Humana Set on Home-Based Care Expansion with Kindred Hospice Spin-off In the Works

Humana (NYSE: HUM) is currently migrating Kindred at Home’s home health services into its health care service brand, CenterWell. The company will be focused on expanding the acquired asset’s footprint in select markets in North Carolina and Virginia in 2022 as it paves the way for a hospice spin off. 

Humana in April completed the acquisition of a remaining 60% stake in Kindred at Home for $8.1 billion during the third quarter, which included an equity value of $2.4 billion from its existing 40% ownership of the business. Humana initially acquired 40% ownership in 2018, with private equity firms Welsh, Carson, Anderson & Stowe and TPG Capital then holding the remaining 60%.

Humana plans to spin off and sell Kindred’s hospice business to capitalize on high market valuations. The timing and structure of the spinoff may be revealed with the company’s first quarter earnings report next year, according to Humana CEO Bruce Broussard.

“With respect to hospice, our intent remains to ultimately divest the majority interest in this portion of the asset,” said Broussard in a third quarter earnings call. “Since we closed the transaction, we have continued to explore alternatives for the long-term ownership structure for the business, and have initiated steps to reorganize the hospice business for stand-alone operations, while also ensuring business continuity and monitoring underlying trends.”

The integration of Kindred into Centerwell is a move largely driven by evolving value-based home health care models. Kindred at Home’s footprint overlaps with about 65% of Humana’s individual Medicare Advantage membership. CenterWell, a brand of Humana’s Home Solutions business segment, is a payer-agnostic entity, meaning the organization cares for patients even if they are not members of one of the parent company’s health plans.

A key component of Humana’s growth strategy centers on building out its health care service platforms, starting with primary care business and expanding its home care offerings. The insurance giant covers the largest senior-focused, value-based primary care population, serving roughly 300,000 beneficiaries across 24 markets in nine states. Humana plans to add 30 de novo senior-focused centers in 2022. This is up from 24 this year.

“We’ve chosen [these] based on multiple criteria, including market density, opportunity to significantly reduce home care expenses, and a robust Kindred at Home footprint,” said Broussard during the earnings call. “We expect to begin the rollout in the second quarter of 2022 with a goal of covering nearly 50% of Humana Medicare Advantage members under this value-based home health model within the next five years.”

Humana’s Q3 revenues reached $20.6 billion, up 3.1% year over year, driven largely by Medicare Advantage and state contracts membership growth, higher MA premiums, as well as income from Kindred at Home. The company’s health care services segment brought in $8.04 billion, representing a 13% increase from the prior year’s quarter.

The staffing shortages plaguing the nation’s health care system are a concern for Humana in terms of maintaining sufficient capacity to meet its growth goals and demand for care. The staffing shortage had a negative impact on the company’s top-line growth. Humana is bolstering its nurse recruiting and retention efforts and making targeted investments to fill provider staffing ranks.

Humana reported higher than expected COVID-related costs due to the mid-year delta variant surge, an estimated $600 million in Q3. The company expects a good portion of this to be offset by private pay development and Medicaid results in addition to incoming revenues from Kindred at Home.

Largely due to pandemic-related uncertainties, Humana’s 2022 guidance reflects “a much more conservative posture,” according to Susan Diamond, Humana’s CFO and president of the company’s home-based care business.

“Given the ongoing uncertainty surrounding the COVID 19 pandemic, we expect to enter the year with an appropriately conservative view of our initial 2022 financial outlook,” said Diamond. “In 2022, we do not anticipate a risk adjustment headwind and expect COVID utilization to be offset by a reduction in non-COVID utilization.”