Humana Set Sights on Value-Based Expansion Following Kindred Hospice Sale

As the dust settles from its divestiture of Kindred at Home’s hospice and personal care segments, Humana Inc. (NYSE: HUM) seeks to further expand into value-based care as both a provider and a payer.

Humana in August completed its $2.8 billion sale of a 60% stake in Kindred at Home’s hospice and personal care businesses to the private equity firm Clayton, Dubilier & Rice. Humana retained the remaining 40%.

The insurance company is applying the proceeds of the sale primarily to debt reduction, according to Humana CFO Susan Diamond. Humana has thus far cleared $2 billion of its debt following the divestiture, said Diamond.


“From a capital deployment perspective, our debt-to-capitalization ratio decreased by 590 basis points in the third quarter to 39.4% as we retired $2 billion of debt following the divestiture of our majority interest in Kindred,” said Diamond during an earnings call. “We continue to anticipate a customary level of share repurchase in 2022, and as a result, expect our debt-to-capitalization ratio to be in the low 40s at the end of the year.”

Despite the long-term gains, Humana saw an initial $240 million dip in revenue due to the loss of income from those segments. The divestiture also had an impact on Q2 revenues.

But the deal is expected to pay off handsomely in terms of cost reduction.


Operating costs for the hospice business were “significantly higher” relative to the company’s other business lines, Humana stated in its Q3 earnings report. Kindred Hospice pushed up Humana’s Q3 operating costs by roughly 160 basis and 200 basis points year-to-date.

The company updated its guidance to reflect anticipated earnings growth of 21%, according to Diamond.

Enterprise-wide, Humana saw Q3 revenues rise to $22.8 billion, up from $20.7 billion during the prior year’s period. The company’s health care services segment contributed $8.88 billion to that bottom line, a slight increase from $8.04 billion during Q3 last year. The segment includes health care providers, pharmaceutical and home services, among others.

“We remain confident that the investments we made to support 2023 growth have positioned us well,” Diamond said.

The Kindred divestiture fits into Humana’s stated goal of raising its enterprise value by $1 billion, while building out its health care services and Medicare Advantage business.

“We have line of sight to fully realize the $1 billion goal in 2023, which will support the investments for [Medicare Advantage (MA)] growth in 2023,” said Humana President and CEO Bruce Broussard during the earnings call. “The effort has required difficult choices, focused execution, and changes in the company. We have already started to show positive results that we expect to continue over the year and long term.”

Going into next year, Humana plans to continue expanding the company’s provider presence in its existing value-based markets through a mix of de novos and acquisitions, according to Broussard.

In terms of acquisitions, the company anticipates leveraging its size and scale in the Medicare Advantage marketplace to both build out its geographic footprint of services and attract a wider base of payers to its health care businesses, Broussard said.

Thus far, Humana has found that the “best value for use” of its capital is “really doing in-market acquisitions and being able to roll those into existing primary care clinics that we have in the [MA] marketplace,” according to Broussard. “There’s not only the ability to leverage the size and scale in the marketplace, but also the ability to continue to offer broader value to the payers we serve.”

In the near term, the company’s acquisition activity will remain focused on smaller targets as valuations remain high in health care sectors, according to Broussard.

“We’ve looked at some of the larger transactions that are out there and have been reviewing that,” Broussard said. “At this time, we’re not really convinced that’s the right direction for us, and we’ll continue to do in-market. That might change, but based on where the values are trading and what we can do inside our marketplace, we’ll probably do medium to smaller acquisitions at this time.”

On the de novo side of its growth equation, Humana expects to add approximately 30 to 35 new health care locations to its portfolio through the first quarter of 2023, for a total of more than 250, according to Diamond.

The company is focused on Florida for its de novo expansion, said Diamond. Humana will be watching markets in that state “pretty closely,” and anticipates growth in both its existing and new center locations, with more details to come in the fourth quarter, Diamond added.

On the payer side, Humanais developing value-based reimbursement models designed to support Medicare patient populations. Once solidified, it anticipates that services under Kindred would offer similar arrangements to other Medicare Advantage payers, according to Diamond.

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