The region's largest mental-health insurer, which has angered doctors and patients for limiting care, has now attracted a more powerful critic: Wall Street.

Magellan Health Services Inc. is on a financial bender. The Columbia, Md., company is $1 billion in debt. Its stock traded at more than $33 a share in mid-1997 but fell to as low as 13 cents a share last week.

The nation's largest behavioral-health company has faced a fresh wave of criticism recently from patients, legislators and prosecutors for its treatment decisions. Experts have said it is often easier for poor clients on Medicaid to get drug and alcohol treatment than employees with commercial insurance. Magellan administers both programs in the Philadelphia suburbs.

Magellan has suffered defections, too. Four of 12 board members have quit in recent months, including G. Fred DiBona, chief executive officer of Independence Blue Cross, who resigned in June, saying he was too busy. Independence Blue Cross is the Philadelphia region's largest health insurer and a major Magellan customer.

Many providers said they fear that Magellan, which covers five million people in Pennsylvania and nearly three million in New Jersey, could soon declare bankruptcy. Hospital associations in both states warned their members about Magellan's finances in late August.

Magellan spokeswoman Erin S. Somers stressed last week that the company is still profitable. With annual sales of about $1.7 billion, Magellan has posted lower profits for the last two quarters.

Somers said the company hired an adviser last week to consider "a possible capital restructuring" to whittle down the debt. Asked if that included bankruptcy, Somers said: "We're early on in the effort... . We don't think it's appropriate to speculate at this time."

Executives for Independence Blue Cross and Aetna, which use Magellan to handle mental-health treatment decisions, said clients would be protected.

"We have been assured by Magellan there will be no impact on service levels," said Aetna spokesman David Carter.

As recently as seven years ago, Magellan was a company dominated by psychiatric hospitals. Magellan sold that declining business and moved into behavioral-health services, snapping up three companies - Merit, Green Spring and Human Affairs International - and racking up $1 billion in debt.

Magellan's strategy looked promising in 1997, when HMOs were flying high, but not recently as its largest customer, Aetna, has shrunk. "Their survival is highly likely, but their debt level is not sustainable in a low-growth environment," said Susannah Gray, director of high-yield research at Merrill Lynch.

Mental-health advocates said they found it ironic that Magellan is now in financial straits. The company is known for driving hard bargains with hospitals and clinics.

Legislators in Pennsylvania, led by Rep. George Kenney (R., Phila.), have held two hearings over the last year, accusing the company and its competitors of failing to follow state law for access to drug and alcohol treatment. Some judges and district attorneys have joined the fray, complaining that Magellan and other firms often try to push treatment costs onto taxpayers.

"Why are prosecutors concerned about managed care in drug and alcohol?" said Gary Tennis, chief of legislation for the Philadelphia District Attorney's Office. "It's because when people don't get treatment they need, a high percentage go on to commit crimes.

"No one I know says they've gotten enough treatment from Magellan or the other behavioral firms," Tennis said.

At issue are benefits that many workers take for granted: up to 30 days a year in a hospital for drug and alcohol treatment and seven days for detox. Advocates said they believed that such benefits were spelled out in Pennsylvania's Act 106.

But managed-care firms take a different view. Magellan's Somers said it was not in the patient's interest to put everyone in the hospital. "Our point of view is we don't believe one size fits all," she said.

Other observers agreed. "In many situations, it's hard to honestly and empirically say inpatient care is better than extended outpatient," said Arthur N. Leibowitz, Aetna's former chief medical director who now holds a similar post with Health Advocate, a West Conshohocken start-up that helps employees use insurance benefits. "It's an area that has been subject to great abuse in the past."

Patient advocates said the pendulum had swung too far the other way, toward outpatient care. Several executives who run employee assistance programs for local companies said they used to send workers out of state to bypass Magellan, but that avenue has been blocked recently. Others said they referred addicted or depressed employees to primary-care doctors, at least to get treatment started. "What we've learned is how to go around the Magellan system," said Paula T. deLong, president of the 150-member Greater Philadelphia chapter of the Employee Assistance Professional Association.

Many advocates said it was easier to get sustained drug and alcohol treatment under Medicaid than from commercial insurance.

That is the conclusion of Dennie J. Baker, head of the Bucks County chapter of the National Alliance for the Mentally Ill, which runs four local hotlines for consumers needing care. "The ones with private insurance seem to have a lot more trouble getting people into hospitals," Baker said.

Magellan's Somers responded that the company often managed both Medicaid and commercial insurance. Medicaid tends to be more complete, in part because poor clients tend to need more services, she said.

Many clients said they were shocked to discover this. A University of Pennsylvania professor said he learned firsthand about the advantages of Medicaid when his 18-year-old son developed bipolar disease, which left him either manic or depressed.

Under the professor's Magellan coverage, his son received only brief, eight- to 10-day hospital stays. He was in and out of the hospital a half-dozen times over the last three years.

Finally, this spring, the son, now 21 and disabled, qualified for Medicaid, which Magellan also manages. He immediately received a monthlong stay in the Hospital of the University of Pennsylvania and is now in a treatment home in Delaware County.

"Since then, he seems to be getting better, but it's a long-term process," the father said. "These eight to 10 days and nothing afterward is a useless treatment. They could have just as easily sent him to a bench in the park."