to comply with
these requirements.

      The costs associated with compliance with government regulation as
discussed above may adversely affect our financial condition and results of
operations.

WE FACE ADDITIONAL REGULATORY RISKS ASSOCIATED WITH OUR SPECIALTY PHARMACEUTICAL
MANAGEMENT SEGMENT WHICH COULD SUBJECT US TO ADDITIONAL REGULATORY SCRUTINY AND
LIABILITY AND WHICH COULD ADVERSELY AFFECT THE PROFITABILITY OF THE SPECIALTY
PHARMACEUTICAL MANAGEMENT SEGMENT IN THE FUTURE.

      With our acquisition of ICORE, additional federal and state regulations
became applicable to us. Various aspects of our Specialty Pharmaceutical
Management segment are governed by federal and state laws and regulations not
previously applicable to us or which may now be applicable in different ways.
Significant sanctions may be imposed for violations of these laws and compliance
programs are a significant operational requirement of our business. There are
significant uncertainties involving the application of many of these legal
requirements to us. Accordingly, we may be required to incur additional
administrative and compliance expenses in determining the applicable
requirements and in adapting our compliance practices, or modifying our business
practices, in order to satisfy changing interpretations and regulatory policies.
In addition, there are numerous proposed health care laws and regulations at the
federal and state levels, many of which, if adopted, could adversely affect our
business.


                                       11
<PAGE>


      Federal Anti-Remuneration/Fraud And Abuse Laws.

      The federal healthcare Anti-Kickback Statute prohibits, among other
things, an entity from paying or receiving, subject to certain exceptions and
"safe harbors," any remuneration, directly or indirectly, to induce the referral
of individuals covered by federally funded health care programs, or the
purchase, or the arranging for or recommending of the purchase, of items or
services for which payment may be made in whole, or in part, under Medicare,
Medicaid, TRICARE or other federally funded health care programs. Sanctions for
violating the Anti-Kickback Statute may include imprisonment, criminal and civil
fines and exclusion from participation in the federally funded health care
programs. The Anti-Kickback Statute has been interpreted broadly by courts, the
OIG within DHHS, and other administrative bodies. It also is a crime under the
Public Contractor Anti-Kickback Statute, for any person to knowingly and
willfully offer or provide any remuneration to a prime contractor to the United
States, including a contractor servicing federally funded health programs, in
order to obtain favorable treatment in a subcontract. Violators of this law also
may be subject to civil monetary penalties.

      In April 2003, the OIG published Compliance Guidance. The Compliance
Guidance is voluntary and is directly aimed at the compliance efforts of
pharmaceutical manufacturers. This Compliance Guidance highlights several
transactions as potential "risks," including transactions and relationships with
PBMs, some of which are similar to transactions and/or relationships that we
entered into with its customers. As pharmaceutical manufacturers' business
practices evolve in compliance with the Compliance Guidelines, our relationships
with pharmaceutical manufacturers may be adversely affected.

      Federal Statutes Prohibiting False Claims.

      The Federal False Claims Act imposes civil penalties for knowingly making
or causing to be made false claims with respect to governmental programs, such
as Medicare and Medicaid, for services not rendered, or for misrepresenting
actual services rendered, in order to obtain higher reimbursement. Private
individuals may bring qui tam or whistle blower suits against providers under
the Federal False Claims Act, which authorizes the payment of a portion of any
recovery to the individual bringing suit. A few federal district courts recently
have interpreted the Federal False Claims Act as applying to claims for
reimbursement that violate the Anti-Kickback Statute under certain
circumstances. The Federal False Claims Act generally provides for the
imposition of civil penalties and for treble damages, resulting in the
possibility of substantial financial penalties for small billing errors.
Criminal provisions that are similar to the Federal False Claims Act provide
that a corporation may be fined if it is convicted of presenting to any federal
agency a claim or making a statement that it knows to be false, fictitious or
fraudulent. While we do not directly provide services to beneficiaries of
federally funded health programs and, accordingly, do not directly submit claims
to the federal government, we do provide services to federal government
contractors, such as Part D Plans, and it is possible that we could nevertheless
become involved in a situation where false claim issues are raised based on
allegations that we caused or assisted a government contractor in making a false
claim.

      Medicare Prescription Drug Improvement, and Modernization Act of 2003.

      The MMA that took effect on January 1, 2006, among other things, created a
new voluntary outpatient prescription drug benefit for Medicare enrollees on an
insured basis through PDPs, and by Medicare Advantage Plans, in various regions
across the United States. Among other things, PDPs and Medicare Advantage Plans
are subject to provisions of the MMA intended to deter fraud, waste and abuse
and are monitored strictly by CMS and its contracted MEDICs to ensure that Part


                                       12
<PAGE>

D program funds are not spent inappropriately. If CMS determines that we have
not performed satisfactorily as a subcontractor, CMS may request a PDP or a
Medicare Advantage Plan customer of ours to revoke its Part D activities or
responsibilities under the subcontract. The practices that are subject to
regulation under these provisions are evolving and future applications or
interpretations of these provisions could adversely affect our operations.

      FDA Regulation.

      The FDA generally has authority to regulate drug promotional materials
that are disseminated "by or on behalf of" a drug manufacturer. Our business
includes the provision of educational seminars for prescribers and other of our
customers on behalf of manufacturer clients and thus is subject to the federal
laws applicable to the promotion of prescription drugs.

      State Anti-Remuneration/False Claims Laws.

      Several states have laws and/or regulations similar to the federal
anti-remuneration and Federal False Claims Act described above. Sanctions for
violating these state anti-remuneration and false claims laws may include
injunction, imprisonment, criminal and civil fines and exclusion from
participation in the state Medicaid programs.

      State Comprehensive PBM Regulation.

      States continue to introduce broad legislation to regulate PBM activities.
Some of this legislation would encompass our activities. In particular, such
legislation seeks to impose fiduciary duties or disclosure obligations on
entities that provide certain types of pharmacy management services. Both Maine
and the District of Columbia have enacted statutes imposing fiduciary
obligations on entities providing pharmacy management services. Regulation of
this nature could adversely affect the services we provide our customers.

      State Legislation Affecting Plan Or Benefit Design.

      Some states have enacted legislation that prohibits certain types of
managed care plan sponsors from implementing certain restrictive formulary and
network design features, and many states have legislation regulating various
aspects of managed care plans, including provisions relating to the pharmacy
benefits. Other states mandate coverage of certain benefits or conditions and
require health plan coverage of specific drugs, if deemed medically necessary by
the prescribing physician. Such legislation does not generally apply to us
directly, but may apply to certain or our clients, such as HMOs and health
insurers. If legislation of this nature were to become widely adopted and were
applied to services we provide, it could have the effect of limiting the
economic benefits achievable by our customers through the use of our services,
adversely affecting the demand for our services.

      Legislation Affecting Drug Prices.

      Under MMA, Part B drugs generally are reimbursed on an ASP methodology.
This ASP methodology may create an incentive for some drug manufacturers to
reduce the levels of discounts or rebates available to purchasers, including us,
or their clients with respect to Medicare Part B drugs.

      The federal Medicaid rebate statute provides that pharmaceutical
manufacturers of brand-name outpatient prescription drugs must provide the
Medicaid program a rebate in accordance with certain requirements.


                                       13
<PAGE>



Investigations have been commenced by certain government agencies which question
whether Medicaid rebates were properly calculated in accordance with such
requirements, reported and paid by the manufacturers to the Medicaid programs.
We are not responsible for such calculations, reports or payments. Some
pharmaceutical manufacturers may view the Medicaid rebate statute and/or the
associated investigations as a disincentive to offer rebates and discounts to
private parties, including in the context of our business.

      Regulations Affecting Our Pharmacies.

      We own two mail order pharmacies that provide services to certain of our
health plan customers. The activities undertaken by our pharmacies subject the
pharmacies to state and federal statutes and regulations governing, among other
things, the licensure and operation of mail order and non-resident pharmacies,
repackaging of drug products, stocking of prescription drug products and
dispensing of prescription drug products, including controlled substances. Our
pharmacy facilities are located in Florida and New York and are duly licensed to
conduct business in those states. Many states, however, require out-of-state
mail order pharmacies to register with or be licensed by the state board of
pharmacy or similar governing body when pharmaceuticals are delivered by mail
into the state and some states require that an out-of-state pharmacy employ a
pharmacist that is licensed in the state into which pharmaceuticals are shipped.
Additional regulation of this nature may require us to expend additional funds
to satisfy such regulatory requirements and could make it impractical for us to
undertake certain business opportunities we may otherwise be interested in
pursuing.

      Regulation of Controlled Substances.

      Our pharmacies must register with the DEA and individual state controlled
substance authorities in order to dispense controlled substances. Federal law
requires us to comply with the DEA's security, recordkeeping, inventory control,
and labeling standards in order to dispense controlled substances. State
controlled substance law requires registration and compliance with state
pharmacy licensure, registration or permit standards promulgated by the state
pharmacy licensing authority.

      Some of the state regulatory requirements described above may be preempted
in whole or in part by ERISA, which provides for comprehensive federal
regulation of employee benefit plans. However, the scope of ERISA preemption is
uncertain and is subject to conflicting court rulings. As a result, we could be
subject to overlapping federal and state regulatory requirements in respect of
certain of our operations and may need to implement compliance programs that
satisfy multiple regulatory regimes.

      Other.

      Most of our distribution contracts with our customers use "average
wholesale price" ("AWP") as a benchmark for establishing pricing. As part of a
proposed settlement in the case of New England Carpenters Health Benefit Fund,
et. al. v. First Data Bank, et. al., Civil Action No. 1:05-CV-11148-PBS (D.
Mass.), a case brought against First Data Bank, one of several companies that
report data on prescription drug prices, First Data Bank has agreed to reduce
the AWP of over 8,000 specific pharmaceutical products by four percent. The
proposed settlement has received preliminary but not final approval of the
court, and we cannot predict whether or when the court will grant final approval
of the settlement or the timing of any changes to the AWP.



                                       14
<PAGE>



      In the absence of any action on our part to renegotiate with our customers
the pricing of those pharmacy distribution contracts that use AWP, the proposed
reduction in First Data Bank's AWP could adversely affect the margin earned on
those distribution contracts that use AWP, however it is not expected to have a
material adverse affect on our results of operations.

RISKS RELATED TO REALIZATION OF GOODWILL AND INTANGIBLE ASSETS--OUR
PROFITABILITY COULD BE ADVERSELY AFFECTED IF THE VALUE OF INTANGIBLE ASSETS IS
NOT FULLY REALIZED.

      Our total assets at December 31, 2006 reflect goodwill of approximately
$374.4 million, representing approximately 31.0 percent of total assets. There
can be no assurance that such goodwill or intangible assets will be realizable.
We completed our annual impairment analysis of goodwill as of October 1, 2006
noting that the fair value exceeded the associated carrying value; therefore, no
impairment was recorded.

      At December 31, 2006, identifiable intangible assets (customer lists,
contracts and provider networks) totaled approximately $75.4 million. Intangible
assets are amortized over their estimated useful lives, which range from
approximately three to sixteen years. The amortization periods used may differ
from those used by other entities. In addition, we may be required to shorten
the amortization period for intangible assets in future periods based on changes
in our business. We may not ever realize the value of such assets.

      We evaluate, on a regular basis, whether for any reason the carrying value
of our intangible assets and other long-lived assets may no longer be completely
recoverable, in which case a charge to earnings for impairment losses could
become necessary. When events or changes in circumstances occur that indicate
the carrying amount of long-lived assets may not be recoverable, we assess the
recoverability of long-lived assets other than goodwill by determining whether
the carrying value of such intangible assets will be recovered through the
future cash flows expected from the use of the asset and its eventual
disposition.

      Any event or change in circumstances leading to a future determination
requiring additional write-offs of a significant portion of unamortized
intangible assets or goodwill would adversely affect our profitability.

RISK OF POTENTIAL LIMITATION OF OUR NET OPERATING LOSS CARRYFORWARDS ("NOLS") --
CERTAIN FUTURE CHANGES IN THE COMPOSITION OF OUR STOCKHOLDER POPULATION COULD,
IN CERTAIN CIRCUMSTANCES, LIMIT OUR ABILITY TO USE OUR NOLS.

      We estimate that, as of December 31, 2006, we had reportable federal NOLs
of approximately $357.8 million. These NOLs expire in 2011 through 2025 and are
subject to examination and adjustment by the IRS. In addition, our utilization
of these NOLs became subject to limitation under Internal Revenue Code section
382 ("Section 382") upon emergence from bankruptcy, which affects the timing of
the use of NOLs. At this time, we do not believe these limitations will
materially limit our ability to use any NOLs before they expire.

      The limitations imposed by Section 382 provide that a corporation that
undergoes an "ownership change" may generally thereafter only utilize its
pre-change losses (including, in some cases, certain so-called "built-in" losses
that have not yet been recognized for federal income tax purposes) to offset a
fixed amount of taxable income per year. A corporation generally undergoes an
ownership change if the percentage of stock of the corporation owned by one or
more 5% shareholders has increased by more than 50 percentage points over, at
most, a three-year period (with certain groups of less-than-5% shareholders
treated as a single shareholder for this purpose). We underwent such an


                                       15
<PAGE>



ownership change upon consummation of its reorganization in January 2004.
Subsequent changes in our stock ownership, including other sales of our common
stock by 5% shareholders, certain purchases that result in 5% or greater
ownership of our common stock, certain changes in the indirect beneficial
ownership of our common stock, and issuances or redemptions of common stock by
us, could result in another ownership change that would trigger an additional
Section 382 limitation.

      The application of another Section 382 limitation on our federal NOLs as a
result of future ownership changes could reduce the amount of such NOLs we could
utilize in a year, and thereby have an adverse effect on our anticipated future
cash flow, if, for example, the fair market value of our stock were to decline
significantly prior to such ownership change. In general, the amount of the
annual limitation to which a corporation's pre-change losses are subject
following an ownership change is equal to the product of (1) the fair market
value of the corporation's stock immediately before the ownership change
(subject to certain reductions) multiplied by (2) the "long-term tax-exempt
rate" in effect for the month in which the ownership change occurs. In certain
circumstances, the annual limitation for a particular year may be increased due
to the subsequent recognition of so-called "built-in" gains that existed at the
time of the ownership change. Any unused limitation may be carried forward,
thereby increasing the annual limitation in the subsequent taxable year.
However, if we did not continue our historic business or use a significant
portion of our assets in a new business for two years after the ownership
change, the resulting annual limitation would be reduced, possibly to zero.

