Despite continued solid performance in its core managed care business, Healthways (NASDAQ:HWAY) remains troubled by delayed program implementations and the disappointing results of its Medicare program.

In the core commercial business, the number of self-insured employers contracting with Healthways for managed care coverage grew 62%. The company's proven cost-cutting power continues to win adherents; after it lands those customers, Healthways seems to have little trouble maintaining a happy client base.

Still, the Motley Fool Stock Advisor recommendation had to cut fiscal 2007 revenue projections. Healthways previously forecast revenue of $667 million to $701 million, but because the implementation dates on several big contracts have been pushed back, and the contracts now sit in backlog, the company now believes that $640 million to $659 million is a more reasonable assumption.

Healthways also reaffirmed earnings in the range of $1.44 to $1.61 per share, with the core commercial business providing as much as $1.74 in profits. Contracts with Humana (NYSE:HUM), WellPoint (NYSE:WLP), and Blue Cross/Blue Shield added many new "lives under management."

However, that guidance includes as much as $0.14 per share in costs from participation in the Medicare Health Support (MHS) pilot program, as well as $0.10 per share in international initiatives. The revenue count includes no such contribution from new international programs the company expects to undertake in the latter half of the year.

I wouldn't be too sure about any of those numbers yet. Healthways' participation in the MHS program remains subject to change, and if the update the company provided at the end of the first quarter is any indication, it may experience significant revenue reversals.

The MHS program requires Healthways to achieve 5% cost reductions over its three-year contract. The company's January interim report showed far smaller results than anticipated, which could jeopardize the $60 million to $90 million in fees Healthways expects to receive from the contract.

While the managed-care provider provided no new clues to future performance, it did say that its own analysis found the data accurate. That's troublesome on the surface, but Healthways also noted that subsets of the population were performing up to expectations and historical experience. Any shortfalls might thus result from intractable population groups and dynamics.

Healthways is trying to renegotiate the deal with these factors in mind. Though the agency overseeing the program must stay within its legal guidelines, Healthways hopes it can carve out enough wiggle room to meet its obligations. That's just one of a great many caveats the company faces; it's already had $1.9 million in net reversals of revenue, and lots more might be coming if it doesn't achieve the mandated results, or get the contract changed.

This situation just looks too shaky to invite my investment. Despite the solidity of the core commercial business, unless Healthways makes some headway with the MHS pilot program, I can't place much confidence in management's guidance.

Healthways is a recommendation of Motley Fool Stock Advisor, where subscribers have been discussing these issues for months. A 30-day trial subscription will give you the lowdown.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.