Kindred at Home Deal to Bolster Humana’s Performance Via Value-Based Arrangements

Humana Inc. (NYSE: HUM) expects its acquisition of a 100% interest in Kindred at Home will boost its financial outlook for 2021 and 2022. The company expects that soon-to-be implemented value-based models will be a primary driver of value for that newly acquired segment.

Humana in April announced plans to acquire the remaining 60% stake in Kindred at Home for $8.1 billion. This includes Humana’s existing equity value of $2.4 billion from its existing 40% ownership of the business. Humana acquired the 40% stake in 2018, with private equity firms Welsh, Carson, Anderson & Stowe and TPG Capital holding the remaining 60%.

“We obviously don’t have a home health business to integrate into [Kindred]. We are certainly looking at opportunities to see where we can create some synergies based on the capabilities they have, but I would not expect those to be significant,” Humana CEO Bruce Broussard said in an earnings call. “The real value is going to be on the new products and models that we intend to introduce, particularly the value based models.”

Following the close of the Kindred at Home acquisition in the third quarter, Humana Inc. (NYSE: HUM) plans to spin off and sell the company’s hospice business to capitalize on high market valuations. The company also expects to see substantial cost savings through reduced hospitalizations and skilled nursing admissions as more care moves into the home.

With Kindred’s scale, Humana stands to gain significantly from divesting its hospice segment, likely seeking a substantial price for the asset. Across all three of its service lines, Kindred at Home cares for 550,000 patients in their residences each year, employing nearly 43,000 clinical staff in locations throughout 40 states.

Humana has tapped Amy Smith, currently vice president of investor relations, to become vice president and CFO of Home Solutions, including the Kindred business.

“[Smith] will be a key member of the Home Solutions leadership team responsible for the financial oversight and planning and forecasting for the segment,” Susan Diamond, Humana’s CFO and president of the Home Solutions business, said. “[Investor Relations Consultant] Lisa Stoner will succeed Amy, accepting the role of vice president, investor relations.”

Kindred at Home’s home health operations will be integrated under the CenterWell brand of Humana’s Home Solutions business segment. CenterWell is a payer-agnostic entity, meaning the organization cares for patients even if they are not members of a Humana plan.

Going forward, Humana has signaled that it prefers to partner with hospices through a preferred provider network rather than offer those services through a subsidiary. This includes the company’s participation in the U.S. Centers for Medicare and Medicaid Services (CMS) Value-Based Insurance Design (VBID) demonstration, which will test coverage of hospice through Medicare Advantage. Stakeholders often refer to the program as the “Medicare Advantage hospice carve-in.”

Humana operates more of the participating health plans than any other insurance company. Those plans are concentrated in five markets that include Atlanta, Cleveland, Denver, the Louisville, Ky., metro area (including southern Indiana), and the Richmond-Tidewater region of Virginia. Kindred at Home’s footprint overlaps with about 65% of Humana’s individual Medicare Advantage membership.

Meanwhile, Humana is witnessing growth in its Medicare Advantage beneficiary base.

“Our Medicare Advantage growth remains on track and consistent with our previous expectations, with individual MA growing solidly above the market and an expected 11.4% at the midpoint, “ said Diamond. 

Humana identified an estimated $600 million in costs associated with COVID-19 headwinds, but the company expects a good portion of this to be offset by strong private pay development and Medicaid results in addition to incoming revenues from Kindred at Home.

Humana hauled in $588 million in profits during the second quarter of 2021, down 67.8% from Q2 2020. These declines represent a common trend among insurance companies this year as overall health care utilization starts to rebound following sharp dips last year as the pandemic ramped up. Patients who delayed elective procedures or other care due to fears of entering a facility during the outbreak are now coming back, leading to higher payouts from their insurers.

The company’s year-over-year revenues during the first half of 2021 rose to $41.3 billion, up from $38 billion in the first two quarters of 2020.

“Our expectation has always been that those costs on the COVID side would come down as a result of the rollout of vaccinations, and that utilization would rebound to more normal levels such that there is less positive upside that can offset those costs in the second half of the year,” Broussard said.