CLAIMS FOR PROFESSIONAL LIABILITY--PENDING OR FUTURE ACTIONS OR CLAIMS FOR
PROFESSIONAL LIABILITY (INCLUDING ANY ASSOCIATED JUDGMENTS, SETTLEMENTS, LEGAL
FEES AND OTHER COSTS) COULD REQUIRE US TO MAKE SIGNIFICANT CASH EXPENDITURES AND
CONSUME SIGNIFICANT MANAGEMENT TIME AND RESOURCES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR PROFITABILITY AND FINANCIAL CONDITION.

      Management and administration of the delivery of specialty managed
healthcare, and the direct provision of healthcare treatment services, entail
significant risks of liability. In recent years, participants in the specialty
managed healthcare industry have become subject to an increasing number of
lawsuits. From time to time, we are subject to various actions and claims of
professional liability alleging negligence in performing utilization review
activities, as well as for the acts or omissions of our employees, network
providers or others. In the normal course of business, we receive reports
relating to deaths and other serious incidents involving patients enrolled in
our programs. Such incidents occasionally give rise to malpractice, professional
negligence and other related actions and claims against us or our network
providers. We are also subject to actions and claims for the costs of services
for which payment was denied. Many of these actions and claims seek substantial
damages and require us to incur significant fees and costs related to our
defense and consume significant management time and resources, which could have
a material adverse effect on our profitability and financial condition.

PROFESSIONAL LIABILITY AND OTHER INSURANCE--CLAIMS BROUGHT AGAINST US THAT
EXCEED THE SCOPE OF OUR LIABILITY COVERAGE OR DENIAL OF COVERAGE COULD
MATERIALLY AND ADVERSELY AFFECT OUR PROFITABILITY AND FINANCIAL CONDITION.

      We maintain a program of insurance coverage against a broad range of risks
in our business. As part of this program of insurance, we carry professional
liability insurance, subject to certain deductibles and self-insured retentions.
We are also sometimes required by customer contracts to post surety bonds with
respect to our potential liability on professional responsibility claims that
may be asserted in connection with services we provide. As of December 3l, 2006,


                                       16
<PAGE>



we had approximately $6.2 million of such bonds outstanding. Our insurance may
not be sufficient to cover any judgments, settlements or costs relating to
present or future claims, suits or complaints. Upon expiration of our insurance
policies, sufficient insurance may not be available on favorable terms, if at
all. To the extent our customers are entitled to indemnification under their
contracts with us relating to liabilities they incur arising from the operation
of our programs, such indemnification may not be covered under our insurance
policies. To the extent that certain actions and claims seek punitive and
compensatory damages arising from our alleged intentional misconduct, such
damages, if awarded, may not be covered, in whole or in part, by our insurance
policies. We also have potential liability relating to the self-insurance
program we maintained previously with respect to our provider business. If we
are unable to secure adequate insurance in the future, or if the insurance we
carry is not sufficient to cover any judgments, settlements or costs relating to
any present or future actions or claims, such judgments, settlements or costs
may have a material adverse effect on our profitability and financial condition.
If we are unable to obtain needed surety bonds in adequate amounts or make
alternative arrangements to satisfy the requirements for such bonds, we may no
longer be able to operate in those states, which would have a material adverse
effect on us.

CLASS ACTION SUITS AND OTHER LEGAL PROCEEDINGS--WE COULD BE TARGETED BY CLASS
ACTION AND OTHER LAWSUITS THAT COULD RESULT IN MATERIAL LIABILITIES TO US OR
CAUSE US TO INCUR MATERIAL COSTS, TO CHANGE OUR OPERATING PROCEDURES IN WAYS
THAT INCREASE COSTS OR TO COMPLY WITH ADDITIONAL REGULATORY REQUIREMENTS.

      Managed healthcare companies and PBM companies have been targeted as
defendants in national class action lawsuits regarding their business practices.
We have in the past been subject to such class actions as defendants and is also
subject to other lawsuits and legal proceedings in conducting our business.
These lawsuits may take years to resolve and cause us to incur substantial
litigation expenses and the outcomes could have a material adverse effect on our
profitability and financial condition. In addition to potential damage awards,
depending upon the outcomes of such cases, these lawsuits may cause or force
changes in practices of our industry and may also cause additional regulation of
the industry through new federal or state laws or new applications of existing
laws or regulations. Such changes could increase our operating costs.

GOVERNMENT INVESTIGATIONS--WE MAY BE SUBJECTED TO ADDITIONAL REGULATORY
REQUIREMENTS AND TO INVESTIGATIONS OR REGULATORY ACTION BY GOVERNMENTAL
AGENCIES, EACH OF WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      From time to time, we receive notifications from and engage in discussions
with various government agencies concerning our businesses and operations. As a
result of these contacts with regulators, we may, as appropriate, be required to
implement changes to our operations, revise our filings with such agencies
and/or seek additional licenses to conduct our business. Our inability to comply
with the various regulatory requirements may have a material adverse effect on
our business.

      In addition, we may become subject to regulatory investigations relating
to our business, which may result in litigation or regulatory action. A
subsequent legal liability or a significant regulatory action against us could
have a material adverse effect on our business, financial condition and results
of operations. Moreover, even if we ultimately prevail in the litigation,
regulatory action or investigation, such litigation, regulatory action or
investigation could have a material adverse effect on our business, financial
condition and results of operations.





                                       17
<PAGE>



                       WHERE YOU CAN FIND MORE INFORMATION

      The documents incorporated by reference into this prospectus are available
from us upon request. We will provide a copy of any and all of the information
that is incorporated by reference in this prospectus, without charge, upon
written or oral request.

      If you would like to obtain this information from us, please direct your
request, either in writing or by telephone, to:

                               Investor Relations
                         Magellan Health Services, Inc.
                                   55 Nod Road
                             Avon, Connecticut 06001
                                 (860) 507-1900

      We file reports, proxy statements and other information with the SEC.
Copies of our reports, proxy statements and other information may be inspected
and copied at the public reference room maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549.

      Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site
that contains reports, proxy and information statements and other information
regarding Magellan and other issuers that file electronically with the SEC. The
address of the SEC internet site is www.sec.gov. This information is also
available on our Company website at www.magellanhealth.com.

      Reports, proxy statements and other information regarding us may also be
inspected at:

                 The National Association of Securities Dealers
                               1735 K Street, N.W.
                             Washington, D.C. 20006

      We have filed a registration statement under the Securities Act with the
SEC with respect to the shares to be sold hereunder. This prospectus has been
filed as part of the registration statement. This prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted in accordance with the rules and
regulations of the SEC. The registration statement is available for inspection
and copying as set forth above.

                                 USE OF PROCEEDS

      We will not receive any proceeds from the sale of the Ordinary Common
Stock pursuant to this prospectus. All proceeds from the sale of the Ordinary
Common Stock pursuant to this prospectus will be made for the account of the
Selling Stockholder, as described below.

                               SELLING STOCKHOLDER

      This prospectus relates to certain shares of Ordinary Common Stock that
have been issued, subject to certain restrictions, to the Selling Stockholder
without payment therefor. This prospectus may also be used by the Selling
Stockholder's donees, pledgees, transferees or other successors in interest. The


                                       18
<PAGE>



following table sets forth the name and relationship to Magellan of the Selling
Stockholder, and the information with respect to the number of shares of
Ordinary Common Stock owned by the Selling Stockholder and as adjusted to give
effect to the sale of the shares that may be offered pursuant to this
prospectus. Because the Selling Stockholder may from time to time offer all or
some of the shares pursuant to this offering, we cannot estimate the number of
the shares that will be held by the Selling Stockholder after completion of the
offering. However, for purposes of the table below, we have assumed that, after
completion of the offering, none of the shares covered by this prospectus as of
the date of this prospectus will be held by the Selling Stockholder.

                                     NUMBER OF
                                       SHARES                  NUMBER OF
                      RELATIONSHIPS     OWNED     NUMBER OF     SHARES
                       TO MAGELLAN    PRIOR TO     SHARES       OWNED
NAME OF SELLING           SINCE         THE         BEING     AFTER THE
   STOCKHOLDER         JANUARY 2003   OFFERING     OFFERED     OFFERING
   -----------         ------------   --------     -------     --------

 Michael Majerik     Chief Sales and     4,753       4,753         0
                    Marketing Officer

      Pursuant to Rule 416 under the Securities Act, the registration statement
of which this prospectus is a part also covers any additional shares of Ordinary
Common Stock which become issuable in connection with the shares identical in
the table above through any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration, which
results in an increase in the number of outstanding shares of Ordinary Common
Stock.

      As of February 28, 2007, there were 38,949,649 shares of Ordinary Common
Stock issued and outstanding.


                              PLAN OF DISTRIBUTION

      As used in this prospectus, "Selling Stockholder" includes the Selling
Stockholder named above and his donees, pledgees, transferees or other
successors in interest selling shares received from named Selling Stockholder as
a gift, partnership distribution or other non-sale-related transfer after the
date of this prospectus. We have been advised that the Selling Stockholder may
effect sales of the shares of Ordinary Common Stock directly, or indirectly by
or through underwriters, agents or broker-dealers, and that the shares of
Ordinary Common Stock may be sold by one or a combination of several of the
following methods:

      o     one or more block transactions, in which the broker or dealer so
            engaged will attempt to sell the shares of Ordinary Common Stock as
            agent but may position and resell a portion of the block as
            principal to facilitate the transaction, or in crosses, in which the
            same broker acts as an agent on both sides of the trade;

      o     purchases by a broker-dealer or market maker, as principal, and
            resale by the broker-dealer for its account;

      o     ordinary brokerage transactions or transactions in which a broker
            solicits purchases;

                                       19
<PAGE>



      o     on the Nasdaq Stock Market or on any other national securities
            exchange or quotation service on which our Ordinary Common Stock may
            be listed or quoted at the time of the sale;

      o     in the over-the-counter market;

      o     through the writing of options, whether the options are listed on an
            options exchange or otherwise;

      o     through distributions to creditors and equity holders of the Selling
            Stockholders; or

      o     any combination of the foregoing, or any other available means
            allowable under applicable law.

      We will bear all costs, expenses and fees in connection with the
registration and sale of the Ordinary Common Stock covered by this prospectus,
other than underwriting discounts and selling commissions. We will not receive
any proceeds from the sale of the shares of our Ordinary Common Stock covered
hereby. The Selling Stockholder will bear all commissions and discounts, if any,
attributable to sales of the shares. The Selling Stockholder may agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of the shares against certain liabilities, including liabilities arising
under the Securities Act.

      The Selling Stockholder may sell the shares covered by this prospectus
from time to time, and may also decide not to sell all or any of the shares he
is allowed to sell under this prospectus. The Selling Stockholder will act
independently of us in making decisions regarding the timing, manner and size of
each sale. The Selling Stockholder may effect sales by selling the shares
directly to purchasers in individually negotiated transactions, or to or through
broker-dealers, which may act as agents or principals. The Selling Stockholder
may sell his shares at fixed prices, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale, or at privately negotiated prices.

      Additionally, the Selling Stockholder may engage in hedging transactions
with broker-dealers in connection with distributions of shares or otherwise. In
those transactions, broker-dealers may engage in short sales of shares in the
course of hedging the positions they assume with the Selling Stockholder. The
Selling Stockholder also may sell shares short and redeliver shares to close out
such short positions. The Selling Stockholder may also enter into option or
other transactions with broker-dealers which require the delivery of shares to
the broker-dealer. The broker-dealer may then resell or otherwise transfer such
shares pursuant to this prospectus. The Selling Stockholder also may loan or
pledge shares to a broker-dealer. The broker-dealer may sell the shares so
loaned or pledged pursuant to this prospectus.

      The Selling Stockholder may enter into derivative transactions with third
parties, or sell securities not covered by this prospectus to third parties in
privately negotiated transactions. If the applicable prospectus supplement
indicates, in connection with those derivatives, the third parties may sell
securities covered by this prospectus and the applicable prospectus supplement,
including in short sale transactions. If so, the third party may use securities
pledged by the Selling Stockholder or borrowed from the Selling Stockholder or
others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from the Selling Stockholder in
settlement of those derivatives to close out any related open borrowings of
stock. The third party in such sale transactions will be an underwriter and, if




                                       20
<PAGE>



not identified in this prospectus, will be identified in the applicable
prospectus supplement (or a post-effective amendment).

      Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders. Broker-dealers
or agents may also receive compensation from the purchasers of shares for whom
they act as agents or to whom they sell as principals, or both. Compensation as
to a particular broker-dealer might be in excess of customary commissions and
will be in amounts to be negotiated in connection with transactions involving
shares. In effecting sales, broker-dealers engaged by the Selling Stockholder
may arrange for other broker-dealers to participate in the resales.

      In connection with sales of our Ordinary Common Stock covered hereby, the
Selling Stockholder and any broker-dealers or agents and any other participating
broker-dealers who execute sales for the Selling Stockholder may be deemed to be
"underwriters" within the meaning of the Securities Act. Accordingly, any
profits realized by the Selling Stockholder and any compensation earned by such
broker-dealers or agents may be deemed to be underwriting discounts and
commissions. Because the Selling Stockholder may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
Selling Stockholder will be subject to the prospectus delivery requirements of
that act. We will make copies of this prospectus (as it may be amended or
supplemented from time to time) available to the Selling Stockholder for the
purpose of satisfying the prospectus delivery requirements. In addition, any
shares of the Selling Stockholder covered by this prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold in open market
transactions under Rule 144 rather than pursuant to this prospectus.

      The Selling Stockholder will be subject to applicable provisions of
Regulation M of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder, which provisions may limit the timing of
purchases and sales of any of the shares of our Ordinary Common Stock by the
Selling Stockholder. These restrictions may affect the marketability of such
shares.

      In order to comply with applicable securities laws of some states, the
shares may be sold in those jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirements is
available.

      To the extent necessary, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. We will file a
supplement to this prospectus, if required, upon being notified by the Selling
Stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. The supplement will disclose the name of the Selling Stockholder and of
the participating broker-dealer(s); the number of shares involved; the price at
which such shares were sold; the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable; that such broker-dealer(s)
did not conduct any investigation to verify the information contained in or
incorporated by reference in this prospectus; and any other facts material to
the transaction.



                                       21
<PAGE>



                                  LEGAL MATTERS

      The validity of the issuance of shares of the Ordinary Common Stock
offered by this Prospectus will be passed upon for us by Weil, Gotshal & Manges
LLP, New York, New York.

                                     EXPERTS

      The consolidated financial statements of Magellan Health Services, Inc.
appearing in Magellan Health Services, Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 2006 (including schedules appearing therein) and
Magellan Health Services, Inc. management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2006 included
therein, have been audited by Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included therein, and
incorporated herein by reference. Such consolidated financial statements and
management's assessment are incorporated herein by reference in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.















                                       22
<PAGE>


                                     PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3.  INCORPORATION OF DOCUMENTS BY REFERENCE.

