Humana to Divest Majority Stake in Kindred at Home’s Hospice Business Post-Acquisition

Humana Inc. (NYSE: HUM) plans to divest itself of Kindred at Home’s hospice business following its forthcoming acquisition, expected to close in the third quarter. Humana, which has held 40% ownership of Kindred at Home since 2018, has signed a definitive agreement to purchase the remaining 60% stake from the private equity firms TPG Capital and Welsh, Carson, Anderson and Stowe.

Kindred at Home is valued at $8.1 billion, including Humana’s current $2.4 billion in equity value from its 40% holding. Humana indicated that the company has a working partnership model with regards to hospice that is working well, making it unnecessary for the insurance company to maintain a controlling interest in that asset. 

“Humana has been successful in delivering the desired patient experience and outcomes through partnership models, including through participation in the Centers for Medicare and Medicaid Services (CMS) hospice Value-Based Insurance Design (VBID) model,” Humana Corporate Communications Director Mark Matthis told Hospice News. “This minority ownership position allows us to continue to have input on further program and product advancements through continued strong partnership. We are exploring, among other things, a public listing, conditions permitting, or another potential transaction.”

Humana has proven to be the largest player in the VBID model during its first year. Often called the hospice carve-in, the demonstration project is testing the inclusion of hospice in Medicare Advantage. Humana operates more of the participating health plans than any other insurance company. They have begun to offer hospice through their MA plans in five markets: Atlanta, Cleveland, Denver, the Louisville, Ky., metro area (including southern Indiana), and the Richmond-Tidewater region of Virginia.

Humana’s attention is more focused on Kindred’s home health business, which the company plans to integrate into its CenterWell health care services brand. CenterWell is payer-agnostic, meaning that it’s patient population includes people who are not Humana beneficiaries.

Humana’s move signals recognition that the home will become an increasingly important health care setting in the coming years. Bringing care to the home is a trend that began in earnest long before the COVID-19 pandemic, but the pace has accelerated. This is a side effect of public anxiety about entering hospitals and facility-based care settings.

The ability of hospice, palliative care and home health to reduce the incidence of high-acuity care such as hospital stays, emergency department visits and skilled nursing utilization, this leading to substantial cost savings. This is a key motivator for payors like Humana.

“We’ve demonstrated that we can reduce the cost of care and provide value to shareholders through additional referrals to Kindred, advancing effective clinical interventions in the home and supporting higher acuity patients by leveraging other home based-assets we’ve assembled,” Humana CEO Bruce Broussard said in an earnings call. “Kindred at Home continues to demonstrate superior patient outcomes, including reduced hospitalizations, admissions, and [emergency department] utilization.”

Humana earned $20.75 billion during the first quarter of 2021, up from nearly $18.4 billion in the prior year’s quarter. The company’s health care services segment accounted for almost $7.2 billion in Q1, up from $7.08 billion in the first quarter of 2020.

Humana and the two private equity firms completed the acquisition of Kindred Healthcare in 2018. The transaction separated Kindred’s facility-based businesses from its hospice, home health and community-based care services. Those segments were reorganized as Kindred at Home.

Across all three of its service lines, Kindred at Home cares for 550,000 patients in their residences each year. The company employs nearly 43,000 clinical staff in locations throughout 40 states. Kindred’s footprint overlaps with about 65% of Humana’s individual Medicare Advantage membership.

The high valuations of hospice companies on the M&A market may also be factoring into Humana’s decision to divest the hospice portion of the business, meaning they could ask a substantial price for the asset.

Multiples in the hospice and home care space reached a record 26x during 2020, according to a research report by PwC’s Health Research Institute. Hospice and home health merger and acquisition activity buoyed the larger health care services sector last year, which saw a decline in transactions largely due to the fallout from the COVID-19 pandemic. Overall health care sector multiples hovered near 13.9x, up slightly from 13.8x the prior year, according to PwC.

“We expect that we will be able to capitalize on a robust market for hospice assets by divesting a majority stake in that portion of the business for what we anticipate will be an attractive valuation,” Humana CFO Brian Kane said.