Eight months after closing, Humana’s (NYSE: HUM) $5.7 billion acquisition of Kindred at Home is bearing fruit. The company has seen significant growth in its home health business and is on the cusp of divesting the hospice segment at a sizable valuation.
Earlier this month the company signed a definitive agreement to sell a 60% stake in Kindred to the private equity firm Clayton, Dubilier & Rice (CDR) for $2.8 billion. Humana will retain the remaining 40%.
The company anticipates the sale to complete later this year, executives reported in an earnings call.
“With CDR’s established physician relationships, value-based care expertise and record of supporting providers to deliver high-quality care for patients, we are certain these divisions are well-positioned for success under the joint ownership of Humana and CDR,” Humana President and CEO Bruce Broussard said. “Importantly, we are pleased that when viewing this transaction in conjunction with our purchase of the broader Kindred at Home platform, we have been able to achieve our objective of substantially increasing our footprint in home care by acquiring one of the leading home health platforms in the country and an attractive valuation for our shareholders.”
Humana expects to receive a cash payment of approximately $2.8 billion upon the deal’s closing. The lion’s share of those funds will go to pay down debt.
The insurance company estimated the overall value of the divestiture at $3.4 billion, CFO Susan Diamond said in the earnings call.
The planned divestiture will in part fuel Humana’s efforts to raise its enterprise value by $1 billion, ultimately boosting the company’s capacity for growth, including expansion of its health care service capabilities and Medicare Advantage business.
“We have always been anticipating that we would divest a majority stake in hospice,” said CFO Susan Diamond. “And so that will be contemplated in our earnings progression in 2023. We’re anticipating the hospice dilution transaction to likely close in the third quarter.”
Humana’s hospice business also saw a 9% rise in admissions, up 9% year-over-year, as referrals from facilities ticking back upwards after a COVID slump, according to Diamond.
Growth strategies included building out the company’s geographic reach/scale through a mix of building de novo primary care centers in addition to tuck-in acquisitions, Broussard indicated. The company plans to move forward on geographic expansion late this year and early in 2023.
Enterprise-wide, Humana saw Q1 revenue jump 16% to $23.9 billion. The health care services segment saw a 20% increase compared to the prior year’s period, contributing $8.9 billion to the company’s coffers. The segment includes provider, pharmaceutical and home services, among others.
Another factor in Humana’s Q1 revenue growth was a drop in administrative costs in the first quarter, largely attributable to the calming labor-related headwinds, according to Diamond. Though labor challenges remain, the company has seen improvement in some markets due reductions in paid time off for quarantined staff.
“Labor challenges are fairly widespread but some markets have more opportunities than challenges primarily due to the fact that COVID has subsided,” said Diamond. “Some of the labor challenges due to nurses having to quarantine have come down to the lowest levels we’ve seen. That certainly helps as we have more nurses available, but we continue to watch the wage environment and sort out resources used to recruit and retain nurses.”
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