      The SEC allows us to "incorporate by reference" into this prospectus the
information we have filed with the SEC. This means that we can disclose
important information by referring you to those documents. All documents that
Magellan subsequently files with the Commission pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment to this Registration Statement which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, will be deemed to be incorporated by reference in this Registration
Statement and to be a part hereof from the date of filing of such documents.
Unless expressly incorporated into this Registration Statement, a Current Report
(or portion thereof) furnished, but not filed, on Form 8-K shall not be
incorporated by reference into this Registration Statement. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this Registration Statement shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.

      We incorporate by reference the following documents that we have filed
with the SEC and any filings that we will make with the SEC in the future under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is
terminated:

      o     Our Annual Report on Form 10-K for the year ended December 31, 2006.

      o     Our Current Report on Form 8-K filed on January 4, 2007;

      o     Our Current Report on Form 8-K filed on February 27, 2007; and

      o     The description of our Ordinary Common Stock, par value $0.01 per
            share, contained in our Current Report on Form 8-K filed on November
            5, 2004.

ITEM 4.  DESCRIPTION OF SECURITIES.

      Not applicable.

ITEM 5.  INTERESTS OF NAMED EXPERTS AND COUNSEL

      Not applicable.

ITEM 6.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

      The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law, which we refer to as the "DGCL", provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.



                                      II-1
<PAGE>



      Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of his service as director, officer, employee or agent of the
corporation, or his service, at the corporation's request, as a director,
officer, employee or agent of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful.

      Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director or officer shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such director or officer is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.

      Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) or (b) or in the defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

      Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would otherwise have the power to indemnify such person
against such liability under Section 145.

      In addition, Section 102(b)(7) of the DGCL permits Delaware corporations
to include a provision in their certificates of incorporation eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the provisions will not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payment of dividends or other unlawful distributions, or (iv) for any
transactions from which the director derived an improper personal benefit.

      Article V Section 1 of the Bylaws and Article VI Part E of the Amended and
Restated Certificate of Incorporation of Magellan provide in substance that


                                      II-2
<PAGE>



Magellan will indemnify current and former directors and officers to the fullest
extent permitted by law. In addition, Article VI Part D of the Certificate of
Incorporation of Magellan provides in substance that directors of Magellan will
not be personally liable either to Magellan or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to Magellan or its stockholders, or (ii) for acts
or omissions which are not in good faith or which involve intentional misconduct
or knowing violation of the law, or (iii) for any matter in respect of which the
director will be liable under Section 174 of the DGCL or any amendment thereto
or successor provision thereto, or (iv) for any transaction from which the
director derived an improper personal benefit. Magellan maintains Directors' and
Officers' liability insurance with various insurance providers.

ITEM 7.  EXEMPTION FROM REGISTRATION CLAIMED

The issuance of the shares of Ordinary Common Stock being offered under the
reoffer prospectus were exempt from registration under the Securities Act as a
transaction not involving any public offering.

ITEM 8.  EXHIBITS.

  EXHIBIT                            DESCRIPTION
----------  --------------------------------------------------------------------
   4.1      Amended and Restated Certificate of Incorporation of the
            Registrant, as filed in the office of the Secretary of
            State of the State of Delaware on January 5, 2004.(1)

   4.2      Bylaws of the Registrant, as of January 5, 2004, as
            amended January 21, 2004. (2)

   4.3      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and John Donahue (as assumed by
            Magellan Health Services, Inc.)

   4.4      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and Thomas Dehn (as assumed by Magellan
            Health Services, Inc.)

   4.5      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and R. Robert LaGalia (as assumed by
            Magellan Health Services, Inc.)

   4.6      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and John Donahue

   4.7      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and Thomas Dehn

   4.8      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and R. Robert LaGalia


                                      II-3
<PAGE>

   4.9      Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and George Petrovas

   4.10     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Andrew Gellman

   4.11     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Kerry Bradley

   4.12     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Kjel Johnson

   4.13     Stock Option Agreement and Notice of Option Grant, dated
            as of July 17, 2006, between Magellan Health Services,
            Inc. and Michael Majerik.

   4.14     Restricted Stock Unit Award Agreement and Notice of
            Restricted Stock Unit Grant, dated as of July 17, 2006,
            between Magellan Health Services, Inc. and Michael
            Majerik.

   5.1      Opinion of Weil, Gotshal & Manges LLP as to the legality of shares
            of Ordinary Common Stock being registered.

   23.1     Consent of Ernst & Young LLP

   23.2     Consent of Weil, Gotshal & Manges LLP (included in the
            Opinion filed as Exhibit 5.1)

   24.1     Power of Attorney of certain directors and officers of
            the Registrant (included in signature page of this
            Registration Statement)

(1) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004
(File No. 1-06639).

(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 5,
2004 (File No. 1-06639).


                                      II-4
<PAGE>



ITEM 9.  UNDERTAKINGS.

(a)   The undersigned Registrant hereby undertakes:

      (1)   To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

            (i)   To include any prospectus required by Section 10(a)(3) of the
Securities Act;

            (ii)  To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and

            (iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.

      (2)   That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

      (3)   To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b)   The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c)   Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,


                                      II-5
<PAGE>



therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.


























                                      II-6
<PAGE>



                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, Magellan
Health Services, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Avon, State of Connecticut, on the 28th day of
February 2007.

                                    MAGELLAN HEALTH SERVICES, INC.
                                    By:     /s/ DANIEL N. GREGROIRE
                                            ------------------------------------
                                            Daniel N. Gregroire
                                            Senior Vice President

                                POWER OF ATTORNEY

      KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven J. Shulman, Mark S. Demilio and
Daniel M. Gregroire, and each of them, his attorneys-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the SEC, hereby
ratifying and confirming all that each said attorneys-in-fact or his substitute
or substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE                      TITLE                          DATE
---------                      -----                          ----

/s/ STEVEN J. SHULMAN          Chief Executive Officer        February 28, 2007
-----------------------        and Chairman of the Board
Steven J. Shulman              of Directors (Principal
                               Executive Officer)


/s/ DR. RENE LERER             Chief Operating Officer        February 28, 2007
-----------------------        and Director
Dr. Rene Lerer



/s/ MARK S. DEMILIO            Executive Vice President       February 28, 2007
-----------------------        and Chief Financial
Mark S. Demilio                Officer (Principal
                               Financial Officer)


/s/ JEFFREY N. WEST            Senior Vice President and      February 28, 2007
-----------------------        Controller Officer)
Jeffrey N. West


/s/ SAUL E. BURIAN
-----------------------        Director                       February 28, 2007
Saul E. Burian


/s/ MICHAEL DIAMENT
-----------------------        Director                       February 28, 2007
Michael Diament




<PAGE>



/s/ BARRY SMITH
-----------------------        Director                       February 28, 2007
Barry Smith


/s/ ROBERT M. LE BLANC
-----------------------        Director                       February 28, 2007
Robert M. Le Blanc


/s/ WILLIAM J. MCBRIDE
-----------------------        Director                       February 28, 2007
William J. McBride


/s/ MICHAEL P. RESSNER
-----------------------        Director                       February 28, 2007
Michael P. Ressner


/s/ ALLEN F. WISE
-----------------------        Director                       February 28, 2007
Allen F. Wise












<PAGE>



                                  EXHIBIT INDEX



  EXHIBIT                            DESCRIPTION
-----------       --------------------------------------------------------------
     4.1          Amended and Restated Certificate of Incorporation of the
                  Registrant, as filed in the office of the Secretary of State
                  of the State of Delaware on January 5, 2004.(1)

     4.2          Bylaws of the Registrant, as of January 5, 2004, as amended
                  January 21, 2004. (2)

     4.3          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and John Donahue (as assumed by Magellan Health Services,
                  Inc.)

     4.4          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and Thomas Dehn (as assumed by Magellan Health Services,
                  Inc.)

     4.5          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and R. Robert LaGalia (as assumed by Magellan Health
                  Services, Inc.)

     4.6          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and John Donahue

     4.7          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and Thomas Dehn

     4.8          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and R. Robert LaGalia

     4.9          Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  George Petrovas

     4.10         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  Andrew Gellman

     4.11         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  Kerry Bradley

     4.12         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and Kjel
                  Johnson



<PAGE>



     4.13         Stock Option Agreement and Notice of Option Grant, dated as of
                  July 17, 2006, between Magellan Health Services, Inc. and
                  Michael Majerik.

     4.14         Restricted Stock Unit Award Agreement and Notice of Restricted
                  Stock Unit Grant, dated as of July 17, 2006, between Magellan
                  Health Services, Inc. and Michael Majerik.

     5.1          Opinion of Weil, Gotshal & Manges LLP as to the legality of
                  shares of Ordinary Common Stock being registered.

     23.1         Consent of Ernst & Young LLP

     23.2         Consent of Weil, Gotshal & Manges LLP (included in the Opinion
                  filed as Exhibit 5.1)

     24.1         Power of Attorney of certain directors and officers of the
                  Registrant (included in signature page of this Registration
                  Statement)

(1) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004
(File No. 1-06639).

(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 5,
2004 (File No. 1-06639).
[{"type": "S-8", "sequence": "1", "filename": "mm03-0207_s8.txt", "secsgml_size_bytes": 115380}]
{"company-data": {"conformed-name": "MAGELLAN HEALTH SERVICES INC", "cik": "0000019411", "assigned-sic": "8060", "irs-number": "581076937", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-8", "act": "33", "file-number": "333-141056", "film-number": "07669349"}, "business-address": {"street1": "6950 COLUMBIA GATEWAY", "street2": "STE 400", "city": "COLUMBIA", "state": "MD", "zip": "21046", "phone": "4109531000"}, "former-company": {"former-conformed-name": "CHARTER MEDICAL CORP", "date-changed": "19920703"}}
--------------------------------------------------------------------------------
      As filed with the Securities and Exchange Commission on March 2, 2007

                                                 Registration No. 333-
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                         MAGELLAN HEALTH SERVICES, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                           58-1076937
(State or other jurisdiction of                           (I.R.S. employer
incorporation or organization)                           identification no.)

                                   55 NOD ROAD
                             AVON, CONNECTICUT 06001
                    (Address of principal executive offices)

             AMENDMENTS, DATED AS OF JANUARY 31, 2006, TO INCENTIVE
             STOCK OPTION AWARD AGREEMENTS BETWEEN NATIONAL IMAGING
           ASSOCIATES, INC. AND, SEPARATELY, JOHN DONAHUE, THOMAS DEHN
                              AND R. ROBERT LAGALIA

           STOCK OPTION AGREEMENTS AND NOTICES OF STOCK OPTION GRANT,
              DATED AS OF JANUARY 31, 2006, BETWEEN MAGELLAN HEALTH
            SERVICES, INC. AND, SEPARATELY, JOHN DONAHUE, THOMAS DEHN
                              AND R. ROBERT LAGALIA

           STOCK OPTION AGREEMENTS AND NOTICES OF STOCK OPTION GRANT,
           DATED JULY 31, 2006, BETWEEN MAGELLAN HEALTH SERVICES, INC.
             AND, SEPARATELY, GEORGE PETROVAS, ANDREW GELLMAN, KERRY
                            BRADLEY AND KJEL JOHNSON

            STOCK OPTION AGREEMENT AND NOTICE OF STOCK OPTION GRANT,
           DATED JULY 17, 2006, BETWEEN MAGELLAN HEALTH SERVICES, INC.
                               AND MICHAEL MAJERIK

            RESTRICTED STOCK UNIT AGREEMENT AND NOTICE OF RESTRICTED
             STOCK UNIT GRANT, DATED JULY 17, 2006, BETWEEN MAGELLAN
                    HEALTH SERVICES, INC. AND MICHAEL MAJERIK
                            (Full title of the plans)

                               DANIEL N. GREGROIRE
              SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
                         MAGELLAN HEALTH SERVICES, INC.
                                   55 NOD ROAD
                             AVON, CONNECTICUT 06001
                     (Name and address of agent for service)

                                 (860) 507-1900
          (Telephone number, including area code, of agent for service)

--------------------------------------------------------------------------------
                         CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------
                                                      Proposed
Title of                              Proposed        maximum
securities           Amount to         maximum        aggregate     Amount of
  to be            be registered   offering price  offering price  registration
registered              (1)           per share          (2)           fee
----------              ---           ---------          ---           ---

Ordinary            52,066 (3)         $4.44         $231,174        $7.10
Common Stock,       23,160 (4)          $4.44         $102,831        $3.16
par value            7,834 (5)          $4.44          $34,783        $1.07
$0.01                5,441 (6)          $7.66          $41,679        $1.28
per share            6,746 (7)          $6.20          $41,826        $1.29
                     4,216 (8)          $6.20          $26,140         $.81
                    50,000 (9)         $36.29       $1,814,500       $55.71
                    20,000 (10)        $36.29         $725,800       $22.29
                    30,000 (11)        $36.29       $1,088,700       $33.43
                    30,000 (12)        $46.94       $1,408,200       $43.24
                    30,000 (13)        $46.94       $1,408,200       $43.24
                    20,000 (14)        $46.94         $938,800       $28.83
                    20,000 (15)        $46.94         $938,800       $28.83
                    37,500 (16)        $43.45       $1,629,375       $50.03
                     4,753 (17)        $42.12         $200,196        $6.15

    Total          341,716               N/A       $10,631,005      $326.46

(1)   Plus such indeterminate number of shares of Ordinary Common Stock, par
value $0.01 per share ("Ordinary Common Stock"), of Magellan Health Services,
Inc. ("Magellan") as may be issued to prevent dilution resulting from stock
dividends, stock splits or similar transactions in accordance with Rule 416
under the Securities Act of 1933, as amended (the "Securities Act").

(2)   Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (h) under the Securities Act, in the case of
restricted stock unit awards, based on the average of the high and low sales
prices per share of Ordinary Common Stock of Magellan as reported by the Nasdaq
National Market on February 28, 2007

(3)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to Amendments, dated as of January 31, 2006, to
Incentive Stock Option Award Agreements, dated as of July 1, 2003, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(4)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to Amendments, dated as of January 31, 2006, to
Incentive Stock Option Award Agreements, dated as of July 1, 2003, between
Thomas Dehn and National Imaging Associates, Inc. (as assumed by Magellan).

(5)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to the
Incentive Stock Option Award Agreement, dated as of July 1, 2003, between R.
Robert LaGalia and National Imaging Associates, Inc. (as assumed by Magellan).

(6)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to an
Incentive Stock Option Award Agreement, dated as of May 1, 2005, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(7)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to the
Incentive Stock Option Award Agreement, dated as of August 1, 2004, between John
Donahue and National Imaging Associates, Inc. (as assumed by Magellan).

(8)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to an Amendment, dated as of January 31, 2006, to an
Incentive Stock Option Award Agreement, dated as of August 1, 2004, between
Thomas Dehn and National Imaging Associates, Inc. (as assumed by Magellan).

