Humana Takes Another Step Toward Kindred at Home Hospice Divestiture

Health care company and insurance giant Humana Inc. (NYSE: HUM) is rumored to be one step closer to divesting Kindred at Home’s hospice business.

The Louisville, Kentucky-based Humana has begun a divestiture process in collaboration with Goldman Sachs, Axios reported Monday, noting that the information came from three different sources. The process is supposedly targeting private equity interests.

Humana, which releases its 2021 full-year financial results on Wednesday, did not respond to a request for comment from Hospice News.

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For those who follow the hospice industry, Monday’s rumors shouldn’t come as a surprise. In fact, Humana leadership has been very transparent about the company’s plan to strategically separate Kindred at Home’s hospice business from its core home health operations.

The idea was first floated when Humana bought out PE partners TPG Capital and Welsh, Carson, Anderson & Stowe (WCAS) to take full ownership of Kindred at Home last April. The company said it would explore a range of options, including a public listing or sale, but likely still maintain a minority interest.

Leadership again discussed the notion of a hospice divestiture in November during a third quarter earnings call.

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“With respect to hospice, our intent remains to ultimately divest the majority interest in this portion of the asset,” Humana CEO Bruce Broussard said. “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.”

Overall, Kindred at Home delivers home health, hospice and community-based services to more than 550,000 patients annually. It has locations in 40 states, employing about 43,000 caregivers in total.

Generally, Humana sees Kindred’s home health capabilities as a core lever to keeping its members healthy and out of costlier care settings. The big-picture plan is to rebrand those capabilities as “CenterWell Home Health,” part of Humana’s payer-agnostic senior care platform that also includes CenterWell Senior Primary Care.

Humana’s top executives view hospice as a key part of the care continuum, but they believe the company can bring those services to members through external relationships.

“As our experience has demonstrated, we can deliver desired experiences and outcomes for patients transitioning from restorative care to hospice through partnership models,” Broussard continued.

Humana is looking to sell Kindred’s hospice operations for a multiple of 12x EBITDA, according to the Axios report. With sources putting the division’s EBITDA at around $300 million, that could mean a deal in the upper-$3 billion range.

If that’s accurate, it could end up being a relative “bargain” for a potential buyer, at least compared to the price tags on other, smaller hospice transactions from the past few years.

Multiples in the hospice and home care spaces, for example, hit a record 26x in 2020, according to a report by PwC’s Health Research Institute. Last year also saw hospice assets trading at high multiples, with PE buyers particularly active.

“I foresee dominant transactions completed by private equity sponsors going forward,” Mark Kulik, managing partner of home health and hospice at The Braff Group, recently told Hospice News. “They have absolutely stepped up and have aggressively gone after the hospice market.”

Yet at the same time, some believe the hospice M&A landscape will cool down in 2022. That’s partly because of climbing interest rates, increased regulatory scrutiny and potential cuts to the hospice aggregate cap.

Additionally, many prospective hospice buyers have already executed sizable transactions, lessening their appetite this year. Others are doubling back to a promising home health market, now that the Patient-Driven Groupings Model (PDGM) is no longer so daunting.

“We believe there’ll be activity devoted to home health that otherwise would have been remaining focused on hospice,” Kulik said. “The two sectors have a co-equilibrium or a symbiotic relationship with each other.”

By seeking to sell Kindred’s hospice business for a multiple in the low double digits, Humana may simply be trying to act before the market turns.

Alternatively, the company may feel motivated to cash in on an attractive asset to bring value back to its investors, especially after it slashed its Medicare Advantage enrollment forecast earlier this year.

Finally, it’s important to remember that Humana didn’t have to over-pay to acquire 100% of Kindred at Home, the largest home health provider in the nation and a top-two hospice provider to boot.

While the acquisition is the largest in Humana’s history, it had a prior put/call option with TPG and WCAS, where it purchased the remaining stake of Kindred for about $5.7 billion. The total transaction enterprise value was about $8.1 billion.

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