                                        2
(9)   Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and John Donahue.

(10)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and Thomas Dehn.

(11)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated January 31, 2006, between Magellan and R. Robert LaGalia.

(12)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and George Petrovas.

(13)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and Andrew Gellman.

(14)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued pursuant to the Stock Option Agreement and Notice of Stock Option
Grant, dated as of July 31, 2006, between Magellan and Kerry Bradley.

(15)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued to Kjel Johnson pursuant to the Stock Option Agreement and Notice
of Stock Option Grant, dated as of July 31, 2006, between Magellan and Kjel
Johnson.

(16)  Represents shares of Ordinary Common Stock issuable upon exercise of
options issued to Michael Majerik pursuant to the Stock Option Agreement and
Notice of Stock Option Grant, dated as of July 17, 2006, between Magellan and
Michael Majerik.

(17)  Represents shares of Ordinary Common Stock issuable pursuant to restricted
stock unit awards issued pursuant to the Restricted Stock Unit Award Agreement
and Notice of Restricted Stock Unit Grant, dated as of July 17, 2006, between
Magellan and Michael Majerik.

                                       3
The Registrant has prepared this Registration Statement in accordance with
the requirements of Form S-8 under the Securities Act to register (i) sales of
up to 340,963 shares of Ordinary Common Stock pursuant to the exercise of
options issued pursuant to the plans referred to above and (ii) the issuance of
up to 4,753 shares of Ordinary Common Stock pursuant to the restricted stock
unit award previously issued to Michael Majerik (the "Selling Stockholder") upon
his employment with Magellan pursuant to the plan referred to above and the
resale of up to 4,753 shares of Ordinary Common Stock that are issuable pursuant
to such restricted stock unit award and (iii) such indeterminate number of other
shares of Ordinary Common Stock as may be issued in relation to such shares in
transactions referred to in Rule 416 under the Securities Act. Accordingly, this
Registration Statement also includes a reoffer prospectus that has been prepared
in accordance with the requirements of Part I of Form S-3 and, pursuant to
General Instruction C of Form S-8, may be used for reofferings and resales on a
continuous or delayed basis of the shares of Ordinary Common Stock that are
issuable pursuant to such restricted stock unit award and that are held by the
Selling Stockholder.

                                     PART I

              INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS

      The documents containing the information required by Part I of Form S-8
will be sent or given to plan participants as specified by Rule 428(b)(1) of the
Securities Act. Such documents are not required to be and are not filed with the
Securities and Exchange Commission (the "SEC") either as part of this
Registration Statement or as prospectuses or prospectus supplements pursuant to
Rule 424. These documents and the documents incorporated by reference in this
Registration Statement pursuant to Item 3 of Part II of this Form S-8, taken
together, constitute a prospectus that meets the requirements of Section 10(a)
of the Securities Act.

      Under the cover of this Form S-8 is a reoffer prospectus prepared in
accordance with the requirements of Part I of Form S-3. The reoffer prospectus
may be used for reofferings and resales on a continuous or delayed basis of
4,753 shares of Ordinary Common Stock that are issuable pursuant to a restricted
stock unit award and that are held by the Selling Stockholder.

                                       4
REOFFER PROSPECTUS
                               ------------------

                         MAGELLAN HEALTH SERVICES, INC.

        4,753 SHARES OF ORDINARY COMMON STOCK, PAR VALUE $0.01 PER SHARE

      This prospectus is being used in connection with the offering from time to
time by the Selling Stockholder, or by his pledgees, donees, transferees or
other successors in interest, of shares of Ordinary Common Stock issuable
pursuant to a restricted stock unit grant to the Selling Stockholder in
connection with his employment by Magellan Health Services, Inc. We will not
receive any of the proceeds from any such offering.

      The prices at which the Selling Stockholder may sell the shares will be
determined by the prevailing market price for the shares at the time of sale or
through negotiated transactions with third parties.

      The registration statement of which this prospectus is a part permits the
Selling Stockholder to sell the shares from time to time in the public market.
The Selling Stockholder may sell Ordinary Common Stock through ordinary broker
transactions, directly to market makers of our shares, directly to third
parties, through underwriters in public offerings, or through other means
described in the section entitled "Plan of Distribution" beginning on page 19.

      Our Ordinary Common Stock became listed on the Nasdaq Stock Market under
the ticker symbol "MGLN" on January 6, 2004. The last reported sale price for
our Ordinary Common Stock on March 1, 2007 was $42.26 per share.

      INVESTING IN OUR ORDINARY COMMON STOCK INVOLVES RISKS. SEE THE SECTION
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 4.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

             The date of this prospectus is March 2, 2007.

                                        i
TABLE OF CONTENTS
                                                                            PAGE

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................1

MAGELLAN HEALTH SERVICES, INC................................................1

RISK FACTORS.................................................................4

WHERE YOU CAN FIND MORE INFORMATION.........................................18

USE OF PROCEEDS.............................................................18

SELLING STOCKHOLDER.........................................................18

PLAN OF DISTRIBUTION........................................................19

LEGAL MATTERS...............................................................22

EXPERTS.....................................................................22

You should only rely on the information incorporated by reference or provided in
this prospectus or any supplement. We have not authorized anyone else to provide
you with different information. The Ordinary Common Stock is not being offered
in any state where the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of such document.

                                       ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

      This prospectus and the registration statement of which it forms a part
and the documents incorporated by reference into these documents contain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. We use
words such as "anticipates," "believes," "plans," "expects," "future,"
"intends," "will," "foresee" and similar expressions to identify these
forward-looking statements. In addition, from time to time we or our
representatives have made or may make forward-looking statements orally or in
writing. Furthermore, such forward-looking statements may be included in various
submission or filings that we make with the SEC, or press releases or oral
statements made by or with the approval of one of our authorized officers. These
forward-looking statements are subject to certain known and unknown risks and
uncertainties, as well as assumptions, that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause actual results to differ include, but are not limited to, those
discussed in the section entitled "Risk Factors" beginning on page 4 of this
prospectus. Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which reflect management's opinions
only as of the date hereof. Except as required by law, Magellan Health Services,
Inc. ("Magellan") undertakes no obligation to revise or publicly release the
results of any revision to any forward-looking statements. You are advised,
however, to consult any additional disclosures we make in our reports to the SEC
on Forms 10-K, 10-Q and 8-K. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained in this
prospectus.

                         MAGELLAN HEALTH SERVICES, INC.

OUR BUSINESS

      The Company is engaged in the specialty managed healthcare business.
Through fiscal 2005, the Company predominantly operated in the managed
behavioral healthcare business. During fiscal 2006, the Company expanded into
radiology benefits management and specialty pharmaceutical management as a
result of its acquisitions of National Imaging Associates, Inc. ("NIA") and
ICORE Healthcare LLC ("ICORE"), respectively, as discussed further below. The
Company's business is divided into the following six segments, based on the
services it provides and/or the customers that it serves, as described below.

      Managed Behavioral Healthcare. The Company's managed behavioral healthcare
business is composed of three of the Company's segments, each as described
further below. This line of business generally reflects the Company's
coordination and management of the delivery of behavioral healthcare treatment
services that are provided through its contracted network of third-party
treatment providers, which includes psychiatrists, psychologists, other
behavioral health professionals, psychiatric hospitals, general medical
facilities with psychiatric beds, residential treatment centers and other
treatment facilities. The treatment services provided through the Company's
provider network include outpatient programs (such as counseling or therapy),
intermediate care programs (such as intensive outpatient programs and partial
hospitalization services), inpatient treatment and crisis intervention services.
The Company, however, generally does not directly provide, or own any provider
of, treatment services. The Company provides its management services primarily
through: (i) risk-based products, where the Company assumes all or a portion of
the responsibility for the cost of providing treatment services in exchange for
a fixed per member per month fee, (ii) administrative services only ("ASO")
products, where the Company provides services such as utilization review, claims

                                       1
administration and/or provider network management, but does not assume
responsibility for the cost of the treatment services, and (iii) employee
assistance programs ("EAPs") where the Company provides short-term outpatient
counseling.

      The managed behavioral healthcare business is managed based on the
services provided and/or the customers served, through the following three
segments:

      HealthPlan. The Managed Behavioral Healthcare Health Plan segment ("Health
Plan") generally reflects managed behavioral healthcare services provided under
contracts with managed care companies, health insurers and other health plans.
Health Plan's contracts encompass either risk-based or ASO arrangements or both
and provide for service to the commercial, Medicaid and Medicare members of the
health plan. As of December 31, 2006, Health Plan's covered lives were 7.7
million, 0.2 million and 19.7 million for risk-based, EAP and ASO products,
respectively. For the year ended December 31, 2006, Health Plan's revenue was
$524.9 million, $0.9 million and $130.2 million for risk-based, EAP and ASO
products, respectively.

      Employer. The Managed Behavioral Healthcare Employer segment ("Employer")
generally reflects the provision of EAP services and managed behavioral
healthcare services under contracts with employers, including corporations and
governmental agencies, and labor unions. Employer contracts can be for either
EAP or managed behavioral health services or both. Employer contracts containing
provision of managed behavioral healthcare services can be risk-based or ASO but
currently are primarily ASO. As of December 31, 2006, Employer's covered lives
were 0.1 million, 13.6 million and 0.2 million for risk-based, EAP and ASO
products, respectively. For the year ended December 31, 2006, Employer's revenue
was $5.4 million, $106.9 million and $16.4 million for risk-based, EAP and ASO
products, respectively.

      Public Sector. The Managed Behavioral Healthcare Public Sector segment
("Public Sector") generally reflects managed behavioral healthcare services
provided to Medicaid recipients under contracts with state and local
governmental agencies. Public Sector contracts encompass either risk-based or
ASO arrangements. As of December 31, 2006, Public Sector's covered lives were
1.8 million and 0.2 million for risk-based and ASO products, respectively. For
the year ended December 31, 2006, Public Sector's revenue was $803.4 million and
$5.3 million for risk-based and ASO products, respectively.

      Risk contracts in the Public Sector segment generally have higher per
member premiums, cost and (to some degree) more volatility than risk contracts
in either the Health Plan or Employer segments due to the nature of populations,
benefits provided and other matters. See "Risk Factors--Dependence on Government
Spending for Managed Healthcare," "--Possible Impact of Healthcare Reform" and
"--Government Regulation."

      Radiology Benefits Management. The Company's Radiology Benefits Management
segment generally reflects the management of the delivery of diagnostic imaging
services to ensure that such services are clinically appropriate and cost
effective. The Company's radiology benefits management services are provided
through contracts with managed care companies, health insurers and other health
plans for commercial, Medicaid and Medicare members of the health plan as well
as to Medicaid recipients through a contract with a local governmental agency.
All of the Company's radiology benefit management contracts in 2006 were ASO
contracts, where the Company provides services such as utilization review and
claims administration, but does not assume responsibility for the cost of the
imaging services. The Company also offers its radiology benefits management
services through risk-based contracts, where the Company will assume all or a
portion of the responsibility for the cost of providing diagnostic imaging
services. The Company's Radiology Benefits Management segment managed the
benefits of approximately 17.3 million covered lives as of December 31, 2006.

                                       2
Specialty Pharmaceutical Management. The Company's Specialty
Pharmaceutical Management segment generally reflects the management of specialty
drugs used in the treatment of cancer, multiple sclerosis, hemophilia,
infertility, rheumatoid arthritis, chronic forms of hepatitis and other
diseases, under contracts in commercial, Medicare and Medicaid programs.
Specialty pharmaceutical drugs represent high-cost injectible, infused, oral, or
inhaled drugs which traditional retail pharmacies typically do not supply due to
their high cost, sensitive handling, and storage needs. The Company's specialty
pharmaceutical services include (i) the distribution of specialty pharmaceutical
drugs on behalf of health plans, (ii) administering on behalf of health plans
rebate agreements between health plans and pharmaceutical manufacturers, and
(iii) providing consulting services to health plans and pharmaceutical
manufacturers. The Company's Specialty Pharmaceutical Management segment had
contracts with 29 health plans, and 10 pharmaceutical manufacturers as of
December 31, 2006.

      Corporate and Other. This segment of the Company is comprised primarily of
operational support functions such as sales and marketing and information
technology, as well as corporate support functions such as executive, finance,
human resources and legal.

THIS OFFERING

      This reoffer prospectus relates to the possible sale of the shares
issuable pursuant to a Restricted Stock Unit Award that was granted to the
Selling Stockholder in connection with his employment with the Company.

OUR CORPORATE INFORMATION

      Magellan is a Delaware corporation. Our executive offices are located at
55 Nod Road, Avon, Connecticut 06001, our telephone number at that location is
(860) 507-1900, and our website can be accessed at www.magellanhealth.com.
Information contained in our website does not constitute part of this
prospectus.

     REFERENCES TO "COMPANY", "WE", "US" AND "OUR" IN THIS PROSPECTUS REFER
       TO MAGELLAN HEALTH SERVICES, INC., TOGETHER WITH ITS SUBSIDIARIES,
                     UNLESS THE CONTEXT REQUIRES OTHERWISE.

                                       3
RISK FACTORS

An investment in Ordinary Common Stock involves a high degree of risk. You
should carefully consider the following risk factors, together with all of the
other information included or incorporated by reference in this prospectus,
before you decide whether to purchase Magellan's Ordinary Common Stock. The
risks set out below are not the only risks we face. If any of the following
risks occur, our business, financial condition and results of operations could
be materially adversely affected. In such case, the trading price of Ordinary
Common Stock could decline, and you may lose all or part of your investment.

There are various factors that could adversely affect our business, financial
condition, prospects and results of operations.

RELIANCE ON CUSTOMER CONTRACTS--OUR INABILITY TO RENEW, EXTEND OR REPLACE
EXPIRING OR TERMINATED CONTRACTS COULD ADVERSELY AFFECT OUR LIQUIDITY,
PROFITABILITY AND FINANCIAL CONDITION.

      Substantially all of our net revenue is derived from contracts that may be
terminated immediately with cause and many, including some of our most
significant contracts, are terminable without cause by the customer upon notice
and the passage of a specified period of time (typically between 60 and 180
days), or upon the occurrence of certain other specified events. Our ten largest
customers accounted for 74.0 percent and 74.9 percent of our net revenue in the
fiscal years ended December 31, 2005 and 2006, respectively. Loss of all of
these contracts or customers would, and loss of any one of these contracts or
customers could, materially reduce our net revenue and have a material adverse
effect on our liquidity, profitability and financial condition.

      Managed Behavioral Healthcare

      Our contracts with TennCare and with subsidiaries of WellPoint each
generated revenues that exceeded, in the aggregate, ten percent of managed
behavioral healthcare net revenues, as well as our consolidated revenues, for
the years ended December 31, 2005 and 2006.

      Total revenue from our contracts with WellPoint was $202.2 million and
$200.2 million during the years ended December 31, 2005 and 2006, respectively.
Included in the revenue amount for the year ended December 31, 2006 is revenue
of $12.6 million from contracts NIA has with WellPoint.

      On September 6, 2006, we announced that we were notified by WellPoint of
its intent to terminate its contract with us for the management of behavioral
healthcare services for its commercial members in Indiana, Kentucky and Ohio
(the "Midwest contract"), effective March 31, 2007. The Midwest contract had
been set to expire on December 31, 2007; however, WellPoint notified us of its
intent to exercise its right under the Midwest contract to terminate without
cause with six months' notice. For the year ended December 31, 2006, the Midwest
contract generated revenue of $100.4 million. We have two other managed
behavioral healthcare contracts with WellPoint that generated revenue of $87.2
million for the year ended December 31, 2006. Each of these contracts has a term
expiring on December 31, 2007, neither contract has an early termination
provision similar to that contained in the Midwest contract and we have not
received notice of a change in the status of these contracts. The contracts with
respect to the management of radiology benefits through our NIA subsidiary are
unrelated to and unaffected by WellPoint's decision regarding behavioral
healthcare management for the Midwest contract.

                                       4
We provide managed behavioral healthcare services for TennCare, through
contracts held by two of our wholly-owned subsidiaries. TennCare has divided its
program into three regions, and our TennCare contracts, which extend through
September 30, 2007, currently encompass all of the TennCare membership for all
three regions. We recorded revenue of $432.7 million and $416.4 million during
the years ended December 31, 2005 and 2006, respectively, from our TennCare
contracts.

      On April 7, 2006, TennCare issued a Request for Proposals ("RFP") for the
management of the integrated delivery of behavioral and physical medical care to
TennCare enrollees in the Middle region by managed care organizations. On July
26, 2006, TennCare announced the two winning bidders to the RFP process, neither
of which had partnered with us, and a start date of April 1, 2007 at which time
our contracts with TennCare will be amended to remove the Middle region
enrollees. For the year ended December 31, 2006, revenue derived from TennCare
enrollees residing in the Middle region amounted to $152.0 million.

      We recorded net revenue from Aetna, Inc. ("Aetna") of $245.0 million for
the year ended December 31, 2005, which represented in excess of ten percent of
our managed behavioral healthcare net revenues for that period. Our contract
with Aetna terminated on December 31, 2005. During the year ended December 31,
2006, we recognized $6.2 million of revenue related to the performance of
one-time, transitional activities associated with the contract termination.

      Radiology Benefits Management and Specialty Pharmaceutical Management

      Included in our Radiology Benefits Management line of business are three
customers that each exceeded 10 percent of the net revenues for this line of
business for the year ended December 31, 2006. The three customers generated
$12.6 million, $5.2 million and $4.8 million, respectively, of the net revenues
for Radiology Benefits Management for the year ended December 31, 2006. The
second customer discussed above has contracts with us for three geographical
markets, and such customer has informed us that the contracts for two of these
markets, which generated revenue of $3.7 million for the year ended December 31,
2006, will terminate effective December 31, 2006.

      Included in our Specialty Pharmaceutical Management line of business are
three customers that each exceeded 10 percent of the net revenues for this line
of business for the year ended December 31, 2006. The three customers generated
$24.8 million, $11.7 million and $9.6 million, respectively, of the net revenues
for Specialty Pharmaceutical Management for the year ended December 31, 2006.

INTEGRATION OF COMPANIES ACQUIRED BY MAGELLAN--OUR PROFITABILITY COULD BE
ADVERSELY AFFECTED IF THE INTEGRATION OF COMPANIES ACQUIRED BY US, INCLUDING NIA
AND ICORE, IS NOT COMPLETED IN A TIMELY AND EFFECTIVE MANNER.

      One of our growth strategies is to make strategic acquisitions which are
complementary to our existing operations. NIA and ICORE are the first such
acquisitions completed by us. After we close on an acquisition, we must
integrate the acquired company into our polices, procedures and systems. Failure
to effectively integrate an acquired business could result in excessive costs
being incurred (i.e. a delay in obtaining targeted synergies), decreased
customer performance (which could result in contract penalties and/or
terminations), increased employee turnover, and lost sales opportunities.

                                       5
CHANGES IN THE MEDICAL MANAGED CARE INDUSTRY--CERTAIN CHANGES IN THE BUSINESS
PRACTICES OF THIS INDUSTRY COULD NEGATIVELY IMPACT OUR RESOURCES, PROFITABILITY
AND RESULTS OF OPERATIONS.

      Substantially all of our Health Plan, Radiology Benefits Management and
Specialty Pharmaceutical Management segment net revenue is derived from
customers in the medical managed care industry, including managed care
companies, health insurers and other health plans. Some types of changes in this
industry's business practices could negatively impact us. For example, if our
managed care customers seek to provide services directly to their subscribers,
instead of contracting with us for such services, we could be adversely
affected. In this regard and as previously noted, Aetna and WellPoint had
decided to provide managed behavioral services directly to some or all of their
subscribers, which resulted in the December 31, 2005 termination of the Aetna
contract, and the proposed March 31, 2007 termination of the WellPoint Midwest
contract. In addition to Aetna and WellPoint, other managed care customers of
the Company did not renew all or part of their contracts with us during 2006,
and will instead provide managed behavioral healthcare services directly to
their subscribers. Other of our customers that are managed care companies could
also seek to provide services directly to their subscribers, rather than by
contracting with us for such services. In addition, we have a significant number
of contracts with Blue Cross Blue Shield plans and other regional health plans.
Consolidation of the healthcare industry through acquisitions and mergers could
potentially result in the loss of contracts for us. Any of these changes could
reduce our net revenue, and adversely affect our profitability and financial
condition.

CHANGES IN THE CONTRACTING MODEL FOR MEDICAID CONTRACTS--CERTAIN CHANGES IN THE
CONTRACTING MODEL USED BY STATES FOR MANAGED HEALTHCARE SERVICES CONTRACTS
RELATING TO MEDICAID LIVES COULD NEGATIVELY IMPACT OUR RESOURCES, PROFITABILITY
AND RESULTS OF OPERATIONS.

      Substantially all of our Public Sector segment net revenue is derived from
direct contracts that we have with state or county governments for the provision
of services to Medicaid enrollees. In addition to TennCare discussed above,
certain other states have recently contracted with managed care companies to
manage both the behavioral and physical medical care of its Medicaid enrollees.
If other governmental entities change the method for contracting for Medicaid
business to a fully integrated model, we will attempt to subcontract with the
managed care organizations to provide behavioral healthcare management for such
Medicaid business; however, there is no assurance that we would be able to
secure such arrangements. Accordingly, if such a change in the contracting model
were to occur, it is possible that we could lose current contracted revenues, as
well as be unable to bid on potential new business opportunities, thus
negatively impacting our profitability and financial condition.

RISK-BASED PRODUCTS--BECAUSE WE PROVIDE SERVICES AT A FIXED FEE, IF WE ARE
UNABLE TO ACCURATELY PREDICT AND CONTROL HEALTHCARE COSTS, OUR PROFITABILITY
COULD DECLINE.

      We derive our net revenue primarily from arrangements under which we
assume responsibility for costs of treatment services (excluding at present the
cost of pharmaceuticals or other medication) in exchange for a fixed fee. We
refer to such arrangements as "risk-based contracts" or "risk-based products,"
which includes EAP services. These arrangements provided 82.8 percent and 85.3
percent of our net revenue in the fiscal years ended December 31, 2005 and 2006,
respectively.

      Furthermore, with respect to radiology benefits management, we believe
that we are positioned to accelerate the growth of NIA by expanding NIA's
current product offering into risk-based products. We believe that we can

                                       6
leverage our information systems, call center, claims and network infrastructure
as well as its financial strength and underwriting expertise to facilitate the
development of a risk-based RBM product offering. In December 2006, we announced
that we had entered into our first risk based contract, which will begin in
2007.

      Profitability of our risk contracts could be reduced if we are unable to
accurately estimate the rate of service utilization by members or the cost of
such services when we price our services. Our assumptions of these costs when we
price our services may not ultimately reflect actual utilization rates and
costs, many aspects of which are beyond our control. If the cost of services
provided to members under a contract together with the administrative costs
exceeds the aggregate fees received by us under such contract, we incur a loss
on the contract.

      Our profitability could also be reduced if we are required to make
adjustments to estimates made in reporting historical financial results,
particularly those regarding cost of care, reflected in our financial statements
as medical claims payable. Medical claims payable includes reserves for incurred
but not reported ("IBNR") claims, which are claims for covered services rendered
by our providers which have not yet been submitted to us for payment. We
estimate and reserve for IBNR claims based on past claims payment experience,
including the average interval between the date services are rendered and the
date the claims are received and between the date services are rendered and the
date claims are paid, enrollment data, utilization statistics, adjudication
decisions, authorized healthcare services and other factors. This data is
incorporated into contract-specific reserve models. The estimates for submitted
claims and IBNR claims are made on an accrual basis and adjusted in future
periods as required. Neither we nor NIA currently possess any experience related
to underwriting risk-based RBM products. If such risk-based RBM products are not
correctly underwritten, our profitability and financial condition could be
adversely affected.

      Factors that affect our ability to price our services, control our costs
or accurately make estimates of IBNR claims and other expenses for which we
create reserves may include changes in our assumptions for medical costs caused
by changes in actual experience including:

o   changes in the delivery system;

o   changes in utilization patterns;

o   changes in the number of members seeking treatment;

o   unforeseen fluctuations in claims backlogs;

o   increases in the costs of the services;

o   the occurrence of catastrophes;

o   regulatory changes;

o   changes in benefit plan design; and

o   implementation of new products by us

      If our membership in risk-based business continues to grow (which is a
major focus of our strategy), our exposure to potential losses from risk-based
products will also increase.

                                       7
FLUCTUATION IN OPERATING RESULTS--WE EXPERIENCE FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS AND, AS A CONSEQUENCE, WE MAY FAIL TO MEET OR EXCEED MARKET
EXPECTATIONS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

      Our quarterly operating results have varied in the past and may fluctuate
significantly in the future due to seasonal and other factors, including:

o   changes in utilization levels by enrolled members of our risk-based
    contracts, including seasonal utilization patterns (for example, members
    generally tend to seek services less during the third and fourth quarters of
    the year than in the first and second quarters of the year);

o   performance-based contractual adjustments to net revenue, reflecting
    utilization results or other performance measures;

o   changes in estimates for contractual adjustments under commercial contracts;

o   retrospective membership adjustments;

o   the timing of implementation of new contracts and enrollment changes; and

o   changes in estimates regarding medical costs and IBNR claims.

      These factors may affect our quarterly and annual net revenue, expenses
and profitability in the future and, accordingly, we may fail to meet market
expectations, which could cause our stock price to decline.

DEPENDENCE ON GOVERNMENT SPENDING--WE CAN BE ADVERSELY AFFECTED BY CHANGES IN
FEDERAL, STATE AND LOCAL HEALTHCARE POLICIES.

      All of our Public Sector segment net revenue and a portion of our net
revenue in our other two managed behavioral healthcare segments, and the
Radiology Benefits Management segment and the Specialty Pharmaceutical
Management segment are derived, directly or indirectly, from governmental
agencies, including state Medicaid programs. Contract rates vary from state to
state, are subject to periodic negotiation and may limit our ability to maintain
or, increase rates. We are unable to predict the impact on our operations of
future regulations or legislation affecting Medicaid programs, or the healthcare
industry in general, and future regulations or legislation may have a material
adverse effect on us. Moreover, any reduction in government spending for such
programs could also have a material adverse effect on us (See "Reliance on
Customer Contracts"). In addition, our contracts with federal, state and local
governmental agencies, under both direct contract and subcontract arrangements,
generally are conditioned upon financial appropriations by one or more
governmental agencies, especially in the case of state Medicaid programs. These
contracts generally can be terminated or modified by the customer if such
appropriations are not made. Finally, some of our contracts with federal, state
and local governmental agencies, under both direct contract and subcontract
arrangements, require us to perform additional services if federal, state or
local laws or regulations imposed after the contract is signed so require, in
exchange for additional compensation to be negotiated by the parties in good
faith. Government and other third-party payors generally seek to impose lower
contract rates and to renegotiate reduced contract rates with service providers
in a trend toward cost control.

                                       8
RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY OUR DEBT
AGREEMENTS LIMIT OUR OPERATING AND FINANCIAL FLEXIBILITY. THESE RESTRICTIONS MAY
ADVERSELY AFFECT OUR ABILITY TO FINANCE OUR FUTURE OPERATIONS OR CAPITAL NEEDS
OR ENGAGE IN OTHER BUSINESS ACTIVITIES THAT MAY BE IN OUR INTEREST.

      Our credit agreement with Deutsche Bank dated January 5, 2004, as amended
(the "Credit Agreement"), contains a number of covenants. These covenants limit
our management's discretion in operating our business by restricting or limiting
our ability, among other things, to:

o   incur or guarantee additional indebtedness or issue preferred or redeemable
    stock;

o   pay dividends and make other distributions;

o   repurchase equity interests;

o   make certain advances, investments and loans;

o   enter into sale and leaseback transactions;

o   create liens;

o   sell and otherwise dispose of assets;

o   acquire or merge or consolidate with another company; and

o   enter into some types of transactions with affiliates.

      These restrictions could adversely affect our ability to finance future
operations or capital needs or engage in other business activities that may be
in our interest. The Credit Agreement also requires us to comply with specified
financial ratios and tests. Failure to do so, unless waived by the lenders under
the Credit Agreement, pursuant to its terms, would result in an event of default
under the Credit Agreement. The Credit Agreement is guaranteed by most of our
subsidiaries and is secured by most of our assets and our subsidiaries' assets.

REQUIRED ASSURANCES OF FINANCIAL RESOURCES--OUR LIQUIDITY, FINANCIAL CONDITION,
PROSPECTS AND PROFITABILITY CAN BE ADVERSELY AFFECTED BY PRESENT OR FUTURE STATE
REGULATIONS AND CONTRACTUAL REQUIREMENTS THAT WE PROVIDE FINANCIAL ASSURANCE OF
OUR ABILITY TO MEET OUR OBLIGATIONS.

      Some of our contracts and certain state regulations require us or certain
of our subsidiaries to maintain specified cash reserves or letters of credit
and/or to maintain certain minimum tangible net equity in certain of our
subsidiaries as assurance that we have financial resources to meet our
contractual obligations. Many of these state regulations also restrict the
investment activity of certain of our subsidiaries. Some state regulations also
restrict the ability of certain of our subsidiaries to pay dividends to us.
Additional state regulations could be promulgated that would increase the cash
or other security we would be required to maintain. In addition, our customers
may require additional restricted cash or other security with respect to our
obligations under our contracts, including our obligation to pay IBNR claims and
other medical claims not yet processed and paid. In addition, certain of our
contracts and state regulations limit the profits that we may earn on risk-based
business. Our liquidity, financial condition, prospects and profitability could

                                       9
be adversely affected by the effects of such regulations and contractual
provisions.

COMPETITION--THE COMPETITIVE ENVIRONMENT IN THE SPECIALTY MANAGED HEALTHCARE
INDUSTRY MAY LIMIT OUR ABILITY TO MAINTAIN OR INCREASE OUR RATES, WHICH WOULD
LIMIT OR ADVERSELY AFFECT OUR PROFITABILITY, AND ANY FAILURE IN OUR ABILITY TO
RESPOND ADEQUATELY MAY ADVERSELY AFFECT OUR ABILITY TO MAINTAIN CONTRACTS OR
OBTAIN NEW CONTRACTS.

      Our business is highly competitive. We compete with other healthcare
organizations as well as with insurance companies, including HMOs, PPOs, TPAs,
IPAs, multi-disciplinary medical groups, PBMs and other specialty healthcare and
managed care companies. Many of our competitors, particularly certain insurance
companies, HMOs and PBMs are significantly larger and have greater financial,
marketing and other resources than us, which can create downward pressure on
prices through economies of scale. The entrance or expansion of these larger
companies in the specialty managed healthcare industry (including our customers
who have insourced or who may choose to insource healthcare services) could
increase the competitive pressures we face and could limit our ability to
maintain or increase our rates. If this happens, our profitability could be
adversely affected. In addition, if we do not adequately respond to these
competitive pressures, it could cause us to not be able to maintain its current
contracts or to not be able to obtain new contracts.

POSSIBLE IMPACT OF HEALTHCARE REFORM--HEALTHCARE REFORM CAN SIGNIFICANTLY REDUCE
OUR REVENUES OR PROFITABILITY.

      The U.S. Congress and certain state legislatures are considering
legislation that, among other things, would limit healthcare plans and methods
of operations, limit employers' and healthcare plans' ability to define medical
necessity, permit employers and healthcare plans to be sued in state courts for
coverage determinations, provide universal health insurance at the state level,
provide for minimum medical loss ratios, and otherwise affect health care
insurance and managed care. It is uncertain whether we could recoup, through
higher revenues or other measures, the increased costs of federal or state
mandated benefits or other increased costs caused by such legislation or similar
legislation. Other federal or state changes in law regarding managed care or
universal health insurance coverage could also have adverse consequences for our
business. In addition, if any federal parity legislation is adopted and the
difference in coverage limits for mental health coverage and medical health
coverage is reduced or eliminated, any increase in net revenue we derive
following such legislation may not be sufficient to cover the increase in costs
that would result from a greater utilization of mental healthcare services. We
cannot predict the effect of this legislation or other legislation that may be
adopted by Congress or by the states, and such legislation, if implemented,
could have an adverse effect on us.

GOVERNMENT REGULATION--WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION AND
SCRUTINY, WHICH INCREASES OUR COSTS OF DOING BUSINESS AND COULD ADVERSELY AFFECT
OUR PROFITABILITY.

      The specialty managed healthcare industry and the provision of specialty
managed healthcare are subject to extensive and evolving federal and state
regulation. Such laws and regulations cover, but are not limited to, matters
such as licensure, accreditation, government healthcare program participation
requirements, information privacy and security, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Our specialty
pharmaceutical management business is also the subject of substantial federal
and state governmental regulation and scrutiny. Government investigations and
allegations have become more frequent concerning possible violations of fraud

                                       10
and abuse and false claims statutes and regulations by healthcare organizations.
Violators may be excluded from participating in government healthcare programs,
subject to fines or penalties or required to repay amounts received from the
government for previously billed services. A violation of such laws and
regulations may have a material adverse effect on us.

      We are subject to certain state laws and regulations and federal laws as a
result of our role in management of customers' employee benefit plans.

      Regulatory issues may also affect our operations including, but not
limited to:

o   additional state licenses that may be required to conduct our businesses,
    including utilization review and TPA activities;

o   limits imposed by state authorities upon corporations' control or excessive
    influence over managed healthcare services through the direct employment of
    physicians, psychiatrists, psychologists or other professionals, and
    prohibiting fee splitting;

o   laws that impose financial terms and requirements on us due to our
    assumption of risk under contracts with licensed insurance companies or
    HMOs;

o   laws in certain states that impose an obligation to contract with any
    healthcare provider willing to meet the terms of our contracts with similar
    providers;

o   maintaining confidentiality of patient information; and

o   complying with HIPAA within the imposed deadlines.

      The imposition of additional licensing and other regulatory requirements
may, among other things, increase our equity requirements, increase the cost of
doing business or force significant changes in our operations to comply with
these requirements.

      The costs associated with compliance with government regulation as
discussed above may adversely affect our financial condition and results of
operations.

WE FACE ADDITIONAL REGULATORY RISKS ASSOCIATED WITH OUR SPECIALTY PHARMACEUTICAL
MANAGEMENT SEGMENT WHICH COULD SUBJECT US TO ADDITIONAL REGULATORY SCRUTINY AND
LIABILITY AND WHICH COULD ADVERSELY AFFECT THE PROFITABILITY OF THE SPECIALTY
PHARMACEUTICAL MANAGEMENT SEGMENT IN THE FUTURE.

      With our acquisition of ICORE, additional federal and state regulations
became applicable to us. Various aspects of our Specialty Pharmaceutical
Management segment are governed by federal and state laws and regulations not
previously applicable to us or which may now be applicable in different ways.
Significant sanctions may be imposed for violations of these laws and compliance
programs are a significant operational requirement of our business. There are
significant uncertainties involving the application of many of these legal
requirements to us. Accordingly, we may be required to incur additional
administrative and compliance expenses in determining the applicable
requirements and in adapting our compliance practices, or modifying our business
practices, in order to satisfy changing interpretations and regulatory policies.
In addition, there are numerous proposed health care laws and regulations at the
federal and state levels, many of which, if adopted, could adversely affect our
business.

                                       11
Federal Anti-Remuneration/Fraud And Abuse Laws.

      The federal healthcare Anti-Kickback Statute prohibits, among other
things, an entity from paying or receiving, subject to certain exceptions and
"safe harbors," any remuneration, directly or indirectly, to induce the referral
of individuals covered by federally funded health care programs, or the
purchase, or the arranging for or recommending of the purchase, of items or
services for which payment may be made in whole, or in part, under Medicare,
Medicaid, TRICARE or other federally funded health care programs. Sanctions for
violating the Anti-Kickback Statute may include imprisonment, criminal and civil
fines and exclusion from participation in the federally funded health care
programs. The Anti-Kickback Statute has been interpreted broadly by courts, the
OIG within DHHS, and other administrative bodies. It also is a crime under the
Public Contractor Anti-Kickback Statute, for any person to knowingly and
willfully offer or provide any remuneration to a prime contractor to the United
States, including a contractor servicing federally funded health programs, in
order to obtain favorable treatment in a subcontract. Violators of this law also
may be subject to civil monetary penalties.

      In April 2003, the OIG published Compliance Guidance. The Compliance
Guidance is voluntary and is directly aimed at the compliance efforts of
pharmaceutical manufacturers. This Compliance Guidance highlights several
transactions as potential "risks," including transactions and relationships with
PBMs, some of which are similar to transactions and/or relationships that we
entered into with its customers. As pharmaceutical manufacturers' business
practices evolve in compliance with the Compliance Guidelines, our relationships
with pharmaceutical manufacturers may be adversely affected.

      Federal Statutes Prohibiting False Claims.

      The Federal False Claims Act imposes civil penalties for knowingly making
or causing to be made false claims with respect to governmental programs, such
as Medicare and Medicaid, for services not rendered, or for misrepresenting
actual services rendered, in order to obtain higher reimbursement. Private
individuals may bring qui tam or whistle blower suits against providers under
the Federal False Claims Act, which authorizes the payment of a portion of any
recovery to the individual bringing suit. A few federal district courts recently
have interpreted the Federal False Claims Act as applying to claims for
reimbursement that violate the Anti-Kickback Statute under certain
circumstances. The Federal False Claims Act generally provides for the
imposition of civil penalties and for treble damages, resulting in the
possibility of substantial financial penalties for small billing errors.
Criminal provisions that are similar to the Federal False Claims Act provide
that a corporation may be fined if it is convicted of presenting to any federal
agency a claim or making a statement that it knows to be false, fictitious or
fraudulent. While we do not directly provide services to beneficiaries of
federally funded health programs and, accordingly, do not directly submit claims
to the federal government, we do provide services to federal government
contractors, such as Part D Plans, and it is possible that we could nevertheless
become involved in a situation where false claim issues are raised based on
allegations that we caused or assisted a government contractor in making a false
claim.

      Medicare Prescription Drug Improvement, and Modernization Act of 2003.

      The MMA that took effect on January 1, 2006, among other things, created a
new voluntary outpatient prescription drug benefit for Medicare enrollees on an
insured basis through PDPs, and by Medicare Advantage Plans, in various regions
across the United States. Among other things, PDPs and Medicare Advantage Plans
are subject to provisions of the MMA intended to deter fraud, waste and abuse
and are monitored strictly by CMS and its contracted MEDICs to ensure that Part

                                       12
D program funds are not spent inappropriately. If CMS determines that we have
not performed satisfactorily as a subcontractor, CMS may request a PDP or a
Medicare Advantage Plan customer of ours to revoke its Part D activities or
responsibilities under the subcontract. The practices that are subject to
regulation under these provisions are evolving and future applications or
interpretations of these provisions could adversely affect our operations.

      FDA Regulation.

      The FDA generally has authority to regulate drug promotional materials
that are disseminated "by or on behalf of" a drug manufacturer. Our business
includes the provision of educational seminars for prescribers and other of our
customers on behalf of manufacturer clients and thus is subject to the federal
laws applicable to the promotion of prescription drugs.

      State Anti-Remuneration/False Claims Laws.

      Several states have laws and/or regulations similar to the federal
anti-remuneration and Federal False Claims Act described above. Sanctions for
violating these state anti-remuneration and false claims laws may include
injunction, imprisonment, criminal and civil fines and exclusion from
participation in the state Medicaid programs.

      State Comprehensive PBM Regulation.

      States continue to introduce broad legislation to regulate PBM activities.
Some of this legislation would encompass our activities. In particular, such
legislation seeks to impose fiduciary duties or disclosure obligations on
entities that provide certain types of pharmacy management services. Both Maine
and the District of Columbia have enacted statutes imposing fiduciary
obligations on entities providing pharmacy management services. Regulation of
this nature could adversely affect the services we provide our customers.

      State Legislation Affecting Plan Or Benefit Design.

      Some states have enacted legislation that prohibits certain types of
managed care plan sponsors from implementing certain restrictive formulary and
network design features, and many states have legislation regulating various
aspects of managed care plans, including provisions relating to the pharmacy
benefits. Other states mandate coverage of certain benefits or conditions and
require health plan coverage of specific drugs, if deemed medically necessary by
the prescribing physician. Such legislation does not generally apply to us
directly, but may apply to certain or our clients, such as HMOs and health
insurers. If legislation of this nature were to become widely adopted and were
applied to services we provide, it could have the effect of limiting the
economic benefits achievable by our customers through the use of our services,
adversely affecting the demand for our services.

      Legislation Affecting Drug Prices.

      Under MMA, Part B drugs generally are reimbursed on an ASP methodology.
This ASP methodology may create an incentive for some drug manufacturers to
reduce the levels of discounts or rebates available to purchasers, including us,
or their clients with respect to Medicare Part B drugs.

      The federal Medicaid rebate statute provides that pharmaceutical
manufacturers of brand-name outpatient prescription drugs must provide the
Medicaid program a rebate in accordance with certain requirements.

                                       13
Investigations have been commenced by certain government agencies which question
whether Medicaid rebates were properly calculated in accordance with such
requirements, reported and paid by the manufacturers to the Medicaid programs.
We are not responsible for such calculations, reports or payments. Some
pharmaceutical manufacturers may view the Medicaid rebate statute and/or the
associated investigations as a disincentive to offer rebates and discounts to
private parties, including in the context of our business.

      Regulations Affecting Our Pharmacies.

      We own two mail order pharmacies that provide services to certain of our
health plan customers. The activities undertaken by our pharmacies subject the
pharmacies to state and federal statutes and regulations governing, among other
things, the licensure and operation of mail order and non-resident pharmacies,
repackaging of drug products, stocking of prescription drug products and
dispensing of prescription drug products, including controlled substances. Our
pharmacy facilities are located in Florida and New York and are duly licensed to
conduct business in those states. Many states, however, require out-of-state
mail order pharmacies to register with or be licensed by the state board of
pharmacy or similar governing body when pharmaceuticals are delivered by mail
into the state and some states require that an out-of-state pharmacy employ a
pharmacist that is licensed in the state into which pharmaceuticals are shipped.
Additional regulation of this nature may require us to expend additional funds
to satisfy such regulatory requirements and could make it impractical for us to
undertake certain business opportunities we may otherwise be interested in
pursuing.

      Regulation of Controlled Substances.

      Our pharmacies must register with the DEA and individual state controlled
substance authorities in order to dispense controlled substances. Federal law
requires us to comply with the DEA's security, recordkeeping, inventory control,
and labeling standards in order to dispense controlled substances. State
controlled substance law requires registration and compliance with state
pharmacy licensure, registration or permit standards promulgated by the state
pharmacy licensing authority.

      Some of the state regulatory requirements described above may be preempted
in whole or in part by ERISA, which provides for comprehensive federal
regulation of employee benefit plans. However, the scope of ERISA preemption is
uncertain and is subject to conflicting court rulings. As a result, we could be
subject to overlapping federal and state regulatory requirements in respect of
certain of our operations and may need to implement compliance programs that
satisfy multiple regulatory regimes.

      Other.

      Most of our distribution contracts with our customers use "average
wholesale price" ("AWP") as a benchmark for establishing pricing. As part of a
proposed settlement in the case of New England Carpenters Health Benefit Fund,
et. al. v. First Data Bank, et. al., Civil Action No. 1:05-CV-11148-PBS (D.
Mass.), a case brought against First Data Bank, one of several companies that
report data on prescription drug prices, First Data Bank has agreed to reduce
the AWP of over 8,000 specific pharmaceutical products by four percent. The
proposed settlement has received preliminary but not final approval of the
court, and we cannot predict whether or when the court will grant final approval
of the settlement or the timing of any changes to the AWP.

                                       14
In the absence of any action on our part to renegotiate with our customers
the pricing of those pharmacy distribution contracts that use AWP, the proposed
reduction in First Data Bank's AWP could adversely affect the margin earned on
those distribution contracts that use AWP, however it is not expected to have a
material adverse affect on our results of operations.

RISKS RELATED TO REALIZATION OF GOODWILL AND INTANGIBLE ASSETS--OUR
PROFITABILITY COULD BE ADVERSELY AFFECTED IF THE VALUE OF INTANGIBLE ASSETS IS
NOT FULLY REALIZED.

      Our total assets at December 31, 2006 reflect goodwill of approximately
$374.4 million, representing approximately 31.0 percent of total assets. There
can be no assurance that such goodwill or intangible assets will be realizable.
We completed our annual impairment analysis of goodwill as of October 1, 2006
noting that the fair value exceeded the associated carrying value; therefore, no
impairment was recorded.

      At December 31, 2006, identifiable intangible assets (customer lists,
contracts and provider networks) totaled approximately $75.4 million. Intangible
assets are amortized over their estimated useful lives, which range from
approximately three to sixteen years. The amortization periods used may differ
from those used by other entities. In addition, we may be required to shorten
the amortization period for intangible assets in future periods based on changes
in our business. We may not ever realize the value of such assets.

      We evaluate, on a regular basis, whether for any reason the carrying value
of our intangible assets and other long-lived assets may no longer be completely
recoverable, in which case a charge to earnings for impairment losses could
become necessary. When events or changes in circumstances occur that indicate
the carrying amount of long-lived assets may not be recoverable, we assess the
recoverability of long-lived assets other than goodwill by determining whether
the carrying value of such intangible assets will be recovered through the
future cash flows expected from the use of the asset and its eventual
disposition.

      Any event or change in circumstances leading to a future determination
requiring additional write-offs of a significant portion of unamortized
intangible assets or goodwill would adversely affect our profitability.

RISK OF POTENTIAL LIMITATION OF OUR NET OPERATING LOSS CARRYFORWARDS ("NOLS") --
CERTAIN FUTURE CHANGES IN THE COMPOSITION OF OUR STOCKHOLDER POPULATION COULD,
IN CERTAIN CIRCUMSTANCES, LIMIT OUR ABILITY TO USE OUR NOLS.

      We estimate that, as of December 31, 2006, we had reportable federal NOLs
of approximately $357.8 million. These NOLs expire in 2011 through 2025 and are
subject to examination and adjustment by the IRS. In addition, our utilization
of these NOLs became subject to limitation under Internal Revenue Code section
382 ("Section 382") upon emergence from bankruptcy, which affects the timing of
the use of NOLs. At this time, we do not believe these limitations will
materially limit our ability to use any NOLs before they expire.

      The limitations imposed by Section 382 provide that a corporation that
undergoes an "ownership change" may generally thereafter only utilize its
pre-change losses (including, in some cases, certain so-called "built-in" losses
that have not yet been recognized for federal income tax purposes) to offset a
fixed amount of taxable income per year. A corporation generally undergoes an
ownership change if the percentage of stock of the corporation owned by one or
more 5% shareholders has increased by more than 50 percentage points over, at
most, a three-year period (with certain groups of less-than-5% shareholders
treated as a single shareholder for this purpose). We underwent such an

                                       15
ownership change upon consummation of its reorganization in January 2004.
Subsequent changes in our stock ownership, including other sales of our common
stock by 5% shareholders, certain purchases that result in 5% or greater
ownership of our common stock, certain changes in the indirect beneficial
ownership of our common stock, and issuances or redemptions of common stock by
us, could result in another ownership change that would trigger an additional
Section 382 limitation.

      The application of another Section 382 limitation on our federal NOLs as a
result of future ownership changes could reduce the amount of such NOLs we could
utilize in a year, and thereby have an adverse effect on our anticipated future
cash flow, if, for example, the fair market value of our stock were to decline
significantly prior to such ownership change. In general, the amount of the
annual limitation to which a corporation's pre-change losses are subject
following an ownership change is equal to the product of (1) the fair market
value of the corporation's stock immediately before the ownership change
(subject to certain reductions) multiplied by (2) the "long-term tax-exempt
rate" in effect for the month in which the ownership change occurs. In certain
circumstances, the annual limitation for a particular year may be increased due
to the subsequent recognition of so-called "built-in" gains that existed at the
time of the ownership change. Any unused limitation may be carried forward,
thereby increasing the annual limitation in the subsequent taxable year.
However, if we did not continue our historic business or use a significant
portion of our assets in a new business for two years after the ownership
change, the resulting annual limitation would be reduced, possibly to zero.

CLAIMS FOR PROFESSIONAL LIABILITY--PENDING OR FUTURE ACTIONS OR CLAIMS FOR
PROFESSIONAL LIABILITY (INCLUDING ANY ASSOCIATED JUDGMENTS, SETTLEMENTS, LEGAL
FEES AND OTHER COSTS) COULD REQUIRE US TO MAKE SIGNIFICANT CASH EXPENDITURES AND
CONSUME SIGNIFICANT MANAGEMENT TIME AND RESOURCES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR PROFITABILITY AND FINANCIAL CONDITION.

      Management and administration of the delivery of specialty managed
healthcare, and the direct provision of healthcare treatment services, entail
significant risks of liability. In recent years, participants in the specialty
managed healthcare industry have become subject to an increasing number of
lawsuits. From time to time, we are subject to various actions and claims of
professional liability alleging negligence in performing utilization review
activities, as well as for the acts or omissions of our employees, network
providers or others. In the normal course of business, we receive reports
relating to deaths and other serious incidents involving patients enrolled in
our programs. Such incidents occasionally give rise to malpractice, professional
negligence and other related actions and claims against us or our network
providers. We are also subject to actions and claims for the costs of services
for which payment was denied. Many of these actions and claims seek substantial
damages and require us to incur significant fees and costs related to our
defense and consume significant management time and resources, which could have
a material adverse effect on our profitability and financial condition.

PROFESSIONAL LIABILITY AND OTHER INSURANCE--CLAIMS BROUGHT AGAINST US THAT
EXCEED THE SCOPE OF OUR LIABILITY COVERAGE OR DENIAL OF COVERAGE COULD
MATERIALLY AND ADVERSELY AFFECT OUR PROFITABILITY AND FINANCIAL CONDITION.

      We maintain a program of insurance coverage against a broad range of risks
in our business. As part of this program of insurance, we carry professional
liability insurance, subject to certain deductibles and self-insured retentions.
We are also sometimes required by customer contracts to post surety bonds with
respect to our potential liability on professional responsibility claims that
may be asserted in connection with services we provide. As of December 3l, 2006,

                                       16
we had approximately $6.2 million of such bonds outstanding. Our insurance may
not be sufficient to cover any judgments, settlements or costs relating to
present or future claims, suits or complaints. Upon expiration of our insurance
policies, sufficient insurance may not be available on favorable terms, if at
all. To the extent our customers are entitled to indemnification under their
contracts with us relating to liabilities they incur arising from the operation
of our programs, such indemnification may not be covered under our insurance
policies. To the extent that certain actions and claims seek punitive and
compensatory damages arising from our alleged intentional misconduct, such
damages, if awarded, may not be covered, in whole or in part, by our insurance
policies. We also have potential liability relating to the self-insurance
program we maintained previously with respect to our provider business. If we
are unable to secure adequate insurance in the future, or if the insurance we
carry is not sufficient to cover any judgments, settlements or costs relating to
any present or future actions or claims, such judgments, settlements or costs
may have a material adverse effect on our profitability and financial condition.
If we are unable to obtain needed surety bonds in adequate amounts or make
alternative arrangements to satisfy the requirements for such bonds, we may no
longer be able to operate in those states, which would have a material adverse
effect on us.

CLASS ACTION SUITS AND OTHER LEGAL PROCEEDINGS--WE COULD BE TARGETED BY CLASS
ACTION AND OTHER LAWSUITS THAT COULD RESULT IN MATERIAL LIABILITIES TO US OR
CAUSE US TO INCUR MATERIAL COSTS, TO CHANGE OUR OPERATING PROCEDURES IN WAYS
THAT INCREASE COSTS OR TO COMPLY WITH ADDITIONAL REGULATORY REQUIREMENTS.

      Managed healthcare companies and PBM companies have been targeted as
defendants in national class action lawsuits regarding their business practices.
We have in the past been subject to such class actions as defendants and is also
subject to other lawsuits and legal proceedings in conducting our business.
These lawsuits may take years to resolve and cause us to incur substantial
litigation expenses and the outcomes could have a material adverse effect on our
profitability and financial condition. In addition to potential damage awards,
depending upon the outcomes of such cases, these lawsuits may cause or force
changes in practices of our industry and may also cause additional regulation of
the industry through new federal or state laws or new applications of existing
laws or regulations. Such changes could increase our operating costs.

GOVERNMENT INVESTIGATIONS--WE MAY BE SUBJECTED TO ADDITIONAL REGULATORY
REQUIREMENTS AND TO INVESTIGATIONS OR REGULATORY ACTION BY GOVERNMENTAL
AGENCIES, EACH OF WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      From time to time, we receive notifications from and engage in discussions
with various government agencies concerning our businesses and operations. As a
result of these contacts with regulators, we may, as appropriate, be required to
implement changes to our operations, revise our filings with such agencies
and/or seek additional licenses to conduct our business. Our inability to comply
with the various regulatory requirements may have a material adverse effect on
our business.

      In addition, we may become subject to regulatory investigations relating
to our business, which may result in litigation or regulatory action. A
subsequent legal liability or a significant regulatory action against us could
have a material adverse effect on our business, financial condition and results
of operations. Moreover, even if we ultimately prevail in the litigation,
regulatory action or investigation, such litigation, regulatory action or
investigation could have a material adverse effect on our business, financial
condition and results of operations.

                                       17
WHERE YOU CAN FIND MORE INFORMATION

      The documents incorporated by reference into this prospectus are available
from us upon request. We will provide a copy of any and all of the information
that is incorporated by reference in this prospectus, without charge, upon
written or oral request.

      If you would like to obtain this information from us, please direct your
request, either in writing or by telephone, to:

                               Investor Relations
                         Magellan Health Services, Inc.
                                   55 Nod Road
                             Avon, Connecticut 06001
                                 (860) 507-1900

      We file reports, proxy statements and other information with the SEC.
Copies of our reports, proxy statements and other information may be inspected
and copied at the public reference room maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549.

      Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site
that contains reports, proxy and information statements and other information
regarding Magellan and other issuers that file electronically with the SEC. The
address of the SEC internet site is www.sec.gov. This information is also
available on our Company website at www.magellanhealth.com.

      Reports, proxy statements and other information regarding us may also be
inspected at:

                 The National Association of Securities Dealers
                               1735 K Street, N.W.
                             Washington, D.C. 20006

      We have filed a registration statement under the Securities Act with the
SEC with respect to the shares to be sold hereunder. This prospectus has been
filed as part of the registration statement. This prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted in accordance with the rules and
regulations of the SEC. The registration statement is available for inspection
and copying as set forth above.

                                 USE OF PROCEEDS

      We will not receive any proceeds from the sale of the Ordinary Common
Stock pursuant to this prospectus. All proceeds from the sale of the Ordinary
Common Stock pursuant to this prospectus will be made for the account of the
Selling Stockholder, as described below.

                               SELLING STOCKHOLDER

      This prospectus relates to certain shares of Ordinary Common Stock that
have been issued, subject to certain restrictions, to the Selling Stockholder
without payment therefor. This prospectus may also be used by the Selling
Stockholder's donees, pledgees, transferees or other successors in interest. The

                                       18
following table sets forth the name and relationship to Magellan of the Selling
Stockholder, and the information with respect to the number of shares of
Ordinary Common Stock owned by the Selling Stockholder and as adjusted to give
effect to the sale of the shares that may be offered pursuant to this
prospectus. Because the Selling Stockholder may from time to time offer all or
some of the shares pursuant to this offering, we cannot estimate the number of
the shares that will be held by the Selling Stockholder after completion of the
offering. However, for purposes of the table below, we have assumed that, after
completion of the offering, none of the shares covered by this prospectus as of
the date of this prospectus will be held by the Selling Stockholder.

                                     NUMBER OF
                                       SHARES                  NUMBER OF
                      RELATIONSHIPS     OWNED     NUMBER OF     SHARES
                       TO MAGELLAN    PRIOR TO     SHARES       OWNED
NAME OF SELLING           SINCE         THE         BEING     AFTER THE
   STOCKHOLDER         JANUARY 2003   OFFERING     OFFERED     OFFERING
   -----------         ------------   --------     -------     --------

 Michael Majerik     Chief Sales and     4,753       4,753         0
                    Marketing Officer

      Pursuant to Rule 416 under the Securities Act, the registration statement
of which this prospectus is a part also covers any additional shares of Ordinary
Common Stock which become issuable in connection with the shares identical in
the table above through any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration, which
results in an increase in the number of outstanding shares of Ordinary Common
Stock.

      As of February 28, 2007, there were 38,949,649 shares of Ordinary Common
Stock issued and outstanding.

                              PLAN OF DISTRIBUTION

      As used in this prospectus, "Selling Stockholder" includes the Selling
Stockholder named above and his donees, pledgees, transferees or other
successors in interest selling shares received from named Selling Stockholder as
a gift, partnership distribution or other non-sale-related transfer after the
date of this prospectus. We have been advised that the Selling Stockholder may
effect sales of the shares of Ordinary Common Stock directly, or indirectly by
or through underwriters, agents or broker-dealers, and that the shares of
Ordinary Common Stock may be sold by one or a combination of several of the
following methods:

      o     one or more block transactions, in which the broker or dealer so
            engaged will attempt to sell the shares of Ordinary Common Stock as
            agent but may position and resell a portion of the block as
            principal to facilitate the transaction, or in crosses, in which the
            same broker acts as an agent on both sides of the trade;

      o     purchases by a broker-dealer or market maker, as principal, and
            resale by the broker-dealer for its account;

      o     ordinary brokerage transactions or transactions in which a broker
            solicits purchases;

                                       19
o     on the Nasdaq Stock Market or on any other national securities
            exchange or quotation service on which our Ordinary Common Stock may
            be listed or quoted at the time of the sale;

      o     in the over-the-counter market;

      o     through the writing of options, whether the options are listed on an
            options exchange or otherwise;

      o     through distributions to creditors and equity holders of the Selling
            Stockholders; or

      o     any combination of the foregoing, or any other available means
            allowable under applicable law.

      We will bear all costs, expenses and fees in connection with the
registration and sale of the Ordinary Common Stock covered by this prospectus,
other than underwriting discounts and selling commissions. We will not receive
any proceeds from the sale of the shares of our Ordinary Common Stock covered
hereby. The Selling Stockholder will bear all commissions and discounts, if any,
attributable to sales of the shares. The Selling Stockholder may agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of the shares against certain liabilities, including liabilities arising
under the Securities Act.

      The Selling Stockholder may sell the shares covered by this prospectus
from time to time, and may also decide not to sell all or any of the shares he
is allowed to sell under this prospectus. The Selling Stockholder will act
independently of us in making decisions regarding the timing, manner and size of
each sale. The Selling Stockholder may effect sales by selling the shares
directly to purchasers in individually negotiated transactions, or to or through
broker-dealers, which may act as agents or principals. The Selling Stockholder
may sell his shares at fixed prices, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale, or at privately negotiated prices.

      Additionally, the Selling Stockholder may engage in hedging transactions
with broker-dealers in connection with distributions of shares or otherwise. In
those transactions, broker-dealers may engage in short sales of shares in the
course of hedging the positions they assume with the Selling Stockholder. The
Selling Stockholder also may sell shares short and redeliver shares to close out
such short positions. The Selling Stockholder may also enter into option or
other transactions with broker-dealers which require the delivery of shares to
the broker-dealer. The broker-dealer may then resell or otherwise transfer such
shares pursuant to this prospectus. The Selling Stockholder also may loan or
pledge shares to a broker-dealer. The broker-dealer may sell the shares so
loaned or pledged pursuant to this prospectus.

      The Selling Stockholder may enter into derivative transactions with third
parties, or sell securities not covered by this prospectus to third parties in
privately negotiated transactions. If the applicable prospectus supplement
indicates, in connection with those derivatives, the third parties may sell
securities covered by this prospectus and the applicable prospectus supplement,
including in short sale transactions. If so, the third party may use securities
pledged by the Selling Stockholder or borrowed from the Selling Stockholder or
others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from the Selling Stockholder in
settlement of those derivatives to close out any related open borrowings of
stock. The third party in such sale transactions will be an underwriter and, if

                                       20
not identified in this prospectus, will be identified in the applicable
prospectus supplement (or a post-effective amendment).

      Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Stockholders. Broker-dealers
or agents may also receive compensation from the purchasers of shares for whom
they act as agents or to whom they sell as principals, or both. Compensation as
to a particular broker-dealer might be in excess of customary commissions and
will be in amounts to be negotiated in connection with transactions involving
shares. In effecting sales, broker-dealers engaged by the Selling Stockholder
may arrange for other broker-dealers to participate in the resales.

      In connection with sales of our Ordinary Common Stock covered hereby, the
Selling Stockholder and any broker-dealers or agents and any other participating
broker-dealers who execute sales for the Selling Stockholder may be deemed to be
"underwriters" within the meaning of the Securities Act. Accordingly, any
profits realized by the Selling Stockholder and any compensation earned by such
broker-dealers or agents may be deemed to be underwriting discounts and
commissions. Because the Selling Stockholder may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, the
Selling Stockholder will be subject to the prospectus delivery requirements of
that act. We will make copies of this prospectus (as it may be amended or
supplemented from time to time) available to the Selling Stockholder for the
purpose of satisfying the prospectus delivery requirements. In addition, any
shares of the Selling Stockholder covered by this prospectus which qualify for
sale pursuant to Rule 144 under the Securities Act may be sold in open market
transactions under Rule 144 rather than pursuant to this prospectus.

      The Selling Stockholder will be subject to applicable provisions of
Regulation M of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder, which provisions may limit the timing of
purchases and sales of any of the shares of our Ordinary Common Stock by the
Selling Stockholder. These restrictions may affect the marketability of such
shares.

      In order to comply with applicable securities laws of some states, the
shares may be sold in those jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirements is
available.

      To the extent necessary, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. We will file a
supplement to this prospectus, if required, upon being notified by the Selling
Stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. The supplement will disclose the name of the Selling Stockholder and of
the participating broker-dealer(s); the number of shares involved; the price at
which such shares were sold; the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable; that such broker-dealer(s)
did not conduct any investigation to verify the information contained in or
incorporated by reference in this prospectus; and any other facts material to
the transaction.

                                       21
LEGAL MATTERS

      The validity of the issuance of shares of the Ordinary Common Stock
offered by this Prospectus will be passed upon for us by Weil, Gotshal & Manges
LLP, New York, New York.

                                     EXPERTS

      The consolidated financial statements of Magellan Health Services, Inc.
appearing in Magellan Health Services, Inc.'s Annual Report (Form 10-K) for the
year ended December 31, 2006 (including schedules appearing therein) and
Magellan Health Services, Inc. management's assessment of the effectiveness of
internal control over financial reporting as of December 31, 2006 included
therein, have been audited by Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included therein, and
incorporated herein by reference. Such consolidated financial statements and
management's assessment are incorporated herein by reference in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.

                                       22
PART II

               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3.  INCORPORATION OF DOCUMENTS BY REFERENCE.

      The SEC allows us to "incorporate by reference" into this prospectus the
information we have filed with the SEC. This means that we can disclose
important information by referring you to those documents. All documents that
Magellan subsequently files with the Commission pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment to this Registration Statement which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, will be deemed to be incorporated by reference in this Registration
Statement and to be a part hereof from the date of filing of such documents.
Unless expressly incorporated into this Registration Statement, a Current Report
(or portion thereof) furnished, but not filed, on Form 8-K shall not be
incorporated by reference into this Registration Statement. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this Registration Statement shall be deemed to be modified or superseded for
purposes of this Registration Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.

      We incorporate by reference the following documents that we have filed
with the SEC and any filings that we will make with the SEC in the future under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is
terminated:

      o     Our Annual Report on Form 10-K for the year ended December 31, 2006.

      o     Our Current Report on Form 8-K filed on January 4, 2007;

      o     Our Current Report on Form 8-K filed on February 27, 2007; and

      o     The description of our Ordinary Common Stock, par value $0.01 per
            share, contained in our Current Report on Form 8-K filed on November
            5, 2004.

ITEM 4.  DESCRIPTION OF SECURITIES.

      Not applicable.

ITEM 5.  INTERESTS OF NAMED EXPERTS AND COUNSEL

      Not applicable.

ITEM 6.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

      The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law, which we refer to as the "DGCL", provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.

                                      II-1
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of his service as director, officer, employee or agent of the
corporation, or his service, at the corporation's request, as a director,
officer, employee or agent of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding if such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful.

      Subsection (b) of Section 145 empowers a corporation to indemnify any
director or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director or officer shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such director or officer is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.

      Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) or (b) or in the defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

      Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would otherwise have the power to indemnify such person
against such liability under Section 145.

      In addition, Section 102(b)(7) of the DGCL permits Delaware corporations
to include a provision in their certificates of incorporation eliminating or
limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that the provisions will not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payment of dividends or other unlawful distributions, or (iv) for any
transactions from which the director derived an improper personal benefit.

      Article V Section 1 of the Bylaws and Article VI Part E of the Amended and
Restated Certificate of Incorporation of Magellan provide in substance that

                                      II-2
Magellan will indemnify current and former directors and officers to the fullest
extent permitted by law. In addition, Article VI Part D of the Certificate of
Incorporation of Magellan provides in substance that directors of Magellan will
not be personally liable either to Magellan or to any stockholder for monetary
damages for breach of fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to Magellan or its stockholders, or (ii) for acts
or omissions which are not in good faith or which involve intentional misconduct
or knowing violation of the law, or (iii) for any matter in respect of which the
director will be liable under Section 174 of the DGCL or any amendment thereto
or successor provision thereto, or (iv) for any transaction from which the
director derived an improper personal benefit. Magellan maintains Directors' and
Officers' liability insurance with various insurance providers.

ITEM 7.  EXEMPTION FROM REGISTRATION CLAIMED

The issuance of the shares of Ordinary Common Stock being offered under the
reoffer prospectus were exempt from registration under the Securities Act as a
transaction not involving any public offering.

ITEM 8.  EXHIBITS.

  EXHIBIT                            DESCRIPTION
----------  --------------------------------------------------------------------
   4.1      Amended and Restated Certificate of Incorporation of the
            Registrant, as filed in the office of the Secretary of
            State of the State of Delaware on January 5, 2004.(1)

   4.2      Bylaws of the Registrant, as of January 5, 2004, as
            amended January 21, 2004. (2)

   4.3      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and John Donahue (as assumed by
            Magellan Health Services, Inc.)

   4.4      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and Thomas Dehn (as assumed by Magellan
            Health Services, Inc.)

   4.5      Amendments, dated as of January 31, 2006, to Incentive
            Stock Option Award Agreements between National Imaging
            Associates, Inc. and R. Robert LaGalia (as assumed by
            Magellan Health Services, Inc.)

   4.6      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and John Donahue

   4.7      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and Thomas Dehn

   4.8      Stock Option Agreement and Notice of Stock Option Grant,
            dated as of January 31, 2006, between Magellan Health
            Services, Inc. and R. Robert LaGalia

                                      II-3
4.9      Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and George Petrovas

   4.10     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Andrew Gellman

   4.11     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Kerry Bradley

   4.12     Stock Option Agreement and Notice of Stock Option Grant,
            dated July 31, 2006, between Magellan Health Services,
            Inc. and Kjel Johnson

   4.13     Stock Option Agreement and Notice of Option Grant, dated
            as of July 17, 2006, between Magellan Health Services,
            Inc. and Michael Majerik.

   4.14     Restricted Stock Unit Award Agreement and Notice of
            Restricted Stock Unit Grant, dated as of July 17, 2006,
            between Magellan Health Services, Inc. and Michael
            Majerik.

   5.1      Opinion of Weil, Gotshal & Manges LLP as to the legality of shares
            of Ordinary Common Stock being registered.

   23.1     Consent of Ernst & Young LLP

   23.2     Consent of Weil, Gotshal & Manges LLP (included in the
            Opinion filed as Exhibit 5.1)

   24.1     Power of Attorney of certain directors and officers of
            the Registrant (included in signature page of this
            Registration Statement)

(1) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004
(File No. 1-06639).

(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 5,
2004 (File No. 1-06639).

                                      II-4
ITEM 9.  UNDERTAKINGS.

(a)   The undersigned Registrant hereby undertakes:

      (1)   To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

            (i)   To include any prospectus required by Section 10(a)(3) of the
Securities Act;

            (ii)  To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and

            (iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.

      (2)   That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

      (3)   To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b)   The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(c)   Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,

                                      II-5
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

                                      II-6
SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, Magellan
Health Services, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Avon, State of Connecticut, on the 28th day of
February 2007.

                                    MAGELLAN HEALTH SERVICES, INC.
                                    By:     /s/ DANIEL N. GREGROIRE
                                            ------------------------------------
                                            Daniel N. Gregroire
                                            Senior Vice President

                                POWER OF ATTORNEY

      KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven J. Shulman, Mark S. Demilio and
Daniel M. Gregroire, and each of them, his attorneys-in-fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the SEC, hereby
ratifying and confirming all that each said attorneys-in-fact or his substitute
or substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

SIGNATURE                      TITLE                          DATE
---------                      -----                          ----

/s/ STEVEN J. SHULMAN          Chief Executive Officer        February 28, 2007
-----------------------        and Chairman of the Board
Steven J. Shulman              of Directors (Principal
                               Executive Officer)

/s/ DR. RENE LERER             Chief Operating Officer        February 28, 2007
-----------------------        and Director
Dr. Rene Lerer

/s/ MARK S. DEMILIO            Executive Vice President       February 28, 2007
-----------------------        and Chief Financial
Mark S. Demilio                Officer (Principal
                               Financial Officer)

/s/ JEFFREY N. WEST            Senior Vice President and      February 28, 2007
-----------------------        Controller Officer)
Jeffrey N. West

/s/ SAUL E. BURIAN
-----------------------        Director                       February 28, 2007
Saul E. Burian

/s/ MICHAEL DIAMENT
-----------------------        Director                       February 28, 2007
Michael Diament
/s/ BARRY SMITH
-----------------------        Director                       February 28, 2007
Barry Smith

/s/ ROBERT M. LE BLANC
-----------------------        Director                       February 28, 2007
Robert M. Le Blanc

/s/ WILLIAM J. MCBRIDE
-----------------------        Director                       February 28, 2007
William J. McBride

/s/ MICHAEL P. RESSNER
-----------------------        Director                       February 28, 2007
Michael P. Ressner

/s/ ALLEN F. WISE
-----------------------        Director                       February 28, 2007
Allen F. Wise
EXHIBIT INDEX

  EXHIBIT                            DESCRIPTION
-----------       --------------------------------------------------------------
     4.1          Amended and Restated Certificate of Incorporation of the
                  Registrant, as filed in the office of the Secretary of State
                  of the State of Delaware on January 5, 2004.(1)

     4.2          Bylaws of the Registrant, as of January 5, 2004, as amended
                  January 21, 2004. (2)

     4.3          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and John Donahue (as assumed by Magellan Health Services,
                  Inc.)

     4.4          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and Thomas Dehn (as assumed by Magellan Health Services,
                  Inc.)

     4.5          Amendments, dated as of January 31, 2006, to Incentive Stock
                  Option Award Agreements between National Imaging Associates,
                  Inc. and R. Robert LaGalia (as assumed by Magellan Health
                  Services, Inc.)

     4.6          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and John Donahue

     4.7          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and Thomas Dehn

     4.8          Stock Option Agreement and Notice of Stock Option Grant, dated
                  as of January 31, 2006, between Magellan Health Services, Inc.
                  and R. Robert LaGalia

     4.9          Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  George Petrovas

     4.10         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  Andrew Gellman

     4.11         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and
                  Kerry Bradley

     4.12         Stock Option Agreement and Notice of Stock Option Grant, dated
                  July 31, 2006, between Magellan Health Services, Inc. and Kjel
                  Johnson
4.13         Stock Option Agreement and Notice of Option Grant, dated as of
                  July 17, 2006, between Magellan Health Services, Inc. and
                  Michael Majerik.

     4.14         Restricted Stock Unit Award Agreement and Notice of Restricted
                  Stock Unit Grant, dated as of July 17, 2006, between Magellan
                  Health Services, Inc. and Michael Majerik.

     5.1          Opinion of Weil, Gotshal & Manges LLP as to the legality of
                  shares of Ordinary Common Stock being registered.

     23.1         Consent of Ernst & Young LLP

     23.2         Consent of Weil, Gotshal & Manges LLP (included in the Opinion
                  filed as Exhibit 5.1)

     24.1         Power of Attorney of certain directors and officers of the
                  Registrant (included in signature page of this Registration
                  Statement)

(1) Incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30, 2004
(File No. 1-06639).

(2) Incorporated by reference to Exhibit 3.1 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 5,
2004 (File No. 1-06639).